Lost in acronyms? Struggling to know where to start? If so check out our Top Five Fixes to get closer to compliance.
Prepare a business plan
Principle 8 of the SRA Principles states that you must “run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles”. There are also relevant provisions in Chapter 7 of the 2011 Code: Outcome (7.4) states that “You maintain systems and controls for monitoring the financial stability of your firm and risks to money and assets entrusted you by clients and others, and you take steps to address issues identified. The SRA will therefore expect you to plan well in advance if you are considering any change to the structure of your firm and to have a business plan in place which shows that you have considered and regularly review the financial viability of the firm. The new approach enables the SRA to concentrate its resources on business models that rely too heavily on, for example, introducers of large volumes of work, or on models that have a slim profit margin, potentially endangering the business viability of the regulated entity. It will also be necessary to review your business plan periodically to assess its effectiveness and consider possible changes.
Prepare a whistle blowing policy
Outcome (10.4) states that: “you report to the SRA promptly, serious misconduct by any person or firm authorised by the SRA, or any employee, manager or owner of any such firm (taking into account, where necessary, your duty of confidentiality to your client).” This is supplemented by Indicative Behavior (10.10) which states that “having a “whistle-blowing” policy” may tend to show that you have complied with the principles. You should therefore develop such a policy which explains the process which a person within the firm should go through if they encounter misconduct either within or outside of the firm. In both situations this should includes clear reporting lines and the people responsible within the firm for reporting to the SRA.
Prepare an interest rate policy
Rule 22.3 of the SRA Accounts Rules 2011 states that: “You must have a written policy on the payment of interest, which seeks to provide a fair outcome. The terms of the policy must be drawn to the attention of the client at the outset of a retainer, unless it is inappropriate to do so in the circumstances.” Rule 22.1 states that: “When you hold money in a client account for a client, or for a person funding all or part of your fees, or for a trust, you must account to the client or that person or trust for interest when it is fair and reasonable to do so in all the circumstances.” There is a large degree of flexibility given to firms when deciding on what interest will be payable to client’s on money held client account. It is also possible to contract out of the obligation contained in Rule 22.1, under Rule 25.1. When contracting out the client must give informed consent and therefore all relevant information must be made available to them at the outset to enable them to do so. The policy should therefore be included in your firm’s terms of business and any existing clients will require a letter explaining the policy and requesting their agreement. The policy should also be included in your firm’s Office Manual.
Comply with provisions relating to outsourcing
Outsourcing can provide for lower costs associated with accounts, disclosure, ICT support and consultancy and digital dictation services. However when using such services you must now ensure that clients are informed in your firm’s terms of business that you do not provide such services. You must also ensure that you make adequate arrangements with the entity you are outsourcing to so that the SRA will have the same access to the information which they store regarding your firm as they would if the service was being provided by you. This will mean altering your contract with them to reflect this necessity.
Select a COLP and COFA
The new SRA handbook requires both ABSs and solicitors firms to appoint a COLP and COFA in order to become or remain authorised. The SRA Authorisation Rules for Legal Services Bodies and Licensable Bodies make minimum requirements as to who may take on the role of COLP: “8.5 (B) An authorised body must at all times have an individual: (i) who is a manager or an employee of the authorised body; (ii) who is designated as its COLP; (iii) who is of sufficient seniority and in a position of sufficient responsibility to fulfil the role; (iv) whose designation is approved by the SRA.” Similar provisions exist in relation to the COFA. However Rule 8.5 (g) states that the COLP must be a lawyer in order to be designated; no equivalent provision exists for the COFA.
The selection of the COLP and COFA must be approved by the SRA. The SRA will apply the Suitability Test when deciding whether to approve a non-authorised person candidates. Whilst it was previously understood solicitors would be passported the SRA web site has a case study indicating that full screening will be applied to solicitors. The possibility of full screening of solicitors has been confirmed to us by the SRA (29.03.12) and that entails enhanced CRB checks. This process may present issues for those solicitors who have not previously undergone the Suitability Test or its predecessors. This may pose particular issues for the smaller firm with more limited choice of candidates for the COLP and COFA roles. Sabina Rinker has acted for those experiencing issues arising from the Suitability Test and she is very familiar with the jurisprudence which is developing at a pace.
We hope our Top 5 give you a starting point.
As always, if in doubt — take advice!
Tony Guise
Lexcel is a great way to get your house in order to ensure compliance – so if you are thinking about going down this route, have chat with Mike Jackson who has taken many firms through the process very cost-effectively since the standard was first introduced.
