Of Ravens and Writing Desks – Guidance on the new Standards and Regulations
“Why is a raven like a writing desk?” asked the Mad Hatter in Lewis Carroll’s Alice’s Adventures in Wonderland. “I believe I can guess that,” replied Alice.
Perhaps Alice would not have been so confident with this riddle however: “When is a shorter regulatory code not a shorter regulatory code?” The answer is, when it has so many guidance notes to explain what it means that its length equals, or even possibly exceeds, the length of the regulatory code which it replaced – as is the case with the new SRA Standards and Regulations (the new Standards) which went live on Monday 25th November.
As if by way of celebration, the SRA published a total of 54 new or updated guidance notes on Monday explaining what they actually meant by the “shorter” new Standards. Perhaps the SRA should have paid heed to the March Hare who at the same tea-party advised Alice to “say what you mean”. It might have saved them some time.
For those trying to make sense of the new regulatory regime, the guidance is very welcome, although there is an argument for saying that it might have been of advantage to the regulated community as a whole had they been published ahead of implementation day. Possibly far enough ahead that those playing the game could at least find out what the rules were before they became subject to them. It might also be more welcome if each piece of guidance were not prefaced with the ominous words “this guidance is to help you understand your obligations and how to comply with them. We may have regard to it when exercising our regulatory functions”.
So, now not only must all firms be aware of the 23 separate elements of the new Standards, including two Codes of Conduct, they must also take on board:
- the 54 guidance Notes;
- the Enforcement Strategy which is described as underpinning the new regime;
- 5 Topic Guides summarising the main factors the SRA consider when looking at potential breaches in specific topical areas;
- Other support materials such as the guide to the application of Principle 1; and
- Advice on the clickable logo (of which more later);
not to mention all of the additional guidance on money laundering and suspicious activity reports, the guidance on reporting diversity data and continuing competence requirements.
Where do you start and where is all of this guidance? The aim of this article is to highlight what is available to the practitioner struggling to keep up to date with regulatory requirements and to point them in the right direction so far as guidance is concerned.
The Standards and Regulations
A good starting point is to look at the new Standards themselves and at what they address.
As mentioned earlier, there are 23 separate elements to the new Standards. Conveniently they are all now set out in a separate, searchable section of the SRA’s website – accessible from the SRA home page under “Are you a solicitor?” (which is apparently a question rather than a cry of incredulity).
- Principles – the 7 (formerly 10) fundamental tenets of ethical behaviour that the SRA expect all those that they regulate to uphold – Number 1 of which is of such importance that it gets its own Topic Guide “A guide to the application of Principle 1” a link to which can be found on the “Enforcement in practice” (https://www.sra.org.uk/sra/strategy-2017-2020/sub-strategies/enforcement-practice/) page
Two Codes of Conduct – one for solicitors RELs and RFLs and one for Firms – which set out the standards and business controls that the SRA expect individuals and firms to abide by. It should be borne in mind that, even more so than previously, these are not to regarded as being definitive and complete in terms of the regulatory requirements to which individuals and firms are subject and that regard must be had to other aspects of the new Standards as well as other regulatory provisions such as LASPO, AML regulations, regulations dealing with bribery and tax evasion and a host of other provisions.
Note that some, but not all, of the provisions of these codes are duplicated in the two codes and that some (but not all) of those duplicates have different numbering according to which Code you are using. Note also that the individual provisions of these codes are to be referred to as “paragraphs”.
- Accounts Rules – hailed by the SRA as being shorter (with a simpler definition of client money), less prescriptive (with the removal of arbitrary timescales) and more flexible (trusting you to act in your clients’ best interests), the new accounts rules are to be treated with care since several practices from the past (for example the transfer of disbursements without a corresponding bill first having been issued or the position as to “agreed fees” have changed.
- Assessment of Character and Suitability Rules – which apply not just to those applying to be a solicitor but also to the approval of “role holders” (i.e. COLPs and COFAs) under section 13.1 of the SRA Authorisation of Firms Rules. Note not just the provisions relating to criminal issues and conduct but also the requirement at rule 6.5 that you “ tell the SRA promptly about anything that raises a question as to your character and suitability, or any change to information previously disclosed to the SRA in support of your application, after it has been made. This obligation continues once you have been admitted as a solicitor, registered as an REL or an RFL, or approved as a role holder”.
