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Opinions from the Legal Futures – Regulation and Compliance Conference

I recently attended the Legal Futures conference on – Regulation and Compliance. Neil Rose of Legal Futures was a great host and the event was very well attended. We covered a lot of ground and whilst the following comments are not a full round-up, they stood out for me and my practice.

The Independent Review of Legal Services Regulation

Professor Stephen Mayson leads the independent review of the Legal Services Regulation. He regarded himself as being in ‘receive mode’, rather than ‘transmit’, but it was still good to hear his approach. Sector-specific regulation is under consideration but who is going to regulate what and which countries do it better? Public interest is still the foundation for much of what we do. There is an appetite to move beyond regulation by Title to activity-based regulation, especially because of legal tech developments. We need to align consumer expectations and regulatory reality. The public thinks everything is regulated when it is not. When should the focus be on the individual rather than the entities, now that the new regime requires the regulated person or entity to exercise more judgement?

At the subsequent regulatory roundtable, it was said - Regulation should not be the only response to public perception. We need to communicate better about what we do. However, we are still fundamentally concerned with improving standards, ensuring the sustainability of businesses and protecting clients. In so doing, we discussed the possibility of a single regulator. It would be simpler for the public, but would it have sufficient specialism to maintain the confidence of the regulated community? When people do not trust lawyers, it is not because there are nine different regulators. It arises out of conduct, remuneration and complexities in access to justice.

We wondered whether the existence of so many regulators would encourage firms to engage in ‘regulatory shopping’. The response was that all regulators have minimum standards and many firms seek a specialism as opposed to a full service law firm requirement. Interestingly, Neil Buckley (Chief Executive, Legal Services Board) welcomed the application of a common standard of proof across the different disciplinary tribunals. The LSB wants to look at disciplinary processes in the future and there was some discussion over the possibility of a single disciplinary tribunal. There was a recognition that some panels do not have enough work and consolidation might improve consistency. The absence of a Fitness to Practice regime in our industry is a factor here and I say more about this below.

The New Code of Conduct

Chris Handford (Director of Regulatory Policy at the SRA) introduced the new Code of Conduct. It comes into force on the 25th of November 2019 and has been reduced from 450 pages to 150 pages. It is quite different, in that more trust and judgement is required on the part of the individual practitioner. It was always going to struggle with the - prescriptive versus non-prescriptive - approach, but recognises 21st-century challenges arising out of new structures and legal innovation. There will be two codes, one for individual solicitors and one for firms, together with simplified accounts rules. Updates to the enforcement strategy include the publication of internal guidance, so that practitioners may see what the SRA see. July (or perhaps August) should see the publication of guidance. It will certainly involve wider reporting responsibilities, but the COLP will remain the default conduit.

Studies suggest 40% of law firms think they are not going to do anything differently in response to the changes. On the face of it, this is worrying, but firms that already regard themselves as compliant will not be unduly troubled by the shift in mindset and no radical changes will be required. Trouble is, too many firms think they are compliant when they are not. This is most noticeable in a firm’s failure to document why decisions were made and why a particular approach was taken on behalf of the client in the absence of properly defined instructions. On the topic of “serious misconduct” within the new code, Jo Riddick (General counsel and COLP, McFarlane’s), spoke about how we as an industry are failing in the client experience. Serious misconduct needs a contextual approach and this is why the SRA will not define the issue, preferring to frame it with aggravating and mitigating features.

Professional indemnity insurance

Marc Rowson (Vice president of Locktons) described non-US PII performance as poor and running at a loss. In a challenging market, compliant firms will still find value for money. He described how insurers will place more emphasis on KYC, together with the frequency and type of claim. They will especially look at how is risk mitigated within the firm and many firms fail to ‘put their best foot forward’ in this regard when clearly stating their position would enable them to find a better value. He observed how risk profiles can change quite dramatically where firms move to new areas to exploit short-term gains. He used the cavity wall insulation claims example when describing how many of these firms suddenly moved into, for example, travel claims. The most important risks remain the increase in conveyancing work and the straightforward rise in the number of fee earners at a firm. However, there was no discussion on how new structures in the market are going to be advised in relation to the “appropriate level“ of cover under the new regime.

