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The 2019
SRA Standards & Regulations:
what’s new, what’s the same and what
should we be getting ready for?
Paul Parker
4 New Square
Professional Liability & Regulatory Conference
4 February 2020
This material was provided for the 4 New Square Professional Liability & Regulatory Conference on 4 February
- It was not intended for use and must not be relied upon in relation to any particular matter and does not constitute legal advice. It has now been provided without responsibility by its authors.
Paul Parker
Call: 1986
“He’s a wonderful advocate: tenacious, brave and prepared to roll his sleeves up. You feel very confident in his services .” – Chambers & Partners “His robust approach means nothing is left to chance.” – Legal 500 Paul is a specialist in professional liability and disciplinary matters involving accountants, actuaries, financial services professionals, lawyers, insurance brokers and construction professionals. Paul also regularly advises in connection with conduct-related complaints, particularly to the ICAEW, the SRA and the BSB. He has advised extensively on regulatory and disciplinary issues concerning breaches of SARs – both fraudulent (including advisory involvement in the Marrache scandal in Gibraltar) and non-fraudulent – separate business structures, introductions and referrals, conflicts of interest, publicity and proper standards of work in a wide variety of contexts over a number of different professions. He is the first port of call for COLPs and COFAs facing compliance and notification issues. He has substantial recent experience of defending in proceedings particularly before the SDT (including the Miners’ Compensation Cases and the collapse of Cobbetts LLP), BTAS and the disciplinary committees/panels of the ICAEW, IoFA, ACCA, TDB and CLC.
money are more of a surprise – doing a good job and safeguarding his/her client’s assets might be thought to be at the very heart of what a solicitor is expected to do – but the former reappears as a rule (rule 4 (Firms); rule 3 (Solicitors)), as does the latter (rule 5.2 Firms); rule 4.2 (Solicitors)). It is irksome that some corresponding rules in the two separate codes are numbered differently. 5 As for the rules in the Codes themselves, their brevity is somewhat offset by the host of SRA Guidance publications, some 58 or so in number, which have the effect of padding out the rules nicely. 6 On closer inspection, though, the new rules do not significantly alter what is expected of practitioners: 6.1 They must maintain trust and act fairly (rule 1, Firms and Solicitors); 6.2 They must provide a competent service (rule 4 (Firms); rule 3 (Solicitors)); 6.3 They must safeguard client money and assets (rule 5 (Firms); rule 4 (Solicitors)); 6.4 They must not act in own interest conflicts, they can only act in informed consent situations of client conflicts, and they must keep their clients’ affairs confidential (rule 6, Firms and Solicitors); 6.5 They must cooperate with the SRA (rule 3 (Firms); rule 7 (Solicitors)); 6.6 Firms must have
- Efficient governance structures (rule 2);
- Managerial responsibility for compliance with the code (rule 8);
- A COLP (rule 9); 6.7 Solicitors must
- Behave in court (rule 2);
- Comply with rules relating to referrals and publicity (rule 5);
- Identify their client (rule 8.1), have a proper complaints handling department (rules 8.2-8.5) and provide all proper and full information to clients (rule 8.6- 8.11). 7 Where there are any changes of substance, they are confined to the structure of the profession itself and the targets for regulation. 7.1 Extensively redrafted Authorisations of Individuals Regulations now permit
- solicitors providing non-reserved legal services to do so without SRA authorisation;
- freelance solicitors to provide reserved legal services. 7.2 New Regulatory and Disciplinary Procedure Rules now, by way of effective catch-all, extend the regulatory and disciplinary regime over
- Firms and solicitors guilty of misconduct;
- Managers and employees (not necessarily being solicitors) in breach of the regulatory obligations;
