Standards and Regulations 2019 – Flexibility and New Ways to Practise
The implementation of the new Solicitors Regulation Authority (SRA) rulebook – the Standards and Regulations – is due in November 2019 and yet despite this many firms have still not taken even the most preliminary steps towards updating their manuals and processes. To an extent this is not surprising since the predominant message that has been emerging from the SRA is that of simplification with an emphasis upon alleged deregulation, shortening and targeting. However, as with many things one should always be aware of Greeks bearing gifts and the fact that one man’s simplification could so easily become another man’s ambiguity.
The implementation of the new Standards and Regulations (referred to here as “the New Regulations”) is something that has been put back on several occasions. Possibly, as we suggested in our article “Lowering the Standard on the SDT Flag Pole”, this was to allow their introduction to coincide with the move by the Solicitors Disciplinary Tribunal to the civil standard of proof, or possibly simply because the SRA had underestimated the amount that needed to be done to achieve implementation. Whatever the reason, at least it bought firms a few extra months in which to make the necessary changes and gave the SRA the opportunity to produce some much-needed guidance – which is starting to appear on the SRA website[i].
The fact that the New Regulations have been some not inconsiderable time in planning should give everyone the comfort of believing that they have at least been fully thought through. Hopefully that will prove to be the case. Certainly, they are controversial in many of their provisions which may not be entirely a good thing. The overriding feature, however, appears to be that of making the regulations to which solicitors are subject less prescriptive and more flexible and allowing firms to be more innovative in the ways in which they are able to offer legal services – a facet of the SRA’s new emphasis which is also emerging through its support of new firms, new ways of working and new technology – as seen for example in the Legal Access Challenge[ii] initiative.
In this, the first of a series of articles looking at the forthcoming New Regulations, we will look at the extent to which flexibility of practice will be created under the New Regulations.
Critically, so far as firms are concerned, the SRA’s thinking appears to have been to make the rules more general and thus give firms flexibility in determining how they provide legal services, whilst simultaneously trying to maintain adequate public protections. Inevitably the danger is that they will achieve neither which is the message that the Law Society has been keen to put across throughout the deliberation process[iii].
The SRA’s aims and objectives in creating the new regulatory framework have been:
- To set “clear, high professional standards for those we regulate”;
- To enable those in practice to be able to respond to the ever-changing market for legal services; and
- To ensure that regulation is able to be understood not only by lawyers but also by the clients whom they serve.
Behind these aspirations lies alleged evidence of the poor accessibility of legal services for private and small business clients – a failing which the new freedom in the methods of practice will apparently put right. The evidence came from a survey conducted by the Competition and Markets Authority in 2016 (“Legal Services Market Study”) which revealed that:
- Only a third of people with a legal problem seek professional advice and only 1 in 10 will seek advice from a solicitor or barrister;
- 63% of people consider professional legal advice to be unaffordable for ordinary people;
- 83% of small businesses see legal advice as unaffordable, and are more likely to approach an accountant with a legal problem than a solicitor; and
- Less than a quarter of the public think that the justice system is ‘fair and transparent’.
If valid then these findings should indeed be a cause for concern. However, as with other areas of these proposals, not everyone agrees that the SRA’s approach is going to achieve what it sets out to do. See for example our article from July of last year on some of the issues surrounding price transparency[iv].
New Ways of Practising
The most significant change brought about by the New Regulations has been the replacing of the single 2011 Code of Conduct with two separate codes – one for individuals and one for firms. The SRA have justified this on grounds that it avoids confusion over references to individual solicitors or to the firms, and to assist those practising certificate holders who work in-house rather than in traditional practices. Going forward it will also be crucial for those working in some of the new style firms that will emerge as a result of the SRA’s intention to widen the range of business structures in which private practice solicitors may work by permitting:
- The provision of non-reserved legal services by solicitors working in non-authorised providers; and
- Individual solicitors to work on a freelance basis through non-authorised sole practices providing any legal services, reserved or non-reserved, but subject to certain restrictions.
These new ways of working have, so far, proved to be the one of the most controversial elements of the New Regulations and have attracted considerable criticism from law firms, local law societies and the main Law Society itself. Indeed, the criticism continues as aspects of the plans emerge. Most recently, for example, has been the Law Society’s criticism of the plan to allow freelance solicitors to practise without indemnity insurance cover[v]. Even the Legal Services Consumer Panel, normally firmly in favour of the liberalising of legal services provisions, have expressed concerns with these proposals on the grounds that “the reduction in consumer protection is tilted too far against consumers without any quantifiable benefits” and due to the “lack of robust cost-benefit analysis” which they would have expected to be part of “such a seismic shift in regulatory policy and reductions in consumer protection”.
Notwithstanding these objections the SRA’s plans have proceeded, backed up in part by the LSB whose 2016 report “Unregulated Legal Service Providers: Understanding Supply-side Characteristics”[vi] found that there was a benefit to the public from the lower prices, transparency, technological delivery and competitive effects of an unregulated sector.
The effect is, therefore, that a solicitor might obtain a job as a will writer in an unregulated will writing agency or as an employment lawyer who does not undertake wrongful dismissal work by way of litigation in an HR consultancy. This would be permitted since neither will writing nor employment law advice fall within the list of reserved legal activities. What they could not do, however, at least at this time, is to offer probate or conveyancing services (which are reserved legal activities) through an unregulated organisation.
