Compulsory reading
Date: 23 October 2009
Issue: Vol 159, Issue 7390
Categories: Opinion, Legal services, Profession
The review marks an important step in the development of the relationship between regulator and regulated. The Solicitors Regulation Authority (SRA) faces numerous challenges over the next 18 months in responding to the implementation of the Legal Services Act 2007 and in licensing alternative business structures (ABSs).
The review is therefore a timely opportunity for the solicitors’ profession to take stock of its relationship with the SRA.
Lord Hunt makes 88 recommendations in the review. Their scope is immense, ranging from the mundane (printing credit card-sized reminders of the core principles) to the profound (a new form of self-regulation for solicitors’ firms). They are likely to upset, excite and baffle in equal measures.
While it is a difficult document to summarise, three main themes emerge.
The first could be described as: “Keeping an eye on the watchmen.” These are the group of recommendations that target the SRA. Some act as a spur to its better performance; others prompt the SRA more effectively to communicate its intentions and policies. Four of these recommendations stand out:
The SRA should chart its progress against the Better Regulation Executive criteria.
The SRA’s performance should be independently reviewed every three to five years.
The SRA should better communicate its disciplinary powers and the circumstances when they will be used.
The SRA should put in place procedures for approving in advance new regulatory arrangements.
The last of these should be of particular interest to those solicitors’ firms which are contemplating ABS status when it becomes possible in 2011.
While the Legal Services Act 2007 promotes new forms of business, firms can find regulatory innovation difficult and risky if they are unable to obtain pre-approval by the SRA.
Lord Hunt therefore suggests that the SRA should put in place formal procedures to flight-check new business models and regulatory structures.
This should give solicitors the comfort of knowing that their creative ideas will not be the subject of later regulatory criticism.
A second prominent theme is Lord Hunt’s desire to place principle and good governance at the heart of the relationship between solicitors and the SRA. This emerges in a number of his recommendations. For example:
There should be a debate as to what “legal professionalism” means in the post-Clementi world, and how to enhance public trust in the profession.
Rule 1 of the Solicitors Code of Conduct 2007 (the core principles) should have primacy over all other conduct rules.
Firms should risk assess themselves and share their assessment with the SRA.
The focus on principle as the guiding light for professional conduct is expressly raised by Lord Hunt as an alternative to harder-edged rules.
He realistically accepts that legal professionals are “trained to find the holes in a system”. He therefore suggests that the regulation of legal services should be based on cooperation, voluntary compliance, and broadly defined rules.
Risk assessment
As for the focus on internal risk assessment, this is intriguing to contemplate in action. Suppose for example you are a managing partner about to sign off on your annual risk assessment review, knowing that it is to be shared with your regulator. Do you really want to share with the SRA all of your concerns about the adequacy of the controls in your accounts department, however unlikely or groundless?
Self regulation
At the centre of Lord Hunt’s review is his suggestion that the SRA should promote a form of self-regulation called Authorised Internal Regulation (AIR).
This is to be a voluntary process whereby all firms can submit their systems of risk assessment and governance to the SRA for AIR approval. While an intriguing idea, the detail of this proposal is lacking. In particular, it is unclear what benefits might accrue to those who aspire to AIR status. Lord Hunt suggests that their authorisation fees might reduce, but that seems scant reward for the effort involved.
Perhaps the significance of AIR lies in his suggestion that it should first be rolled out to the larger, corporate firms. It may be Lord Hunt’s sop to those who would like to see City firms regulated by a separate regulator—something that he considers undesirable.
Virtuoso performance
The review is a virtuoso performance, reaffirming Lord Hunt’s credentials as one of the most knowledgeable commentators on the legal services sector.
If, however, one criticism could be made of it, then perhaps Lord Hunt should have curbed his enthusiasm for the use of words such as tumulus and omphaloskepsis in a document that also recommends that the SRA should aspire to become the holder of the Plain English Campaign’s Crystal Mark!
Graham Reid, employed barrister, professional risk group, Reynolds Porter Chamberlain LLP. To download a copy of Lord Hunt’s review go to: www.legalregulationreview.com
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