City Firms to Benefit from Outcomes-Focused Regulation

News

posted 22 Jun 2010 in Volume 12 Issue 12

City Firms to Benefit from Outcomes-Focused Regulation

City law firms have given a reserved welcome to the Solicitors Regulation Authority’s (SRA’s) latest consultation on its new outcomes-focused approach to regulation.

In a bid to make the relationship between the Solicitors Regulation Authority (SRA) and UK law firms more constructive and “grown-up”, the supervisory body has launched a consultation on the practical implementation of its new Outcomes Focused Regulation under the Legal Services Act 2007.

The public consultation on the new SRA Handbook of regulations, which was launched on 28 May, is open until 20 August 2010. Overhauling the current prescriptive rulebook, the new Handbook is intended to adopt a more flexible approach to achieving outcomes that suit client needs and law firms’ business models.

At the same time as the public consultation on the new Handbook, the SRA is conducting until 27 July 2010 a second consultation on the outcomes-focused regulation itself.

Chris Perrin, Clifford Chance’s general counsel and the chair of the City of London Law Society’s (CLLS’) committee on professional rules and regulations, says that while the CLLS is still drafting its written response to the consultation on the outcomes-focused regulation and has not yet fully reviewed the new Handbook, members have had a positive response to the new outcomes-focused regulation.

“I think the CLLS is generally in favour of the change to the outcomes-focused regulation, it depends on the wording of the new code itself and the approach taken by the SRA,” says Perrin.

While the new regulatory regime will probably increase the level of reporting required, it will give larger law firms greater independence in managing their own compliance with the rules, he notes.

“In many ways it would be easier to apply than the existing rules, at least for the larger firms that have internal compliance functions,” says Perrin. “All the SRA will probably do is to monitor the fact that firms have the necessary procedures in place. So there will be a need to report to the SRA on the procedures in a way that we don’t have to now.”

Under the new regulation, the SRA says compliance in managing client relations, for example, could be demonstrated by evidence of: monitoring of standards through internal risk assessments; client satisfaction surveys; analysis of client complaints and negligence claims; internal file audits and training; and periodic reviews of standard documentation.

“The SRA’s enforcement of the new system will be targeted and risk-based. Firms which are willing to work with us to deliver good legal services to clients will benefit from greater flexibility,” comments the SRA’s chair, Charles Plant. “However, firms [which] are unwilling or unable to engage with us to deliver good outcomes will face tough sanctions.”

At least initially, UK law firms may need to work closely with the SRA to obtain guidance on how to interpret its new regulatory approach. Larger and higher-risk firms will likely be managed by SRA staff with specialist knowledge of their work.

The SRA plans to publish the Handbook in April 2011. It will be implemented on 6 October 2011, from which date licenses for alternatives business structures will also be issued.

The consultation on the Handbook also introduces the regulatory requirements for law firms planning to adopt alternative business structures (see ‘Top 100 UK law firms considering ABS route’).