The only way is ethics: SRA thematic reviews
QualityPI, a specialist Broking and Risk Management Company, has written an article on the subject of The only way is ethics: SRA thematic reviews.
The recent media announcement of the SRA ‘s latest thematic review on ethics and competence may be necessary, but will not be welcome amid law firms falling incomes, increasing compliance burdens and unavailability of trained and experienced fee earners. Having undertaken their research, they appear to want to go looking for firms that are not compliant.
Scope:
The difficulty in understanding how to train, engage and manage our people in their ethical knowledge and behaviour is that it strays into a number of other areas of legal practice, including such things as the consideration of what a fee earner’s professional duty of care is to their client.
There are generally acceptable no go areas for the average “man on the Clapham omnibus”, however cultural and individual influences will affect judgement, as well as commercial pressures.
Regulatory:
This is the latest of a number of SRA moves to increase fining powers, tighten regulation and influence the protection and professional standards of the legal sector.
The difficulty for firms caught up in the process of investigation, engagement or fact find by the regulator is that increasingly they (the firm) are left in a period of limbo whilst the regulator decides on their fate (we have seen 18 months to 2 years in some cases).
But it’s also that, not surprisingly, the regulator at times wishes to bare its teeth and show the sector that it should not transgress – and that requires a very single-minded approach that does not encourage two-way dialogue.
Protection:
For firms who are targeted by the SRA as a result of this thematic review, there is an important overarching solution (assuming that the firm do not have time to change their methods of working and a series of regulatory events have been set in motion).
A management liability policy (sometimes known as Directors and Officers Liability, or D & O) is designed to protect individuals who are subject to regulatory engagement. It will pay for an experienced (see below) defence team to be put in place – crucially not just to deal with the fall out but to tackle the allegations quickly and move to minimise the effects.
More importantly, the protection is also designed to achieve a negotiated outcome by early resolution. It is the triggering of action in resolution and minimisation which is fundamental to the solution.
Interestingly, a law firm’s PII policy is designed to react to a breach of a professional duty of care, but only so far as concerns a third-party claim which carries some form of financial loss. It will provide a means of comfort in some circumstances, and it will also pick up general and defence costs where that financial loss has occurred alongside an identifiable misfeasance, such as the theft of client money.
Specialist law firms (few in number) are experienced in dealing with SRA defence matters. Some will only deal with those that are “clean” (i.e. their issue relates to a technical transgression which requires a technical solution).
Few will deal with the less clear-cut difficult cases where a judgement call must be made as to the firm’s innocence and the defence team must trust that judgement in working with them. The management liability policy will pay their legal costs within the policy limits and also investigatory costs and expenses.
Data protection:
The question of ethics includes data protection issues (a real example being that of a solicitor sanctioned by the regulator for threatening to tell a client’s wife that he was having an affair).
The roll out of GDPR regulations and managing sensitive information has ebbed and flowed over many years, and, for many businesses in the UK, the endemic issue is that traditionally the task has been given to a non-specialist, mid-tier manager who had no specific skills sets in that discipline. That is also true of many law firms, some of whom allocate the task to someone who might have bandwidth to deal with it.
Significantly, in consigning the discipline to a corner of the business, the individual carrying the burden may not have the gravitas or influence to provide good oversight and catch bad habits before they spill over into a catastrophic event.
Managing risk:
Law firms are required to have a risk register within their business which identifies significant exposures to the firm’s wellbeing, but in our experience, a significant number do not carry these.
A healthy firm will “horizon scan” and look ahead, rather than be reactive. For this reason we prefer to engage with our clients on the basis of a holistic risk managed basis – that is to understand the firm and its people, and then set about identifying what risks are present.
These are compared to which ones are covered off through management processes, Insurance and contractual agreements, and those left are the items which the partners and directors should be cognisant of.
Often the results of this exercise are not a surprise to the management team. However, on occasions, it can catch them wrong-footed rather that than have the regulator pick them up on it.
A risk management review also acts as a means of comfort during a sale or exit process. Some firms will use the findings in early-stage negotiations on sale or purchase. Crucially, a proactive risk management review can act as a demonstration that the firm has indeed considered such aspects as ethics and competence and has addressed them across the business.
A one-off lapse, or limited series of lapses when considered against a general culture of adherence, will indicate that the firm are not systematic transgressors.
QualityPI advocate that our clients not only circularise their fee-earners to flush out errors and omissions, complaints and circumstances prior to the renewal of their PII policy, but also that the declaration includes aspects where professional duty of care matters could come to light – as these are designated risks which need to be monitored. Circularising fee-earners is a means of protecting the business because it has done everything in its power to drive out information from within its team.
Alongside the enhanced regime of CQS re-accreditations, the targeting of conveyancing firms will add further burden on a sector which has done rather well over the past few years, but is now starting to suffer from the drop-off of the housing market.
That could drive change – there will be opportunities for firms who may wish to acquire others that no longer have the appetite or energy to carry on, and others that have been put into run-off due to sanction.
If the acquirer does not want the responsibility of client liabilities it can opt to pick people off from a failing firm as it goes down, which is neither particularly desirable nor totally ethical – an ironic outcome considering the aims and objectives of the regulator.
Written by: Gillian Anderson, Quality PI, Specialist Broking and Risk Management
Kindly shared by QualityPI
