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Solicitor's Regulatory Authority

SRA OUTCOMES FOCUSED REGULATION - TRANSFORMING THE SRA’S REGULATION OF LEGAL SERVICES

1. In a recent announcement (30th April 2010) the SRA notified an intention of consulting on the transformation of its approach to the regulations for the benefit of consumers. These proposals will involve significant reform of the SRA’s traditional approach of regulating the solicitors profession in order for it to be “fit for purpose” for the new legal landscape brought in by the Legal Services Act 2007.

2. Amongst those matters given recognition by the SRA are:

(1) That its current rule book is too detailed and prescriptive and that detailed rules are becoming increasingly difficult to keep pace with change and will be even more so with the liberalised legal landscape coming into effect in October 2011.
(2) That its regulatory approach needs to be more effective, proportionate and targeted so it can consistently regulate a greater range of legal service providers with a targeted risk based approach.

3. The SRA proposes to move to a system of “outcomes focused regulation” (OFR) which will offer a “better focus on making sure firms offer good standards of service to consumers and good firms more flexibility in how they operate their businesses”. This transformation will involve:

(1) Changing the way the SRA delivers its regulatory objectives.

(2) Changing the relationship legal service providers have with the SRA.

(3) Further development of SRA’s internal staff skills and competences.

4. The SRA’s intention to deliver OFR in practice will involve:

(1) “Working with firms to focus on acting in a principled manner to deliver good standards of service to clients rather than compliance with mere detailed rules.

(2) A sophisticated desk based research and analysis capacity to assess potential risks to the regulatory outcomes and support for delivery of targeted proactive regulatory action.

(3) An approach to authorisation that is risk and evidence based, making sure that legal services are delivered by principled and competent firms and individuals.

(4) An approach to supervision which encourages firms and individuals to tackle all the risks themselves, allowing the SRA to concentrate on those who can’t or won’t put things right.

(5) An approach to enforcement which creates a credible deterrent and is effective fair and proportionate; and

(6) Concentrating the SRA’s resources on dealing with those firms who pose a serious risk to the SRA’s regulatory objectives such as protecting and promoting the interests of consumers. The SRA’s approach would be to foster a flexible and innovative market for legal services combining importantly improved access to justice with assured standards. It is for this reason that the SRA’s plans for OFR will be introduced at the same time as the framework permitting alternative business structures (ABSs) in October 2011.”

5. The SRA have emphasised that flexibility and not lower standards will be the key note of the new regime and firms will be allowed to show compliance in ways best suited to consumers in their own businesses and the SRA will act flexibly in its regulatory dealings with the market as a whole. The risk based approach will focus on things which really matter to consumers and legal service providers rather than a range of detailed and complex rules. It is stressed that OFRs will not be a light touch regulatory regime but an effective one.
6. The structure of the new regulatory regime will at its pinnacle have a set of principles (e.g. you must act in the best interests of each client and/or you must provide a proper standard of service to your clients). An issue of concern will be identified in relation to a regulated entity (e.g. client care) and an outcome or disposal will arise (e.g. the client receives a service in a manner which protects their interests subject to the administration of justice). The standard of service the firm provides to clients should be competent and prompt. Furthermore certain supervisory matters may flow from such action including what the SRA term as “indicative behaviour”, for example agreeing on an appropriate level of service between the firm and the client and explaining to the client the firm’s responsibilities and also those responsibilities of the client. Further guidance may also be developed and involved in that process.
7. Principles are mandatory and will govern all the activities of firms and individuals and will apply universally across the entire handbook. The SRA will perform the outcomes they expect firms to achieve. These will also take the form of binding regulatory commitments. “Principles and outcomes” will be supported by two types of non-mandatory material entitled “indicative behaviour” and “guidance”. These latter matters will be regarded as persuasive behaviour which if complied with are likely tol give the SRA comfort that the firm is in compliance. However firms will not be obliged to follow these provisions. The SRA supervisors will however start from the presumption that there is a risk to the firm’s delivery of the outcomes if they do not adhere to the indicative behaviour and guidance although the firms will still be free to demonstrate that it is using effective alternative methods of compliance.

8. The new handbook will focus around the management of risk in complex matrixes which do not form the basis of this note but a risk based approach in relation to authorisation and enforcement and supervision form the bedrock of the new regime.

Formal Investigations and Enforcement
9. The new SRA will continue to have a legal and enforcement function to provide legal advice to the SRA and advise on proposed enforcement action in relation to matters in particular before the Solicitor’s Disciplinary Tribunal and other financial penalties. In particular the legal and enforcement function will function separately from the informal investigations, i.e. investigations to establish whether principles and/or outcomes have been breached, providing objective evaluation of enforcement proposals, take forward actions that is proportionate, set overall enforcement policy and strategy and publicise enforcement action on priority issues to improve standards.

Other areas covered by the SRA’s proposals
10. Other areas covered by the SRA’s proposals include:

(1) Consumer education;

(2) Education and training;

(3) Evidence based decision-making and research;

(4) Government’s co-ordination and decision-making within the SRA and the people culture and assistance of the SRA;

(5) The people culture and assistance of the SRA;

(6) Transitional arrangements, equality and diversity and the approach of working with their stakeholders.

