As most of you will be aware (or should be by now), the Solicitors Regulation Authority (SRA) is due to introduce major changes to its regulations and has now announced that these changes will finally come into force on 25 November 2019.
The Handbook is intended to be more user-friendly, simplified and focused – and is significantly reduced in length to 130 pages. The changes are aimed at increasing access to justice for the public by removing restrictions on where solicitors can work, and sharpening the focus on and improving professional standards.
Some of the key changes to note are:
- The current 10 SRA Principles will reduce to 7, heavily focused on client service.
- The numerous Outcomes and Indicative Behaviours in the 2011 Code disappear and are replaced with one set of requirements in the new Codes of Conduct (the Codes) – effectively a statement of the required outcomes.
- Two separate Codes have been created: one for solicitors and one for law firms.
- The Accounts Rules have been whittled down from 41 pages to just 7 pages, and focus on safety of client money.
Reduced Principles and Removal of Outcomes
The removal of so many prescriptive rules is intended to reduce the burden on solicitors and law firms and enable them greater freedom and flexibility to use their professional judgement in considering how they apply and maintain the required standards. The need to act with honesty and integrity – both fundamental to acting as a solicitor - are now standalone Principles – the former possibly as a result of issues that the SRA has experienced with firms. Four Principles have been removed but are covered under the new Codes ensuring that the Principles are universal in their application and avoiding the previous duplication.
The New Codes of Conduct
The new Code of Conduct for Solicitors addresses the expected standards of professionalism, whilst the new Code of Conduct for Firms sets out the standards and business controls expected from firms, and applies to managers, COLPs and COFAs. Rule 8.1 clarifies the responsibility of a firm's managers for the firm's compliance with the Code and Rules 9.1 to 9.2 detail the extent of duties for COLPs and COFAs. It's worth noting that solicitors who are both owners and managers will be bound by both Codes. The Codes demonstrate the SRA's new approach of focusing on the behaviour of individuals, as well as a Firm's culture and systems.
There are a number of changes which managers, COLPs and COFAs need to take into account to ensure that their firms do not inadvertently breach the new Code.
The New Accounts Rules
Some of the key changes to note are:
- The definition of client money has changed (see new Rule 2.1) and the concept of office money has been removed.
- Rule 2.2 provides an option for firms to hold limited types of client money outside of client account, provided that the only client money they hold is for billed fees and disbursements for expenses incurred on their client's behalf and the client is informed in advance.
- Rule 2.3(b) exempts payments from the Legal Aid Agency from being held in client account.
- Rule 4.3(a) requires a bill of costs or written notification to be given to a client before payment for fees is taken from client account money.
- Rule 11.1 introduces a new right to use a third party managed account as an alternative to a client account, subject to the firm satisfying certain criteria (including keeping the client informed of arrangements) – we anticipate firms will adopt a “wait and see” approach on this, to watch how this is applied in practice.
- Rule 3.3 makes it clear firms must not provide banking facilities via their client account – a hot topic for the SRA.
As you will be aware, Firms are already required to keep clients informed about issues arising whilst acting. The new Code of Conduct for Firms goes further and new Rule 3 (dealing with Cooperation and Accountability) grants the SRA the ability to direct firms to investigate whether anyone may have a claim against that firm. This involves providing a report on the outcome of your investigation to the SRA, and notifying relevant persons that they may have a claim. Given this, firms may wish to consider, in the event that they come across a claim or potential claim, undertaking a detailed review of files for the relevant fee earner, to see if there is, for example, a previously unidentified pattern which is giving rise to problems. Don't forget to update your policies and procedures to reflect any changes you make.
Although the SRA aims to simplify its Handbook with the changes, the high-level Codes with less prescriptive rules may well lead to compliance challenges, particularly where an area is 'grey' and left open to interpretation. The SRA is still to announce a date for publication of the Guidance which will accompany the Handbook, and this week would not be drawn on when, but it is hoped that it will be in good time to enable Firms to better understand their obligations and be fully prepared for the changes.