The SRA’s 2019 Standards and Regulations

What are the SRA’s new Standards and Regulations, how do they differ from the old regime and what are some of the potential pitfalls for the unwary?

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On 25 November 2019 the SRA’s new Standards and Regulations come into force replacing the SRA Handbook. The SRA say that they are “shorter, simpler”, “focus on high professional standards and protecting the public” and are intended to put “more trust” in those who are subject to regulation.

Against that background, this podcast focuses on three of the main areas of change arising out of the new Standards and Regulations.

  • First, the new SRA Principles and the new and separate codes of conduct for individual solicitors and firms. We look at the different regulatory burdens being placed upon firms and people practising as sole freelance solicitors, and whether the public has sufficient protection so far as freelancers are concerned.
  • Second, the new SRA Regulatory and Disciplinary Rules. We focus, in particular, on the change in the standard of proof and the widening (we consider) of the number of non solicitors who might become subject to SRA action.
  • Third, the new Accounts Rules. These have reduced the current 52 rules down to just 13. However, we look at whether that brevity is likely to deliver the greater flexibility and simplification which they are intended to bring.

We hope that this provides a guide to some of the main changes and some of the areas which we consider will be ripe for consideration in future regulatory and disciplinary action.

Show notes

Introduction to the SRA’s 2019 Standards and Regulations

Overview

  1. On 25 November 2019 the SRA’s new Standards and Regulations will come into force. In many respects the substance of what is expected of the profession will remain much the same, but the new regime will see major changes to the regulations and rules through which those expectations are expressed and will be enforced. Both practising solicitors and those involved in advising them on their regulatory obligations must familiarise themselves with what will change. The aim of this series is to highlight the major changes and give some thoughts on what their implications may be.
  2. According to SRA publications, the new regulatory model aims to have shorter and more targeted rules that focus on protecting the public and their money while reducing the burden on solicitors and law firms and allowing them more freedom to use their professional judgement in considering how to meet the standards required of them. The SRA has also made clear that the changes are intended to reflect changes to the legal services market and the way clients access services by removing restrictions on how solicitors can work.
  3. The key changes being introduced include:
    1. A new set of SRA Principles;
    2. New and separate codes of conduct for individual solicitors and firms;
    3. Shorter Accounts Rules;
    4. Freeing up solicitors to carry out ‘non-reserved’ legal work from within a business not regulated by a legal services regulator;
    5. Allowing solicitors to provide reserved legal services on a freelance basis; and,
    6. Changes to the disciplinary rules.
  1. In this article, we will briefly summarise these key changes. Later in the series, our colleagues Clare Dixon and Helen Evans will discuss in detail the evolving disciplinary landscape; and Ben Hubble QC and Paul Parker will describe the new Accounts Rules.

New SRA Principles

  1. There are to be only 7 Principles comprising the fundamental tenets of ethical behaviour that the SRA expects all those it regulates to uphold, both individuals and firms. This is a reduction from the present 10.
  2. Four of the existing Principles have been removed: 5 (providing a proper standard of service) 7 (complying with legal and regulatory obligations), 8 (running businesses in accordance with proper governance etc) and 10 (protection of client money). It may be said that none of these ever needed to be elevated to the status of principles. Further, in the case of Principle 8, the creation of two codes (see below) makes its removal logical.
  3. However, the removal of 4 Principles is counterbalanced by the addition of a new Principle requiring solicitors and firms to act honestly. This is in addition to the existing and retained obligation to act with integrity. The separate treatment of honesty and integrity in the new regime reflects the distinct meaning of these terms confirmed in Wingate v SRA and SRA v Malins [2018] EWCA Civ 366; [2018] 1 WLR 3969 (CA).