11. The SRA’s enforcement strategy with the objective of constructive engagement and credible deterrents was published and last updated on 2nd June 2010 and forms Annex A of the current consultation process. At its heart lies the adherence and compliance with the 10 Core Principles and the enforcement objectives that flow from them.SRA OUTCOMES FOCUSED REGULATION - TRANSFORMING THE SRA’S REGULATION OF LEGAL SERVICES

1. In a recent announcement (30th April 2010) the SRA notified an intention of consulting on the transformation of its approach to the regulations for the benefit of consumers. These proposals will involve significant reform of the SRA’s traditional approach of regulating the solicitors profession in order for it to be “fit for purpose” for the new legal landscape brought in by the Legal Services Act 2007.

2. Amongst those matters given recognition by the SRA are:

(1) That its current rule book is too detailed and prescriptive and that detailed rules are becoming increasingly difficult to keep pace with change and will be even more so with the liberalised legal landscape coming into effect in October 2011.
(2) That its regulatory approach needs to be more effective, proportionate and targeted so it can consistently regulate a greater range of legal service providers with a targeted risk based approach.

3. The SRA proposes to move to a system of “outcomes focused regulation” (OFR) which will offer a “better focus on making sure firms offer good standards of service to consumers and good firms more flexibility in how they operate their businesses”. This transformation will involve:

(1) Changing the way the SRA delivers its regulatory objectives.

(2) Changing the relationship legal service providers have with the SRA.

(3) Further development of SRA’s internal staff skills and competences.

4. The SRA’s intention to deliver OFR in practice will involve:

(1) “Working with firms to focus on acting in a principled manner to deliver good standards of service to clients rather than compliance with mere detailed rules.

(2) A sophisticated desk based research and analysis capacity to assess potential risks to the regulatory outcomes and support for delivery of targeted proactive regulatory action.

(3) An approach to authorisation that is risk and evidence based, making sure that legal services are delivered by principled and competent firms and individuals.

(4) An approach to supervision which encourages firms and individuals to tackle all the risks themselves, allowing the SRA to concentrate on those who can’t or won’t put things right.

(5) An approach to enforcement which creates a credible deterrent and is effective fair and proportionate; and

(6) Concentrating the SRA’s resources on dealing with those firms who pose a serious risk to the SRA’s regulatory objectives such as protecting and promoting the interests of consumers. The SRA’s approach would be to foster a flexible and innovative market for legal services combining importantly improved access to justice with assured standards. It is for this reason that the SRA’s plans for OFR will be introduced at the same time as the framework permitting alternative business structures (ABSs) in October 2011.”

5. The SRA have emphasised that flexibility and not lower standards will be the key note of the new regime and firms will be allowed to show compliance in ways best suited to consumers in their own businesses and the SRA will act flexibly in its regulatory dealings with the market as a whole. The risk based approach will focus on things which really matter to consumers and legal service providers rather than a range of detailed and complex rules. It is stressed that OFRs will not be a light touch regulatory regime but an effective one.
6. The structure of the new regulatory regime will at its pinnacle have a set of principles (e.g. you must act in the best interests of each client and/or you must provide a proper standard of service to your clients). An issue of concern will be identified in relation to a regulated entity (e.g. client care) and an outcome or disposal will arise (e.g. the client receives a service in a manner which protects their interests subject to the administration of justice). The standard of service the firm provides to clients should be competent and prompt. Furthermore certain supervisory matters may flow from such action including what the SRA term as “indicative behaviour”, for example agreeing on an appropriate level of service between the firm and the client and explaining to the client the firm’s responsibilities and also those responsibilities of the client. Further guidance may also be developed and involved in that process.
7. Principles are mandatory and will govern all the activities of firms and individuals and will apply universally across the entire handbook. The SRA will perform the outcomes they expect firms to achieve. These will also take the form of binding regulatory commitments. “Principles and outcomes” will be supported by two types of non-mandatory material entitled “indicative behaviour” and “guidance”. These latter matters will be regarded as persuasive behaviour which if complied with are likely tol give the SRA comfort that the firm is in compliance. However firms will not be obliged to follow these provisions. The SRA supervisors will however start from the presumption that there is a risk to the firm’s delivery of the outcomes if they do not adhere to the indicative behaviour and guidance although the firms will still be free to demonstrate that it is using effective alternative methods of compliance.

8. The new handbook will focus around the management of risk in complex matrixes which do not form the basis of this note but a risk based approach in relation to authorisation and enforcement and supervision form the bedrock of the new regime.

Formal Investigations and Enforcement
9. The new SRA will continue to have a legal and enforcement function to provide legal advice to the SRA and advise on proposed enforcement action in relation to matters in particular before the Solicitor’s Disciplinary Tribunal and other financial penalties. In particular the legal and enforcement function will function separately from the informal investigations, i.e. investigations to establish whether principles and/or outcomes have been breached, providing objective evaluation of enforcement proposals, take forward actions that is proportionate, set overall enforcement policy and strategy and publicise enforcement action on priority issues to improve standards.

Other areas covered by the SRA’s proposals
10. Other areas covered by the SRA’s proposals include:

(1) Consumer education;

(2) Education and training;

(3) Evidence based decision-making and research;

(4) Government’s co-ordination and decision-making within the SRA and the people culture and assistance of the SRA;

(5) The people culture and assistance of the SRA;

(6) Transitional arrangements, equality and diversity and the approach of working with their stakeholders.

11. The SRA’s enforcement strategy with the objective of constructive engagement and credible deterrents was published and last updated on 2nd June 2010 and forms Annex A of the current consultation process. At its heart lies the adherence and compliance with the 10 Core Principles and the enforcement objectives that flow from them.
[AJC- 6/7/10]

 

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