- Authorisation of Firms Rules – which set out the SRA’s authorisation and application requirements, the effect that such authorisation has on the legal activities of regulated bodies and how and when the SRA may restrict or limit a firm’s authorisation or bring it to an end. Guidance on how the SRA makes it decisions can be found in the Guidance Note “How we make our decision to authorise a firm” (https://www.sra.org.uk/sra/decision-making/guidance/authorisation-firms/)
- Authorisation of Individuals Regulations – these set out the SRA’s requirements as to the authorisation of individuals as solicitors in terms of admission, and the issuing of practising certificates and the registration of individuals as an REL or RFL. They deal with how an individual may practise, the requirements for and how the SRA will decide applications for authorisation, the conditions that apply during authorisation, how authorisation may be revoked and education and training requirements. Note that these are “regulations” whereas the ones for firms are “rules”.
- Financial Services Rules – there are two separate rules here; the SRA Financial Services (Scope) Rules which set out details of the regulated financial services activities that may be undertaken by firms authorised by the SRA and not regulated by the FCA and the SRA Financial Services (Conduct of Business) Rules which deal with the way in which firms can undertake the activities permitted by the Scope rules. It should be noted that these rules only apply to solicitors RELs and RFLs practising within a firm authorised by the SRA and so do not apply, for example, to employed solicitors or the newly established freelance (independent) solicitors.
- Overseas and Cross-border Practice Rules – a “reduced” set of rules that are intended to reflect the fact that detailed regulatory requirements are less appropriate in a situation where the services are being provided from outside the jurisdiction, and where there will be different legal, regulatory and cultural practices. Note that they contain their own seven principles – the major difference being that Principle 6 dealing with equality, diversity and inclusion carries with a “cultural context” that does not apply in the main Principles. Note also the revised basis for dealings with client money.
- Regulatory and Disciplinary Procedures Rules – these are the rules that define how the SRA investigates potential breaches of the rules and takes disciplinary and regulatory action against those concerned. They should be read alongside the SRA’s Enforcement Strategy (https://www.sra.org.uk/sra/strategy-2017-2020/sub-strategies/sra-enforcement-strategy as to sanctions and controls that can be imposed. Note from a reputational point of view Rule 9.1 which gives the SRA the right to publish any information relating to an investigation (note investigation not just finding) where it considers it to be in the public interest to do so
- Transparency Rules – these are now fully operational – including the controversial provision in relation to the “digital badge” (referred to by the SRA, despite the term used in rule 4.1, as the “clickable logo”). Note in particular that firms without a website must find other ways to inform clients of the required information about the services covered by the Rules and that all firms, not just those carrying out the types of work referred to in the Rules, must carry complaints information on its website and display the appropriate regulatory information on website, letterhead and emails. Note in particular that all authorised bodies must display their SRA number, even those who are limited liability partnership or limited companies who are displaying their LLP or Company number – previously it was enough just to carry the LLP or company number.
- The prescribed organisations and terms under which Solicitors, RELs and RFLs are allowed to hold client money in their own name – this snappily titled provision sets out the types of organisations where solicitors, RELs and RFLs who work in them can hold client money in their own name, (see also paragraph 4.3 of the SRA Code of Conduct for Solicitors, RELs and RFLs) and the terms that apply to the holding of client money in their own name by any such solicitors, RELs and RFLs. As such, this statement should be read alongside not just the Code of Conduct referred to above but also the Accounts Rules and regulation 10.2(b)(vii) of the Authorisation of Individuals Regulations – i.e. provisions applying to independent or freelance solicitors.
- The prescribed circumstances in which you can withdraw client money from client account to pay to a charity of your choice – this provision applies principally to residual client balances and replaces the provisions previously to be found in Rule 20 of the 2011 Accounts Rules. It is referenced from rule 5.1(c) of the SRA Accounts Rules.
