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September 2010 -Where are we now?
For many months passed, practitioners have been looking towards an horizon which has been hazy and uncertain. That future is getting closer.
Whilst the vision enacted within the Legal Services Act is coming into closer definition current uncertainties continue. Litigation over the family legal aid contract tender and other legal aid contracts, has brought in its wake for many firms distress and upheaval. A volatile indemnity insurance market has brought worry and financial pressure affecting numerous firms in Middlesex and even where firms are able to secure cover without changing insurer the cost of the ARP presents a rising cost.
In just one year it is planned by SRA that we will enter the new regime offered by the SRA in its new ‘handbook’. Do not be fooled byte title it will not be a short guide to better practice, but rather a compendium of the regulation that binds the profession as an entirety be it as a sole practitioner or multi national corporate firm with registered foreign lawyers. It is currently proposed that rules in the code of conduct will be replaced with a series of principles and outcomes, drawing on much the same topics as the existing Code of Conduct but bringing in new provisions adapted to enable new types of licensed business structures to operate.
As a curtain raiser to all that, the Legal Ombudsman opened its doors for business on the 6 October. This was heralded by a new complaints rule amending the current Rule 2.05, requiring practitioners to notify clients of the new arrangements. Some may ask why such prescriptive requirements have been directed by the SRA at the behest of the Legal Services Board just when we are supposed to be entering an era of enlightenment and simply ‘doing the right thing’ to ensure ‘the right outcomes’.
This is typical of the kind of issues that remain to be resolved over the next twelve months in relation to the current rules of conduct. The first draft of the Handbook contained outcomes which largely echoed the current Conduct Rules, but the proposed amendments to the Solicitors Account Rules are relatively few. New flexibility in relation to dealing with the payment of interest on client money offers wider discretion but at the same time offers fertile territory for future uncertainty. This is a very typical of the challenges that OFR presents. An opportunity and freedom to apply judgment but a risk of censure at a later date when called to account.
With many of the Account Rules, leaving aside very tight time limits for making and correcting transfers from client to office account, there appears to be relatively little that can be improved by adopting a more fuzzy set of principles. Auditors know what they are looking for and for the most part, cashiers do not find the rules over restrictive. Whatever final set of rules is settled alternative business structures will have to conform.
In relation to the second consultation on the Handbook starting in October, it will be vital to gauge the mood of the profession, and the Regulatory Affairs Board will be listening carefully to practitioners’ responses. Having attended the first meeting of RAB as its chair in September I can report that we belie that the receptiveness of the profession to the proposed changes is vital to their success. Personally I believe that if the burden of outcomes regulation delivers too few benefits, it will be appropriate to signal this to the SRA sooner rather than later.
There are many provisions where the SRA will have to make difficult decisions. For example in relation to rules concerning conflict of interest and confidentiality the Consumer Panel of the LSB have suggested that broad principles are all that is necessary. The profession by contrast currently work with carefully detailed rules, modified over recent years, and designed to protect the public, protect solicitors and set a framework for good practice. It is hard to see how abandoning these rules, can really advance the case for better regulation.
In relation to the SRA itself becoming more outcomes focused, the question is again one for practitioners to assess. The culture of change which the SRA is undergoing, should bring about a more flexible and supportive approach with less attention to unimportant detail. Relationship management is offered to encourage correction rather than disciplinary process. There is every reason for the SRA to adopt this new approach now rather than wait and we at the Regulatory Affairs Board, are watching carefully, to see examples of the new approach being adopted by the SRA.
The whole purpose of the change in approach by the SRA is to enable it to adopt a more risk based focus on dealing with problems that threaten the reputation of the profession. There have been recent problems, and it would seem that some of these should have been identified earlier and prevented.
Our regulatory structure is one which requires a careful balance between regulators, insurers and clients (including government in the case of the LSC) and needs to be managed carefully and strongly but with sensitivity. This year it ahs become clear that the management of the profession’s indemnity insurance arrangements had fallen into neglect. The ARP had swollen and insurers complained that they had lost confidence in the current system. The SRA have accordingly announced a wholesale review and the Law Society, through the Regulatory Affairs Board, is heavily engaged with this. Time is short, if improvements are to be made in time for the 2011 renewal.
It was my declared aim upon being elected to the Regulatory Affairs Board, that I would make efforts to achieve improvements, particularly in relation to insurance and the new OFR regime. I also have particular concerns in relation to the licensing terms for new business structures. Although they are expecting to arrive in less than a year, the detailed provisions relating to their approval, remain undrafted and it is quite clear, from the fraud that has recently penetrated within firms of solicitors that new risks are to be anticipated when opening up ownership of legal firms to non-professionals. Important work is in hand, to assess the essence of the solicitors’ profession and the combination of knowledge and ethics that is central to professional behaviour.
Practitioners have an active part to play in the coming months to really shape the realisation of the vision set by the last government five years ago. The framework of the Legal Services Act is just that; it is a framework. The shape of the body that we attach to the frame is to an extent in our hands. We will be expected to make the new system work, and in our own interests, we must therefore strive to get common sense onto the agendas of both the SRA and the LSB in the coming months.
Michael Garson
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