Whilst it is hoped that the reserved activity status for certain types of wok will continue, clearly it may only be a matter of time before assaults on that are made. The Law Society have made their views known in favour of reserved activities in their response to the University College London review of legal services regulation carried out by Professor Mayson[vii]. Here they stated that:
“There is a public interest in maintaining reserved activities that only regulated professions can perform. The key characteristics of reserved activities should be:
- They relate to an area of significant risk and detriment to both individuals and society at large, such that poor quality service, incompetence or dishonesty will impact not only on the individual consumer, but the wider public.
- There is a public interest in the existence of a broader set of professional and ethical duties, which go beyond the duty to serve a client’s best interests, such as duty to the court and proper administration of the law and the legal system.
These criteria link well with the current list of reserved activities and should be applied in considering the future scope of reserved activities.”
A Level Playing Field
All of these planned changes inevitably raise concerns as to whether solicitors’ practises will experience a level playing field in the future or will the concessions simply mean that those who offer fewer protections are able to thrive at the expense of the over-regulated solicitor sector.
On first reading of the New Regulations this would certainly seem to be the case. For example, the new rulebook continues, at Regulation 8.9 of the Code for Individuals, the current restriction in the promotion of legal services found in the 2011 Code of Conduct at Outcome O(8.3).
“you do not make unsolicited approaches in person or by telephone to members of the public in order to publicise your firm or in-house practice or another business”
Has now become 8.9
“You do not make unsolicited approaches to members of the public, with the exception of current or former clients, in order to advertise legal services provided by you, or your business or employer.”
Such restrictions do not apply to non-authorised businesses, of course, and the practice of cold calls from will writing agencies to households remains commonplace.
Indeed, it could be argued that the new provisions are more restrictive than the old. Outcome O(8.3) limited the unsolicited approaches to “in person or by telephone” whereas the New Regulations prohibit all unsolicited approaches. This is an example of where shorter regulation can create an issue. Is it intended that, for example, that solicitors should no longer be able to write to prospective clients? What is an unsolicited approach? What about a sales booth in a railway station foyer as we used to see a few years ago?
Furthermore, because this is a duty upon the individual as opposed to the regulated firm, how will employed solicitors working for an unregulated entity comply if, for example, that entity carries out cold calling on their behalf from a department or location other than where the solicitor is based? What duties are there upon the solicitor to take steps to prevent it from happening? If the cold calling has been conducted without their knowledge, to what extent should they have made checks to make sure it was not occurring? Does it matter? After all, 8.9 does actually say “You do not make unsolicited approaches” not “You must not allow your employer to make unsolicited approaches”.
Clearly, there is real potential for a conflict to arise in such circumstances between the professional obligations of the solicitor under the Code for Individuals on the one hand and their duties to follow their employer’s instructions on the other.
The position of the newly introduced freelance solicitor is likely to be an odd one going forward. Freelance solicitors are ones who will not be subject to entity regulation but nevertheless will be able to offer services direct to the public.
The introduction of freelance solicitors has faced stiff opposition from the likes of the Law Society and the Legal Services Consumer Panel, but notwithstanding this, the provisions allowing them are due to come into effect in November 2019.
The SRA has recently published (4th July 2019) some preliminary guidance entitled “Preparing to become a sole practitioner or an SRA-regulated independent solicitor”[viii]. In this they state that a solicitor can practise on their own account without being authorised as a sole practitioner provided that they meet the conditions set out in regulation 10.2(b) of the SRA Authorisation of Individuals Regulations, namely that they:
- have practised as a solicitor for a minimum of three years since admission or registration;
- are self-employed and practise in their own name, and not through a trading name or service company;
- do not employ anyone in connection with the services that they provide;
- are engaged directly by the client, and the client pays their fees directly to them;
- have a practising address in the UK;
- take out and maintain indemnity insurance that provides adequate and appropriate cover in respect of the services that they provide or have provided;
- do not hold client money, save that they may hold money which falls within the category of client money set out in rule 2.1(d) of the SRA Accounts Rules provided:
- any money held for disbursements relates to costs or expenses incurred by them on behalf of their client and for which they are liable; and
- they have informed their client in advance of where and how the money will be held,
Thus, various points to bear in mind here are that:
- they cannot practise in a partnership, as a consultant on behalf of someone else, or through a limited company.
- “employ” is taken in its widest sense and includes contracting with someone else to provide legal services. Thus, a freelance solicitor cannot employ someone to act as an assistant and to take on aspects of the service they themselves provide but they can employ someone to provide administrative support. They can even enter into a “chambers” arrangement where administrative and business functions are shared or work from a maintained office where administrative and secretarial services are provided.
- All contracts must be direct with the freelance solicitor. Thus, if working in a “chambers” arrangement the chambers cannot undertake the billing on behalf of the freelance solicitor.
- The SRA have issued separate guidance as to the insurance requirement in relation to the freelance solicitor’s duty to inform clients that they will not be covered by insurance on the SRA’s minimum terms and conditions and that alternative arrangements are in place.
- If the client of a freelance solicitor needs to pay, or is due to receive, other types of client money (for example, damages or money from an estate) then then the freelance solicitor will need to make other arrangements that safeguard the client’s funds – for example, through a third-party managed account[ix] and note also the definition of client money in Rule 2.1 of the SRA Accounts Rules and associated guidance.
It is also worth bearing in mind that simply because a solicitor is working on a freelance basis does not mean they can ignore the requirements of best practice. They will be subject to the Code for Individuals and will need, for example, to keep proper records. They will need to make arrangements for archiving files, ensure adequate data and cybersecurity, arrange for switchboards and telephones to be manned, deal appropriately with emails and all of the other day-to-day office activities of the authorised firm.
Given these requirements, the freelancer is going to look, from the eyes of the public, very much like a sole practitioner. Surely a recipe for confusion.