- Glossary – everyone should check through the definitions contained in the glossary since, not only do they form part of the regulatory corpus but also they contain a number of definitions which can have an impact upon how the other standards and regulations are interpreted. For example, the definition of costs as meaning “your fees and disbursements” has the impact that rule 4.3 now means that disbursements that have been incurred cannot be transferred from client to business (formerly office) account without a “bill of costs, or other written notification of the costs incurred” being given to the client or the paying party. Another definition which should be taken particular note of is the one relating to employee which casts the definition of an employee very widely as meaning not only a person or organisation engaged under a contract of service (the usual definition of an employee) but also engaged under a contract for services (the usual definition for a contractor) and which can have a knock-on effect for those firms who use as consultants solicitors who practise through their own company where those companies are not recognised or licensed bodies. The relevance of this is that such an individual would need to be listed on a firm’s MySRA as an employee if they were not to be deemed as practising in an unauthorised manner.
- Other provisions. In addition to the regulatory provisions dealt with above, the Standards and regulations also contain:
- Application, Notice, Review and Appeal Rules which set out the processes employed by the SRA when handling applications, internal reviews and external appeals against their decisions;
- Education, Training and Assessment Provider Regulations setting out the requirements for organisations that provide education and training;
- Statutory Trusts Rule – which sets out what the SRA does with money it takes possession of following an intervention into a firm’s and/or an individual’s practice;
- Roll, Registers and Publication Regulations – which provides for the information which the SRA hold about individuals and authorised bodies and how that information can be used;
- Indemnity (Enactment) Rules, Indemnity Rules, Compensation Fund Rules and Indemnity Insurance Rules – all of which deal with the operation and enforceability of provisions relating to indemnity insurance and payments to and from the compensation fund.
Just before leaving this section, just a quick word about two useful features of the SRA website that it could be easy to miss.
First of all, if you go to the main SRA Standards and Regulations page there is a link at the top to “Index of SRA Standards and Regulations”. This is an exceptionally useful alphabetical list of topics addressed by, and contained in, the various Standards and Regulations and the SRA are to be commended for producing this as a valuable shortcut to finding out which rules and regulations apply in what circumstances.
Secondly, and still part of the SRA Standards and Regulations page is the filter that allows you to limit the rules and regulations displayed to particular scenaria including solicitors, non-lawyers and consumers. Simply go to the item marked “Action” just above the boxes setting out the various rules and regulations and click on the arrows to the right of the box. Selecting one of the terms displayed will highlight the relevant rules and regulations.
The next element of the new Standards and Regulations that will be considered is that of the Guidance Notes that the SRA has produced to explain and pad out the somewhat abbreviated nature of the Codes and Accounts Rules.
Much of the guidance is important and is not there simply to act as an explanation. Many (although not all) of the Guidance Notes are in effect an integral part of the new Standards and Regulations since they are expressed to be something to which the SRA may have regard when exercising its regulatory functions. In other words, many of these notes have taken the place of the previous Indicative Behaviours as being something which a solicitor or firm ignores at his/her/their peril.
Comments about the amount and the fact that it makes a nonsense of the shorter rule book aside, this is a very useful resource for firms in the interpretation of the rules and answers the call of many solicitors who say that they would prefer a prescriptive rule book that tells them precisely what they need to do rather than a less prescriptive one that relies upon them deciding how a particular provision should be interpreted. Not all of the guidance is new but nevertheless the SRA are to be commended for gathering it together in this way – although it would have been eve better had they been made available bit sooner.
The various items of guidance are set out under the tab headings on the Standards and Regulations resources page . However, it may be easier to view them from the Guidance page which lists them all alphabetically.
We are not going to be able to deal with the contents of each one in this article – there are simply too many. We will therefore simply list them alphabetically below with links to the appropriate part of the SRA web site and pick out one or two for comment.
The Guidance Notes are:
- Access to and disclosure of an incapacitated person’s will
- Accountant’s report and the exemption to obtain one
- Acting with integrity
Addresses the requirements of Principal 5 of the new SRA Principles and in particular looks at the distinction between lack of integrity and dishonesty in the light of the Wingate and Malins cases. Given the move by the Solicitors Disciplinary Tribunal to the civil as opposed to criminal standard of proof, understanding when the concept of dishonesty comes into play could be a very important one.
- Adequate and appropriate indemnity insurance
- Approval of employment under s41 and s43 of the Solicitors Act 1974
- Can my business be authorised?
Linked to the Guidance Notes “Does my business need to be authorised” and “Firm Authorisation” (see below) this note looks at eligibility for authorisation and what needs to be provided to the SRA when applying for authorisation.
