SRA Code of ConductOutcomes Focused Regulation (“OFR”) and the SRA Code of Conduct 2011
On 6 October 2011 the Solicitors Regulation Authority (“SRA”) launched the new SRA Handbook. The Handbook is now the comprehensive authority concerning the regulation of solicitors, legal practices and employees. It was anticipated that the introduction of the new Handbook would coincide with the grant of permission to the SRA to authorise Alternative Business Structures (ABSs). ABSs will, for the first time, allow investment and input from non-lawyers in legal practices. The SRA has announced that it will begin inviting applications for ABSs in the New Year 2012 and hopes to be in the position to authorise the first ABSs by March 2012.
The Handbook contains the new SRA Code of Conduct 2011, which replaces the Solicitors Code of Conduct 2007. The 2007 Code was a comprehensive document which set out in extensive detail the SRA’s expectations for the conduct of solicitors. However, critics of the 2007 Code considered that it was too prescriptive and amounted to “box-ticking” regulation.
For example, Rule 9.02 under the Solicitors Code of Conduct 2007 concerned referral arrangements. The Rule provided that, before accepting instructions, a solicitor must provide his client with a statement in writing confirming that any advice given would be independent (Rule 9.02(g)(iv)) and that information given by the client would not be disclosed to the referrer without the client’s permission (Rule 9.02(g)(v)). For most solicitors, these two requirements were simply reminders of Rules 1.03 and 4.01 and would be complied with as a matter of course. However, a mere failure to provide the written statement would itself have constituted a material breach of the Code, irrespective of whether any actual breach of confidentiality or independence had flowed from the breach.
The first defining change in approach in the 2011 Code of Conduct is the outcomes focused approach to regulation. Under the 2007 Code, a breach of the Rules would be regarded a breach irrespective of its effect on the service provided to the client, and regulatory action could follow. Under OFR, a breach of the Code will not necessarily result in the SRA pursuing disciplinary action. The Code states that “Outcomes focused regulation concentrates on providing positive outcomes which, when achieved, will benefit and protect clients and the public.” Therefore, when determining whether the new Code has been offended, the SRA’s overriding consideration will be whether the solicitor’s actions were in the interests of the client.
The second key change in the 2011 Code of Conduct is that it contains no rules as such. Instead, the Code sets out three levels of expectation: Principles, Outcomes and Indicative Behaviours. “Principles” are described as being all-pervasive and as defining the fundamental ethical and professional standards to be expected of solicitors and those working within a solicitor’s practice. It is therefore not surprising that the Principles cover the accepted core requirements with which solicitors are fully conversant: acting with integrity, acting in a client’s best interests, protecting client monies and assets, and so forth.
The Code is then divided into five sections (the fifth being concerned with applications, waiver and interpretation). Each of these sections covers a different aspect of a solicitor’s responsibilities, including client care, conflicts of interest, confidentiality, disclosure, and fee sharing. Each section contains a list of Outcomes which are the mandatory requirements with which a solicitor is expected to be able to demonstrate compliance. However, in contrast to the 2007 Code of Conduct, the new Code does not tell a solicitor how he or she is to achieve the outcomes. Instead, solicitors are free to determine how to achieve a particular outcome, whilst at the same time demonstrating to the SRA how their approach to compliance gave the best outcome for the client.
Finally, each section also sets out the Indicative Behaviours. These are not mandatory requirements, but represent best practice in the SRA’s view. Indeed, should a solicitor fail to follow the Indicative Behaviours and his or her conduct become the subject of regulatory scrutiny, it will be for that solicitor to explain to the SRA why they have failed to follow this best practice and how their departure from the guidance was in the client’s best interests.
What does this mean in practice for the solicitor advising clients in the conduct of their legal affairs? The view amongst many legal regulatory specialists is that the new SRA Code of Conduct 2011 does little, in practical terms, to alter the rules (Principles, Outcomes, Indicative Behaviours) governing the day-to-day regulation of solicitors and their practices. Perhaps the most significant change brought in by the new Code is that one that cannot measure or quantify how the rules will be interpreted and applied. The new Code moves away from black and white breaches based on a strict interpretation of the Rules and embraces shades of grey, allowing solicitors to determine how they intend to achieve the necessary outcomes for the benefit of their clients.
A word of caution however: the new regime should not be viewed as “light-touch regulation”. This new opportunity for solicitors to tailor the management of their practices carries with it great responsibility. The SRA has announced that much of its regulation will now be operated on a risk basis. The firms which demonstrate good understanding and implementation of the new rules are likely, in the main, be left to run their practices free from intrusion from the regulator. However, those solicitors who are unable, or unwilling, to comply with the new rules can expect to be the subject of greater attention from the SRA than previously.
It seems likely that a dim view will be taken by the SRA, and ultimately by the Solicitors Disciplinary Tribunal, of solicitors and firms who, given this opportunity to play a part in their own regulation, fail to come up to the required mark or who seize the opportunity to flaunt the rules.
Robert Drury, Jonathan Greensmith
Russell Jones & Walker
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