A profession having to get used to increasingly robust regulatory oversight will have more on its plate from this week with the launch of the new rulebook from the Solicitors Regulation Authority (SRA). The new Standards and Regulations (STaRs) came into force on Monday (25 September), ushering in new reporting obligations on solicitors and much-trailed rules designed to make it easier for lawyers to practise individually.
The new code of conduct, which also cuts the core principles from ten to seven, is seen as a further step towards more robust regulation, with the shifting of the SRA’s remit to ‘promote a culture where ethical values and behaviours are embedded,’ according to its enforcement strategy.
Among the key changes enshrined in STaRs is an explicit spelling out of sexual harassment as serious misconduct alongside ‘abuse of trust, taking unfair advantage of clients or others, and the misuse of client money; dishonesty and criminal behaviour’.
The SRA enforcement strategy states: ‘We see certain types of allegations as inherently more serious than others: for example, we will always take seriously allegations of abuse of trust, taking unfair advantage of clients or others, and the misuse of client money; as we will sexual and violent misconduct, dishonesty and criminal behaviour.’
Iain Miller, regulatory partner at Kingsley Napley, highlighted the main changes: ‘The big story is the SRA’s approach has changed – that’s obvious in the enforcement strategy with its stipulations around money laundering and sexual misconduct. There has been a dividing of responsibilities between the firm and the individual. The SRA’s intention is to regulate the firm’s culture. In the past if a solicitor did something bad, there would just be proceedings against the individual. Now the SRA is asking the firm: “What did you do to create that environment?” Whether that’s an alcohol and testosterone-fuelled Alpha Male culture in sexual misconduct cases or firms which are aggressive around billing in a case of financial misconduct, the environment they worked in could be a contributing factor.’
The regulator has also condensed and simplified its list of principles, as well as stipulating an emphasis on ‘equality, diversity and inclusion’ for the first time.
Also crucially, changes to reporting obligations have been brought in that make it necessary not only to report any alleged misconduct to the SRA even before any internal investigation has been concluded by the firm, but also if misconduct is only suspected and no investigation has yet been launched.
Corinne Staves, a partner at Maurice Turnor Gardner, told Legal Business: ‘There are interesting parallels with financial services, the FCA’s Senior Managers Regime – a regulatory referencing system for conduct issues that follows people around. People sometimes used to escape justice, leaving before an investigation could be concluded. There was a perception of a lack of accountability. There has been a shift towards individual accountability.’
For many, the new rules signify heightened regulation on law firms which have failed to address problems with culture and ethics. ‘The question is whether that translates to the culture of firms, whether that becomes infused in the culture or whether it is perceived as a necessary evil. In the past, people might have thought that the way to protect the reputation of the firm was to keep things quiet,’ added Staves.
The shake-up is expected to make it clearer that non-solicitors in law firms are required to report suspected rule breaches to the SRA. Coinciding with the reforms to the SRA’s code of conduct, enforcement strategy and principles, the Solicitors Disciplinary Tribunal has also moved away from a criminal to a civil standard of proof, bringing it in line with the majority of professional regulators. The shift replaces ‘beyond reasonable doubt’ with the less stringent ‘balance of probabilities’ test, making it easier to secure rulings against solicitors accused of misconduct.
Another key reform, first mooted in September 2017, allows solicitors to practise from unregulated organisations and to operate as freelancers in a move intended to improve access to justice and cut costs. What has been dubbed ‘the Uberisation of law’ has been met with mixed responses, with some raising concerns about working with unregulated entities and complications of gaining insurance cover. Under the rules, such lawyers would not be able to hold client money or employ staff, but would be able to provide reserved legal activities to the public.
Staves echoes the views of many that a lot rests on how firms deal with heightened reporting obligations. ‘Firms simply must have reporting process and a compliance culture where people feel comfortable reporting without fearing for their jobs,’ she said.
The shake-up comes amid a dramatic increase in the last three years in regulatory activity against major commercial law firms, most recently in the high-profile prosecution of former Freshfields Bruckhaus Deringer partner Ryan Beckwith.
All eyes will now be on how these forces play out in the prosecution of Baker McKenzie’s former London head Gary Senior, which is due to kick off next week in a 17-day hearing. Senior is alleged to have sought to ‘initiate intimate activity’ with a junior member of staff in 2012 and improperly sought to influence Baker’s investigation of a related complaint.