- Client care letters
An updated version of the earlier guidance this references the provisions of the new Codes of Conduct and stresses the need for client care letters to be written in such a way that not only are they comprehensive in addressing the important information for clients but also that they are clearly written and capable of being understood by the particular client to whom they are being sent. There is a useful checklist as to the criteria and factors that should be borne in mind.
- Closing down your practice
A welcome update to a piece of guidance that has existed since 2013 and which addresses issues such as succession, steps post-closure, undertakings, retention of records, dealing with files, notification duties, bankruptcy and voluntary arrangements, striking off and selling your practice.
- Confidentiality of client information
A comprehensive review of all areas of confidentiality including that which applies to specific situations such as mergers and acquisitions and outsourcing and which includes a number of useful illustrative examples.
- Conflicts of interest
A useful companion piece to the previous Guidance Note dealing with confidentiality. It looks at own interest as well as clients conflicts and suggests ways I which to restrict the retainer. References the Investment Scheme Warning Notice (https://www.sra.org.uk/solicitors/guidance/warning-notices/investment-schemes-including-conveyancing–warning-notice/)
- Dealing with claims for mis-sold payment protection insurance (PPI)
- Do I need to operate a client account?
Aimed principally SRA-authorised firms that receive and hold client money in the form of fees and disbursements and want to rely on the exemption not to operate a client account.
- Does my business need to be authorised?
- Does my employer need to be authorised by an approved regulator?
- Does your interest in an ABS require SRA approval?
- Drafting and preparation of wills
- Engaging with online reviews
First issued last year, this guidance note is a useful guide to what firms should consider when they need to react or respond in the light of online reviews and fake news.
- Firm authorisation
- Firm risk assessments
- Government’s Technical Notice on the impact of a ‘no deal’ EU exit scenario on EU lawyers practising in the UK
- Guidance note on the impact on exempt European lawyers of the Government’s Statutory Instrument on the basis of a ‘no deal’ EU exit scenario
- Guidance on the SRA’s approach to equality, diversity and inclusion
Regard should be had here to the SRA’s interpretation of what is effectively a much-reduced requirement in the Codes of Conduct (backed up by Principle 6). In particular it should be noted that inclusion now features as a factor, that personal views must not be allowed to influence how clients and others are treated and that the requirements of the Equality Act 2010 are in a sense incorporated into the rule. Note also the additional materials referred to in this note such as materials relating to reasonable adjustment and diversity data. You should refer also to the SRA Equality and Diversity resource (www.sra.org.uk/sra/equality-diversity/)
- Helping you keep accurate client accounting records
- Identifying your client
- If we are investigating you
- Joint accounts and record keeping
- Law firms carrying on insurance distribution activities
- Legal Disciplinary Practices
- Multi-disciplinary practices: Regulation of non-reserved legal activity
- Not for profit sector – summary
- Offering inducements to potential clients or clients
- Planning for and completing an accountant’s report
- Preparing to become a sole practitioner or an SRA-regulated freelance solicitor
- Public trust and confidence
Another one of the Guidance Notes that addresses in detail requirements to be found in the SRA Principles. The note provides examples of activities that would breach Principle 2 and covers situations both within and outside of the practice. It references the Topic Guides to be found under the pages dealing with the Enforcement Strategy.
- Publishing complaints procedure
Reinforces the provisions relating to complaints to be found in the Transparency Rules
- Putting matters right when things go wrong, and own interest conflicts
- Registered Foreign Lawyers
- Reporting and notification obligations
This is an important guidance note to be aware of since not only does it address the reporting and notification requirements to be found elsewhere in the Standards and Regulations but also it gives guidance to those wanting to speak out s to concerns they may have, vulnerability, confidentiality and legal professional privilege. It also contains important guidance on how to make a report
- Reporting duties under the SRA Overseas Rules
- Responsibilities of COLPs and COFAs
- Risk factors in immigration work
- Sole practitioners and small firms regulatory starter pack
- SRA consumer credit
- Statement of our position regarding firms operating a client’s own account
- The Insurance Act 2015
- The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017
- The prohibition of referral fees in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) Sections 56-60
- The SRA’s approach to financial penalties
- Third-party managed accounts
Given the restrictions on the operation of a client account that are going to affect independent or freelance solicitors, the issues surrounding third-party managed accounts have become far more relevant.