- Non-solicitors convicted of an offence or purporting to provide reserved legal services. The accounts rules 8 The overarching objective of any set of accounts rules is to keep money safe. Yet nowhere is such a stipulation to be found in the SRA Accounts Rules 2019. The omission is a surprising one – of course, it is remedied by the express provisions of paragraph 4.2 of the Code of Conduct for Solicitors etc and paragraph 5.2 of the Code of Conduct for Firms – but it is the first of a number of eye-catching features of the new accounts rules. 9 The second of which is that the 52 rules contained in the 2011 version of the SARs have been whittled down to a mere 13 in 2019. Will this vastly increased brevity give the greater flexibility and foster a wider sense of accountability within the profession, as the SRA would intend, or do the rules introduce grey areas which will take time to be worked out? A few examples follow. 10 Under the 2011 rules, Rule 6.1 imposed a strict liability on all principals in a firm to “ensure compliance” with the rules by everyone in the firm. The new Rule 1.2 appears more generous. It does provide for joint and several responsibility upon the partners etc. for compliance with the rules but the language is not so obviously the language of strict liability. So, while the authorised body itself might have an obligation for strict compliance with the rules, it could be argued that the individual partners themselves fall foul of the rules only to the extent that they have acted unreasonably, or negligently. Such a conclusion would be consistent with the general tenor of section 2 of the Code of Conduct for Firms, which is concerned with the firm’s “effective governance structures, arrangements, systems and controls” for compliance with
- money held or received from the Legal Aid Agency as a regular payment. These provisions, which contained traps for the unwary and have been the source of much head-scratching from time to time, have been vastly simplified under the new rules. First, there is no definition of office money at all. It must follow that anything which is not client money is office money, now called “non-client money”. Second, as for client money itself, this is dealt with in the new Rule 2.1 and boils down to
- money relating to regulated services delivered by the solicitor to a client – that is, the legal and professional services provided by the solicitor which are regulated by the SRA and delivered to the client;
- as before money held or received on behalf of a third party in relation to the regulated services delivered, such as money held as agent, stakeholder or held to the sender’s order;
- money received in the capacity of trustee, stakeholder, office-holder etc, as before
- money representing fees and unpaid disbursements received prior to delivery to the client of a bill. Is this in any material respects different from what has preceded it? The old distinction between unpaid professional disbursements – i.e. counsel’s and experts’ fees – and other disbursements has now gone. Money for any unpaid disbursements is client money. Also, the treatment of interest is different. Under the existing rules interest on general client accounts is not client money. Under the new rules 7.1 and 7.2 the solicitor will be under a duty to come to a fair arrangement with the client as to what interest that client will be entitled to earn on client money. But these are tweaks, really. In practical terms, anything received on behalf of the client belongs to the client unless
- it is specifically for disbursements which the solicitor has already paid, or
- it is money received from the Legal Aid Agency specifically for the solicitor’s costs (that’s rule 2.3(b)) or
- the solicitor has reached a separate and specific agreement with the client as to how such money should be treated (that’s rule 2.3(c)).
Note particularly that this last power – to reach a separate and specific “alternative arrangement in writing with the client” as to how such client money should be treated – is new to the accounts rules and provides welcome potential flexibility to the profession as to the inflow of funds. 12 Allied to the question ‘what is client money’ are, of course, two further questions
- how should the solicitor physically deal with monies that come into his hands? and
- what is the solicitor allowed and not allowed to do with the contents of the client account? 13 As for the first – how should the solicitor physically deal with monies that come into his hands?