Two New Codes of Conduct

  1. While the new set of Principles will be common to individuals and firms, there are to be two new Codes of Conduct.
  2. The SRA Code of Conduct for Solicitors, RELs and RFLs describes the standards of professionalism required of individuals authorised to provide legal services. The SRA Code of Conduct for Firms describes the standards and business controls the SRA expects of firms authorised to provide legal services; the stated aim of these rules is to create and maintain the “right culture and environment for the delivery of competent and ethical legal services to clients”.
  3. The Code of Conduct for Firms differs from the Code of Conduct for Solicitors, RELS and RFLs, reflecting the different role firms are expected to play in upholding the SRA’s Principles. However, the combined substance of the obligations the two codes impose has not changed radically. Further, both Codes are much shorter and simpler than the existing Code of Conduct. The approach of having lengthy lists of Outcomes accompanied by even more lengthy lists of Indicative Behaviours has been abandoned. Instead, there are much shorter lists of what solicitors or firms can or cannot do, without any gloss. The SRA has sought to accentuate the positives by the trust this approach places in professional judgement. However, this less prescriptive approach will inevitably create room for uncertainty and argument.

New and Shorter Accounts Rules

  1. The extensive and prescriptive rules are to be replaced by a new and dramatically shorter set of Accounts Rules. The existing 52 Rules (many of which have numerous sub-rules) are to be reduced to just 13.

Freedom for solicitors to carry out Non-Reserved Activities

  1. An individual solicitor providing non-reserved legal services will no longer be obliged to have his/her practice authorised by the SRA (see reg. 10.2(a) of the new Authorisation of Individuals Regulations). They can still seek authorisation if they wish, perhaps to reassure clients that their practice has the protections that arise from being authorised, such as the requirement to have professional indemnity insurance. However, they will now be free to provide non-reserved legal services on a freelance basis.

Freelance solicitors providing Reserved Legal Services

  1. Although in general individual solicitors will still only be able to provide reserved legal services through authorised practice, under Regulation 10.2(b) of the new Authorisation of Individuals Regulations, individual solicitors will also be able to provide reserved legal services on a freelance basis so long as they satisfy various requirements. Among other things, the solicitors need: to have practised for 3 years or more since admission, to practise in their own name, to employ no one else in connection with the services they provide, to maintain professional indemnity insurance, and to hold no client money unless it is on account of costs and disbursements. This new freedom is aimed at allowing solicitors to be more flexible and so more competitive, without reducing client protection.

Disciplinary rules

  1. The amendments to the SRA Regulatory and Disciplinary Procedure Rules go hand in hand with the revised Enforcement Strategy (published in February 2019). As our colleagues Helen Evans and Clare Dixon will address, interesting questions arise as to the taking of enforcement action against firms, on the one hand, and separately against individuals, on the other.

By Jamie Smith QC and Miles Harris


The new SRA Standards and Regulations: Greater freedom for solicitors?

The Principles

The reduced principles- down in number from 10 to 7 as noted by Jamie Smith QC and Miles Harris in their overview- are the first evidence of the SRA’s desire to shorten and simplify the rules. But matters are not as straightforward as they first appear:

  • The fact that several old principles are no longer there that does not mean they have disappeared entirely: they can still be found in the main body of the two separate Codes of Conduct now applying to individuals and solicitors’ practices;
  • There is a striking incidence of one former single principle being divided into two new principles: namely, the separate requirements that solicitors act honestly and with integrity. This change reflects the trouble that both the SDT and the courts have had in identifying and applying the difference between the two concepts, apparent prior to the Court of Appeal’s judgment in Wingate v SRA[2] but still in evidence in this month’s hearing in SRA v Siaw (where, very unusually, the Divisional Court ended up substituting findings of dishonesty for the SDT’s finding of lack of integrity). [3] It seems to us that these difficulties differentiating dishonesty and lack of integrity are likely to be compounded by the fact that charges now only need to be proved to the civil rather than criminal standard of proof (as we explain later).

The Codes of Conduct: a two tier system?

There are now two Codes of Conduct, one for individuals and one for firms. They are briefer, and have been shorn of their pages of indicative behaviours. Their stated aim is to allow solicitors to exercise their own judgment about applying the standards to the situation they are in and deciding on a course of action.

