Regulation of Firms Flashcards
Complying with SRA regulations: You
Individual lawyers have duties to four categories of people:
· Firstly their clients. The 7^^th^^ Principle is to act in the best interests of your client. CCS contains many obligations in respect of a solicito’rs duties to their client, some of which are listed on the slide.
· Secondly third parties – the legal profession must uphold public trust and confidence in the solicitor’s profession. They have a duty to their clients but also the court, and to the public generally. They must not mislead their clients or the court or other people and that includes members of the public they come across even in their private lives. They must not take unfair advantage of other people. If they undertake to do something, they must meet that undertaking – and this obligation applies not only to lawyers but to all members of staff in a law firm.
· Thirdly their colleagues: this relates to their responsibility to maintain their competence but also, if they supervise others, they must ensure that the work being done is correct and the people they manage are competent.
· Fourthly, they owe duties to the SRA and other regulators: they must cooperate with the SRA and they must ensure they can justify that their actions demonstrate compliance with the SRA’s rules.
Compliance with CCF
When the CCF states that firms must do x or y – who is responsible for ensuring compliance?
The answer is the ‘managers’.
Who are the ‘managers’?
They are defined in the SRA Glossary as set out on the slide. For a partnership like Price Prior the managers are the partners, or members of an LLP, or directors if the organisation is a company.
COLP and COFA
How do the partners of Price Prior ensure compliance with the SRA’s requirements? Well the SRA requires that every firm appoints a Compliance Officer for Legal Practice (COLP) and a Compliance Officer for Finance and Administration (COFA). Those appointments must be approved by the SRA.
It is the job of the COLP to ensure that the firm complies with its regulatory obligations, records any failure to do so and reports material failures to the SRA.
It is the job of the COFA to ensure compliance with the SRA’s Accounts Rules and report serious breaches to the SRA.
It is possible for one person to perform both roles, COLP and COFA, which is useful for small firms.
Remember however that whilst it is the job of the COLP and COFA to ensure compliance and report breaches, responsibility for any breach rests with the managers, or partners of the firm, not the individual COLP or COFA.
SRA: Referrals (1)
Two final points to draw your attention to in relation to the regulation of firms.
Firstly referrals. The SRA points out in the introduction to CCF that it is also responsible for enforcing requirements relating to referral fees under s. 56 Legal Aid, Sentencing and Punishment of Offenders Act 2012, or LASPO for short.
These rules relate to introductions – where a third party introduces business to a law firm, in return for some form of payment from the firm – for example if an estate agent refers a seller to Price Prior in return for payment from Price Prior.
They also relate to referrals – where a law firm refers clients to a third party in return for some form of payment from the third party – for example Price Prior introduces a client to a surveyor’s firm in return for a payment from the surveyor.
These arrangements have the potential to stop the solicitor involved from acting with integrity, independence and in the best interests of their client, and therefore they are carefully regulated by the SRA.
SRA: Referrals (2)
Firstly and importantly s. 56 LASPO prohibits solicitors from referring or receiving referrals in respect of a claimant’s claim for damages for personal injury or death in consideration for a referral fee. So referrals for a fee in these circumstances are not allowed.
Other referrals or introductions in return for payment are allowed, but the solicitor must comply with the provisions of CCS 5.1 which are set out on this slide.
Professional Indemnity insurance
The second point relates to professional indemnity insurance. In order to ensure that firms are able to pay out on any claims from their clients or third parties, the SRA requires that law firms take out professional indemnity insurance. This protects firms and also their clients. Minimum levels are stipulated in the SRA’s rules, but the main principle to remember is that the insurance should provide adequate and appropriate cover.
If a firm is notified of a claim being made against them by a client or third party, they must notify their insurer immediately.
When must a legal business be authorised by the SRA?
The SRA guidance note “Firm Authorisation” (‘Firm Authorisation Guidance’), contains guidance on when organisations need to be authorised by the SRA. Organisations will need to get their legal services business authorised if they provide any of the following
(i) reserved legal services for the public, unless the business is exempt from authorisation;
(ii) immigration services, unless the business is regulated by the Office of the Immigration Services Commissioner (‘OISC’);
(iii) claims management services, unless the business is regulated by the Financial Conduct Authority (‘FCA’); or
(iv) regulated financial activities, unless the business is regulated by the FCA.
Reserved legal activities
Reserved legal activities are activities which can only be provided by someone authorised by an approved regulator to do so. They are set down in section 12 and Schedule 2 to the Legal Services Act 2007 (‘LSA’). They are:
Rights of audience: the right to appear before and address a court, including the right to call and examine witnesses.
Conduct of litigation: the issuing of proceedings before any court in England and Wales; the commencement, prosecution and defence of such proceedings; and the performance of any ancillary functions in relation to such proceedings.
Reserved instrument activities: this includes preparing any instrument of transfer or charge for the purposes of the Land Registration Act 2002; making an application or lodging a document for registration under that Act; and preparing any other instrument relating to real or personal estate for the purposes of the law of England and Wales.
Certain probate activities.
Administration of oaths
Reserved legal activities
There are limited situations in which an organisation may provide reserved legal activities to the public without needing to be authorised, for example certain charities are permitted to carry on reserved legal activities under section 23(3) of the Legal Services Act.