- Transparency in price and service
- Unregulated organisations – Conflict and confidentiality
- Unregulated organisations – for employers of SRA-regulated lawyers
- Unregulated organisations – giving information to clients
- Vocational training for trainee solicitors
- When do I need a practising certificate?
Many of the SRA warning notices have been updated and all have been reissued with a 25 November date upon them. They are
- Bogus law firms and identity theft
- Compliance with the money laundering regulations – firm risk assessment
- Holiday sickness claims
- Improper use of client account as a banking facility
- Investment schemes (including conveyancing)
- Money laundering and terrorist financing
- Money laundering and terrorist financing suspicious activity reports
- Offensive communications
- Payment Protection Insurance (PPI) claims
- Referral fees LASPO and SRA Principles
- Risk factors in personal injury claims
- Tax avoidance – your duties
- Use of non-disclosure agreements (NDAs)
The SRA also have three areas that they refer to as sub-strategies. They are part of the SRA corporate strategy 2017 to 2020 and are:
- Equality, Diversity and Inclusion strategy
- SRA enforcement strategy
- Draft supervision and enforcement strategy for conveyancing
Similar to the Guidance Notes, Topic Guides are listed separately from the other guides on the SRA website and come under the provisions relating to enforcement and the SRA Enforcement Strategy.
These guides deal with:
- Competence and standard of service;
- Criminal offences outside of practice;
- Driving with excess alcohol convictions;
- SRA Transparency rules;
- Use of social media and offensive communications; and
- A guide to the application of Principle 1.
Various case studies have been produced by the SRA providing practical examples in a number of key regulatory areas.
As with other guidance, many of these case studies were produced some time ago but have been re-dated with the 25th November date implying that they have either been updated or continue to be relevant to the new regime.
They deal with:
- Acting without integrity
- Adequate and appropriate indemnity insurance
- Bogus law firms
- Complaints about solicitors working outside SRA-regulated firms
- Conflict of interest
- Consumer credit activities
- Information security and cybercrime
- Employers’ duties
- Improper use of client account as a banking facility
- Lack of independence
- Make sure you give family members or friends the same protections as any other client
- Money laundering – inadequate systems and controls over the transfer of money
- Professional indemnity insurance Extended Policy Period
- Failure to provide a proper standard of service or quality, particularly for vulnerable consumers
- Reporting and notification obligations
- Reporting duties under the SRA Overseas Rules
- Sexual harassment
- Solicitors warned to attend hearings
- SRA Principle 2 – public trust and confidence
- SRA Transparency Rules
- Unfair discrimination
Miscellaneous Guidance Resources
Finally, in this review of the regulatory information provided by the SRA are the various pieces of guidance which do not fit into the headings above. These include:
- Consumer Credit Toolkit
- Financial Services Guidance
- Fraud and Dishonesty Guidance which includes information on:
- Professional Indemnity which includes:
There can be little doubt that the regulation of solicitors is complex and, as business and life become ever more convoluted so it is inevitable that the rules and regulations addressing the conduct and behaviour of solicitors will become more complex too.
There is a slight feeling amongst many that the SRA have been somewhat disingenuous in claiming that thy have simplified the regulations affecting solicitors. They haven’t. All that they have done is simply to spread the rule book out a bit more. A concerted effort has been made to try and explain as much as possible, for which the SRA should be thanked. However, a slightly more holistic approach might have been preferred by many. Whilst the SRA believe that a lighter touch, principles based regulatory approach is what is needed, there are still a lot of individuals and firms out there for whom clear, unequivocal and even prescriptive rules are still the preferred option.
The fact that many solicitors, especially those who IT skills are not necessarily as of the moment as they could be, will find it difficult to locate the appropriate piece of regulation or guidance is a worry – especially given the reliance that the SRA will no doubt place upon the fact that those falling from strict adherence are assumed to have read that which the SRA has produced.
Possibly a question of natural justice arises in relation to whether it is reasonable to expect that someone who doesn’t use the internet to any great extent can be expected to observe requirements not published in any other readily available format.
The last word should perhaps go to Alice. “I think you might do something better with the time,” she said, “than waste it in asking riddles that have no answers.”