However, brevity does not necessarily carry with it less regulation. Firms are subject to two layers of regulation, with the SRA making clear that it could take action not just against managers and compliance officers but also against employees for breaches of the SRA Code of Conduct for Firms. This (combined with rule 1.2 of the new disciplinary rules, to which we return below) is a significant increase of the SRA’s regulatory reach against employees in particular. Under the old regime, the SRA was in practice reliant on s. 43 of the Solicitors Act 1974, which only applied in circumstances where an employee had been convicted of a criminal offence or had occasioned or been a party to an act or default in relation to a legal practice of such a nature that it was undesirable for him to be involved in legal practice. This provision could prove a blunt implement, particularly where solicitors’ practices have become involved in high volume and high risk work (such as conveyancing later alleged to be part of a dubious investment scheme) where many of the day to day tasks were carried out by non-lawyers.

The new regulation applying to firms also stretches beyond the conduct of their legal work and extends to their business models. The Code of Conduct for Firms requires practices to monitor their financial stability and viability, exposing those involved in running firms to disciplinary action for lacking business acumen.

By contrast to the double layer of regulation for firms, the new reforms open up the legal market to freelancers.[4] Such freelancers are free from the regulation applying to firms, and are also not required to take out professional indemnity insurance that meets the Minimum Terms and Conditions applicable to firms. Their insurance merely has to be “adequate and appropriate”.  These moves were contentious and were strongly opposed by the Law Society on consumer protection grounds.

We are doubtful that the public will understand, or appreciate the significance of, the different regulatory burdens on firms and freelancers.

The new disciplinary rules

The new SRA Regulatory and Disciplinary Rules (“the disciplinary rules”) govern how the SRA will investigate and take disciplinary and regulatory action. These new rules are supported by the SRA enforcement strategy which was introduced in February 2019 with the intention of providing “greater clarity on [the SRA’s] approach to cases of potential misconduct”[5] (“the Enforcement Strategy”). Such clarity will be all the more important now that the codes of conduct for solicitors and firms are less detailed and prescriptive.

The burden of proof

A key change is that the SRA will now determine whether an allegation is proved on the civil burden of proof – i.e. on the balance of probabilities rather than beyond reasonable doubt. The SDT is also changing its rules (with effect from 25 November 2019) so that it too will decide cases on the civil standard. This change brings the SRA and SDT into line with other legal services regulators including the Bar Standards Board. Rightly or wrongly, concern has been raised as to whether a lowering of the burden is likely to result in more disciplinary actions against solicitors being pursued by the SRA (or more charges of dishonesty being made out). This remains to be seen. However, if it is does, it may lead to commercial pressure being put on professional indemnity insurers to include cover for defence costs in respect of SRA disciplinary action even though such cover is not required by the minimum terms.

Non-solicitors

As referred to above rule 1.2 expressly provides for non-solicitors to be caught by the SRA’s disciplinary rules where an allegation is made which “raises a question that the person” meets one of the following descriptions:

  • Rule 1.2(c), “is a manager or employee of an authorised body and is responsible for a serious breach by the body of any regulatory obligation placed on it by the SRA’s regulatory arrangements”. An authorised body is either a body or a sole practitioner which has been authorised to practice by the SRA. Managers or employees of authorised bodies however do not themselves need to be solicitors and often will not be. However, they can by subject to disciplinary action where they are responsible for a serious breach by that authorised body.
  • Rule 1.2(d), “is not a solicitor and has been convicted of a criminal offence, or been involved in conduct related to the provision of legal services, of a nature that indicates it would be undesirable for them to be involved in legal practice”. This largely replicates s. 43 of then Solicitors Act 1974 (which we described as a blunt implement above).
  • Rule 1.2(f) “has otherwise engaged in conduct that indicates they should be made subject to a decision under rule 3.1”. This rule applies to any “person” whether they are a solicitor or not. Rule 3.1 sets out the powers of the SRA where an allegation has been found to be proved and grants the SRA a range of disciplinary options (from a reprimand to a referral to the SDT). This is a widely drawn catch-all bringing in anyone who is thought to be in breach of the Standards and Regulations but who does not fall into one of the pre-determined categories, and renders the purpose of those categories somewhat questionable. It also demonstrates a significant extension of reach of the SRA against non-solicitor employees of law firms.