If a business only provides non-reserved legal services, it does not need to be authorised. However, it may choose to be authorised. For example, a business might choose to be authorised to reassure clients that its practice has the protections that arise from being authorised by the SRA, such as the requirement to have a specific level of indemnity insurance.
A wide range of different types of organisation can be authorised by the SRA to provide legal services. The SRA categorises them into three types: a sole practice, a legal services body; and a licensable body.
Sole Practice
A sole practice is where a solicitor practises on their own account, providing services in their own name, or under a trading name. When the SRA authorises a sole practice, it is called a ‘recognised sole practice’. If an individual is practising through a limited company, that is not a sole practice and the company itself must be authorised.
As the profession has become more specialised and the cost of solicitors’ indemnity insurance has increased, the number of sole practitioners has begun to decline and is expected to continue doing so.
Note: ‘sole practice’ means a sole principal. In other words, a sole practitioner can employ several qualified solicitors, as long as those solicitors are not also principals (eg not partners or co-owners) of the practice.
Legal services body
A legal services body is a firm within which all managers/interest holders are lawyers. A legal services body can be a partnership, company or a limited liability partnership (‘LLP’).
Once a legal services body is authorised by the SRA it is called a ‘recognised body’.
Licensable body
A licensable body is one within which the managers / interest holders includes both lawyers and non-lawyers. They vary widely with some being nearly entirely comprised of lawyers, and others being nearly entirely managed and/or owned by non-lawyers. They must have at least one non-lawyer manager or interest holder. Once a licensable body is authorised by the SRA it is called a licensed body. This is sometimes also referred to as an alternative business structure (‘ABS’).
The introduction of ABSs to the legal services market means that non-lawyers are able to share in the management and control of businesses which provide reserved legal activities to the public. This permits a non-lawyer, such as the director of finance and administration to own shares in an incorporated law firm or share the profits of a partnership, as well as having voting powers.
As ABSs can be wholly-owned by non-lawyers. There is the potential for large household names like supermarkets and insurance companies to change the legal market by providing legal services traditionally associated with solicitors. However no significant change has been seen, as yet.
Licensable body
Solicitors may also provide legal services to the public on behalf of organisations that are not authorised by the SRA or an approved regulator under the Legal Services Act 2007. These include law centres and legal advice centres, in-house practice and multi-national law firms.
Law centres and Legal advice centres
A law centre gives legal advice to the public and casework is undertaken for clients. The service is usually free or subject to a contribution from legal aid.
A legal advice centre is one where the public can attend for legal advice but no casework is undertaken. e.g. the Citizen’s Advice Bureau.
Law Centres and Legal Advice Centres may not be authorised by the SRA, for example if they do not provide reserved legal activities. Regardless of whether the Law Centre/Legal Advice Centre is authorised, solicitors who work there must comply with the Code of Conduct for Solicitors RELs and RFLs (‘CCS’), even if they are unpaid. In addition, any pro bono work must be covered by ‘an indemnity reasonably equivalent to that required under the SRA Indemnity Insurance Rules’.
In-house practice
Solicitors are permitted to work for non-legal businesses as in-house lawyers.
The introduction to CCS refers to in-house lawyers when it states, ‘you must exercise your judgment in applying these standards to the situations you are in and deciding on a course of action, bearing in mind your role and responsibilities, areas of practice, and the nature of your clients (which in an in-house context will generally include your employer and may include other persons or groups within or outside your employer organisation)’.
Multi-national law firms
Multi-national law firms, which are comprised of solicitors and registered foreign lawyers, can be formed and can operate both in and outside England and Wales.
Registered foreign lawyers practising in England and Wales are required to comply with CCS and other SRA regulations.
SRA regulated individuals and authorised bodies practising in offices established outside England and Wales are required to comply with the SRA Overseas Rules 2013 and with certain provisions of CCS, as set out in the Overseas and Cross-Border Practice Rules within the Standards and Regulations.
SRA Risk Outlook
The SRA has recently identified the following priority risks for the legal profession:
- Anti money laundering: The SRA put issues with money laundering at the top of its priority list.
- Client money: clients trust solicitors to look after their money and keeping client money safe is the solicitor’s responsibility.
- Diversity in the profession: the legal profession does not fully represent society. The legal market needs a diverse profession for building public trust in the effective administration of justice.
- Information and cyber security: a large risk for all businesses. Clients trust solicitors with their confidential information and money. Large amounts of money passing through client accounts, and confidential or business sensitive information are attractive to criminals. Cyber attacks can take many forms eg identify theft, malware, phishing and vishing. They result in clients and firms losing a lot of money and personal information which can be very damaging.
- Integrity and ethics: The solicitor’s profession relies on trust. Failure to act with integrity can harm public confidence in the system.
- Meeting legal needs: many people are not getting the legal help they need. Solicitors must understand what their clients can afford and how they can pay for legal services. Firms must display their prices and information about their services on their website under the SRA Transparency Rules.
- Standards of service: solicitors must meet high professional standards of behaviour and competence, otherwise they could cause harm to the public and damage the the trust they place in the profession.
