At the Lawyers Defence Group we are regularly asked how firms can reduce the chance of regulatory action. Historically firms have only turned their attention to compliance and risk management following an SRA investigation, or significant PI claim. With the new so called ‘Outcomes Focused Regulation’ the SRA have given notice that responsibility for compliance rests on the firm. The responsibility to put systems in place to achieve that compliance rests with the firm’s COLP and COFA.
Outcome 10.4 of the SRA Code of Conduct requires regulated individuals to self-report misconduct. From 1st January 2013 all firms must have an approved COLP & COFA. Rule 8.5 of the SRA Authorisation Rules demands the firm’s COLP & COFA take reasonable steps to ensure compliance and record any failures to comply. If systems are not in place to prevent such misconduct, the firm, its’ COLP and COFA and other managers might be liable in conduct, no matter what efforts are expended to remedy an issue after the event.
While the MoJ has this week rejected the SRA’s request for fining powers of £250m, the SDT still have unlimited powers to fine. If a fine is to be avoided, it is likely that firms will need to be able to demonstrate that effective risk management policies were put in place.
As COLP & COFA one method of demonstrating that you have taken reasonable steps is by outsourcing certain functions. How much you spend, will of course depend on your ability to pay, but the immediate outlay on COLP & COFA and risk management systems may well pay firms several times over in avoiding regulatory action and the consequent legal defence costs, bad publicity and increase in professional indemnity insurance premiums.
What can be outsourced? Bookkeeping, business plans, file reviews, complaints handling, PI liaison and almost every middle management function. In smaller firms this might be more cost effective than a part-time practice manager.
Outsourcing compliance functions should allow the firm’s COLP and COFA to rest (slightly) easier. In addition it may persuade PI insurers that the practice is well run, viable and a reduced risk. Finally, should something still go wrong, having sought expert assistance, it is likely to be significant mitigation should managers find themselves before the Solicitors Disciplinary Tribunal.
Finally, if you have decided that outsourcing is the way forward, bear in mind rules 7.9 and 7.10 of the SRA Code of Conduct. For example, you will probably need to contract with the company that you outsource to, to enable the SRA to inspect their premises and records.
Whether you outsource or not, firms need to be putting their procedures in place now, so they are ready for 1st January 2013.
1 November 2012