The SRA has put out two consultations on the regulation of international practice, the first in July 2011 and the second in December 2012. The SRA has now reached the point where it is considering specific amendments to the Code of Conduct to deal with international law firms. Current indications are that the final changes are likely to have wide-reaching and significant implications for international firms and solicitors practising overseas.
When the SRA launched its first consultation it suggested that it might be appropriate for firms headquartered, or with a centre of gravity, in England & Wales, and those whose “brand” had a connection to law practice in England & Wales to have their entire economic entity or group subject to SRA regulation. The SRA indicated that it may seek to “look through” a Verein structure and subject other legal entities participating in the Verein to SRA regulation. The good news is that the changes are now unlikely to go as far as first thought, but the SRA’s ambitions in this area remain troubling for international firms.
Which firms and individuals will the changes affect and how?
The proposed changes to the Handbook can be summarised as follows:
What are the possible pitfalls?
For SRA-regulated firms with “overseas practices” (the definition of which is not yet settled), we can foresee implementation and compliance issues. For example, as would typically be the case, where a foreign lawyer is in charge of overseeing the overseas practice’s compliance with regulation, will that foreign lawyer have the necessary skills and experience to interpret correctly and apply the SRA’s Principles?
Furthermore, whilst the “Principles” are often perceived as “high-level guiding principles” (of the type with which every reputable lawyer and firm around the world should naturally comply) this perception significantly underplays the wide reaching effect of the Principles. For example, the requirement to “not allow your independence to be compromised” might prevent an overseas practice from entering into exclusive referral arrangements with a third party, even in circumstances where such arrangements are permitted in the local jurisdiction. The overseas practice of an SRA-regulated firm could therefore find itself at a competitive disadvantage to its local competitors.
Are the changes necessary?
Very few SRA-regulated firms with international offices or solicitors practising overseas will welcome the changes.
The rationale behind the move is that UK firms are exposed to additional risk due to their connection with overseas practices. Although theoretically true, our experience has been that international law firms are among the best managed. Furthermore, international firms tend to represent sophisticated clients, such as multinational corporates and high net worth individuals, rather than the general consumer market. The changes therefore seem to add an additional and unnecessary layer of regulation, which will inevitably divert management time and financial resources away from other activities, while offering little benefit to the general public or the reputation of lawyers in England & Wales. There is a risk that the ever-expanding reach of SRA regulation will act to deter international firms from establishing offices in England & Wales.
The latest consultation closes on 14 March, so there is still time to respond with any comments. International law firms which already have UK offices should keep a close eye on developments and will need to assess what, if any, changes will need to be implemented in overseas offices to comply with the forthcoming rule changes.
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