Anti-money laundering

Nicola Kirby (member of the Law Society‘s money laundering task force) introduced the topic and referred to the recent thematic review wherein 26 of 59 firms were referred to the disciplinary process in relation to money laundering. She commented on the continuing low level of SARS and risk assessments. Ironically, she suggested that where the regulator had placed “regulatory managers“ with particular firms, the firms did not do much better! 29 out of 32 firms had not commissioned an independent audit of AML. The next thematic review is likely to be – cash and overseas purchasers. No real surprises there.

Well-being

This was not just about encouraging the work-life balance. It focused on how responsible firms benefit from ensuring good mental health amongst staff. Unhelpful environments encourage mistakes and – equally important – the covering up of mistakes. This can lead to an unsatisfactory client experience, PII claims and perhaps referrals to the SDT. Bronwen Still of Lawcare expressed some surprise that firms have not got into more trouble at the SDT in relation to fee earners working in difficult circumstances. This stimulated an interesting conversation about developing a fitness to practice regime. Should lawyers be treated in the same way as doctors? It was observed that in many instances, doctors would not have been readmitted to their practice had their disciplinary panels being founded on SDT sanctions.

Neil Rose posed the question – Conduct and ethics in the legal profession; could we do better?

The consensus was that some lawyers do not know when they have overstepped the mark on integrity and the objective test is therefore overdue. There needs to be a greater emphasis on standing up to clients who want their lawyers to act unethically. There was a recognition that standards change over generations and proper conduct in the 19th century is today’s gross misconduct. The media are more willing to take lawyers to task and there needs to be a change in the psychology of simply emulating the senior partner where this entrenches misconduct.

The adversarial system relies upon integrity, but lawyers are constantly under pressure to act unethically. It was said, “You are not there to ride your client’s charger“. Indeed, the panel agreed that clients sometimes don’t regard their instructions as unethical and they need to be advised accordingly. There was also agreement that lawyers need to give legal advice in a more commercial context. Many customer service advisors or customer facing-professionals who transfer to the law are keenly aware of this need and we would do well to learn from them. Clients do not want to struggle with complex legal concepts. They seek advice on practical options and solutions.

Ed Nally (President, Solicitors Disciplinary Tribunal) give us insight on themes arising at the tribunal. He recognised the growing pressure for a fitness to practice regime and questioned whether conditions for re-entry are too harsh. He looks forward to a more structured re-entry framework and a more dignified exit, but he observed that the tribunal is being ‘boxed in’ by decisions in this respect. He contrasted this with the GMC approach. He also noted that too many solicitors communicate inappropriately on social media and this is becoming a feature in more SDT decisions.

Although there was some concern that lawyers might turn to an ABS in order to somehow avoid regulation, the vast majority are proud to be governed by a code. The problem arises when we are not surrounded by practitioners who share the pride in an ethical code. This led to the final topic – the perceived lack of education on professional ethics. Patricia Robertson QC referred to counsel’s unique selling point - The trust a client must have in counsel’s advice not to steer a particular course. The whole industry should take an ethical standpoint and resist the temptation to maximise fees by simply agreeing to steer the client into a storm.

It was a very full day and I came away from the conference with two main messages – There is no substitute for continuing education on professional ethics. It should not be confined to a small module on a pre-qualification course – many of which are being dropped in favour of other topics. Secondly, my practice involves advising professionals in regulatory proceedings across quite a few sectors and the attitude to Fitness to Practice varies quite significantly. If we are to move towards merging tribunals, this will be high on the agenda.

Evan Wright is a partner in the Regulatory department.

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