The Enforcement Strategy

It is beyond the remit of this note to go through the Enforcement Strategy in detail. Interestingly however it returns to the issue of the reporting obligations of solicitors and firms which follows on from the SRA’s February 2019 consultation on “Reporting Concerns”. The Enforcement Strategy emphasises that where a “serious breach is indicated” firms should engage with the SRA at an early stage even if they are planning to carry out their own internal investigation and states, that whilst deciding whether to report is a matter of judgment, if there is uncertainty “you should err on the side of caution and make a report”. The Enforcement Strategy also deals with the position of individuals and states that it is sufficient for an individual to report to a firm’s compliance officer “on the understanding that they will do so”. However, where an individual is not satisfied that the compliance officer will take the same view (and so make the report to the SRA) then the individual should report themselves. Therefore, reporting internally is not sufficient to constitute compliance with the duty to report unless it is coupled with a belief that the internal report will result in the SRA being notified.

The emphasis on the need to report to the SRA demonstrates that while the new regulatory approach permits solicitors some more freedom to decide how to comply with their professional obligations, that freedom has its limits. Indeed, the SRA has in fact extended its disciplinary reach by imposing a lower burden of proof and carving out a wider scope for disciplining those involved in law firms.

By Helen Evans and Clare Dixon


The new Accounts Rules – what can you do?

On 25 November 2019 the SRA Accounts Rules 2011 will cease to have effect, and will be replaced by new accounts rules. In one quarter-stroke of the draftsman’s pen, 52 rules covering 50 pages of single-spaced typescript on pages of A4 will be replaced by 13 rules on 10 pages. The SRA has trumpeted loudly that the rules have been simplified and that they provide greater flexibility. Have they? Do they?

The new rules omit existing provisions which seek to explain the underlying principles and overarching objective of the accounts rules: to keep client money safe. Perhaps this is so self-evident a proposition that it does not merit articulating in a set of new rules. Maybe, though, the focus shifts from a purposive aspect of the rules to stricter compliance to the letter of the new rules. We shall discuss this in 4 New Square’s podcast on 5th November.

The existing rules impose a no fault obligation on all individual principals in the firm to comply with accounts rules (rule 6.1) and personally to remedy any breaches (rule 7.2). These provisions have provided easy targets for the SRA in the disciplinary arena. Such provisions have been omitted from the new rules. Does that mean that a partner who has delegated all responsibility for accurate accounting and record-keeping to another or others will no longer face regulatory responsibility for breaches of the rules? Or will there be similar regulatory responsibility under section 2 of the new Code of Conduct relating to compliance and business systems?

What amounts to client money? The existing rule 12, with its eight sub-rules and their 28 sub-sub-rules, has been replaced with rule 2 – placed right at the forefront of the new rules (is that significant?) – comprising five sub-rules and nine sub-sub-rules. Are there any subtle changes of emphasis or definition? We shall consider these.

Seven existing rules relating to the receipt of monies into a client account (rules 13-19) have been replaced by a very small number of sub-rules (2.3, 3.3, 4.1 and 4.2). The new rules employ far broader language than their predecessors – viz rule 3.3: “Payments into, and transfers or withdrawals from a client account must be in respect of the delivery by you of regulated services” (i.e. “the legal and professional services that you provide that are regulated by the SRA”). The new rules are by no means as prescriptive on their face as the existing rules as to what can and what cannot be paid into a client account. Does this mean that the landscape has changed? We shall examine the possibilities.

Finally, the existing rules (20 and 21) relating to withdrawals from client account – rules which have been the subject of controversy, particularly the current rule 20.1(a) permitting withdrawal of client money from a client account only if it is “properly required for a payment to or on behalf of the client” – are now to be replaced by a provision allowing such a withdrawal only “for the purpose for which it is being held” (rule 5.1(a)). Is this the same as the old provision, but just in different words? Or is it broader in scope? Who determines the purpose? Is there a reasonable degree of latitude as to what the purpose might be, or it is to be strictly confined to the relevant retainer between solicitor and client? These, and related questions of importance, will conclude our analysis of the most interesting aspects of the new accounts rules, soon in force.

By Ben Hubble QC and Paul Parker

Speakers

Jamie Smith QC

Ben Hubble QC

Paul Parker

Clare Dixon

Miles Harris

Related Expertise

Disciplinary & Regulatory

Links

Disciplinary & Regulatory