- the existing rules 13 to 19, which set out detailed and prescriptive stipulations as to what may be paid into a client account other than client money, in what situations can client money be withheld from a client account, what to do with lump sum receipts which are only part client money, and what the complicated options are when the firm receives money in full or part settlement of its bill, have now been replaced with a very few, simple-sounding, rules:
- rule 2.3, which broadly says that client money goes straight into client account unless it is illegal to put it there, or it is legal aid money, or the client has agreed that it goes elsewhere;
- rule 3.3, which prevents the solicitor from simply providing a banking service for the client;
- rule 4.1, which demands that client money and the firm’s own money are kept separate; and
- rule 4.2, which requires the solicitor to separate client money from non-client money promptly upon receipt. Separating client money from non-client money will provide the same headaches as have always arisen in the case of lump sum mixed payments, most notably settlement sums expressed to be inclusive of interest and costs. 14 As for the second – where the client and solicitor have reached a specific agreement as to what should be done with a particular receipt of monies. The starting-point is the new rule
a solicitor must not use a client account to provide banking facilities to clients or third parties, by careful drafting of the initial client care letter to identify the purpose or even many purposes to which the proceeds of the transaction might be put, thus perhaps relaxing the current requirement for a strict connection between the original legal work and the destination of the transfer. 17 Finally, there may be some new-found scope to look at structures where the client money never has to go into client account at all. This could be in one of two ways: 17.1 reaching an alternative arrangement in writing with the client for whom the money is held (which begs the question of what that alternative arrangement is); and/or 17.2 operating a third party managed account under new Rule 11.1, which is an account at a bank or building society in the name of a third party authorised payment institution in which monies are owned beneficially by the third party and operated on agreed terms as an escrow payment service. The “alternative arrangement in writing” provision in the new rule 2.3 may well turn out to be a means of bypassing client account and maybe even a third party managed account in individual cases. Those are the cases which will inevitably be the subject of the most anxious scrutiny by the SRA, so particular care will need to be taken by solicitors thinking of going down such a route. It will be interesting to see what creative structures may be devised. The reach into one’s private life 18 The twin starting-points are: 18.1 SRA Principle 2: “You act … in a way that upholds public trust and confidence in the solicitors’ profession” 18.2 Bolton v Law Society [1994] 1 WLR 512, 518F-519B (emphases added): “It is important that there should be full understanding of the reasons why the tribunal makes orders which might otherwise seem harsh. There is, in some of these orders, a punitive element: a penalty may be visited on a solicitor who has fallen below the standards required of his profession in order to punish him for what he has done and to deter any other solicitor tempted to behave in the same way. Those are traditional objects of punishment. But often the order is not punitive in intention. Particularly is this so where a criminal penalty
has been imposed and satisfied. The solicitor has paid his debt to society. There is no need, and it would be unjust, to punish him again. In most cases the order of the tribunal will be primarily directed to one or other or both of two other purposes. One is to be sure that the offender does not have the opportunity to repeat the offence. This purpose is achieved for a limited period by an order of suspension; plainly it is hoped that experience of suspension will make the offender meticulous in his future compliance with the required standards. The purpose is achieved for a longer period, and quite possibly indefinitely, by an order of striking off. The second purpose is the most fundamental of all: to maintain the reputation of the solicitors' profession as one in which every member, of whatever standing, may be trusted to the ends of the earth. To maintain this reputation and sustain public confidence in the integrity of the profession it is often necessary that those guilty of serious lapses are not only expelled but denied re-admission. … A profession's most valuable asset is its collective reputation and the confidence which that inspires .” 19 Properly understood, Bolton tells you everything you need to know about the reach of the SRA into a solicitor’s personal life. If you are involved in anything unfortunate, or unsavoury, in your personal life, then you may expect the SRA to come knocking at your door IF the view is taken that the reasonable member of the public would not want to be represented by someone who had been so involved. While SRA Guidance on Public Trust and Confidence concedes that “We do not expect everyone to conform to a perfect ideal of behaviour outside of practice” it lists (apart from crimes and matters such as promoting high risk investment schemes) the following as examples of breaches of SRA principle 2 – sexist or sexually explicit communications and offensive social media posts – and SDT cases such as
- SRA v Main (2017) (sexual assault; racially-aggravated physical assault; criminal convictions; 4 year suspension)
- SRA v Scott (2019) (grossly inappropriate touching and offensive texting; police caution; stress and alcohol; 18 month suspension)
- SRA v Beckwith (2019) (sexual activity with intoxicated colleague whose purported consent was thus vitiated; £35,000 fine)
- SRA v Beach (2018) (receipt of bequests from clients; separate advice given but not sufficiently independent; some own interest conflict; £7,500 fine)
