The long-awaited overhaul to the regulatory regime for solicitors and UK law firms will come into effect on 25 November 2019. Firms (and compliance officers in particular) need to be aware of what the changes will mean for their practice.
The new rules, known as the Standards and Regulations (“STARs”) cut down the current rulebook from roughly 300 pages to around 130 pages. However, the slimmer handbook does not represent a relaxation of the SRA’s approach to compliance. In a number of areas, the obligations have been made more onerous, rather than relaxed.
We highlight below seven of the key changes firms should be aware of:
- Firms will have a different rulebook to individual solicitors
Firm-based regulation has long sat uncomfortably in the same rulebook that governs the personal conduct of individual solicitors. Although the seven principles apply to both individuals and firms, this split gives the SRA the scope to take a more tailored approached to rule-making and expectation-setting going forward.
- Reporting breaches and misconduct
The obligation for SRA-regulated firms and individuals to report misconduct or serious compliance failures (including their own) is now likely to arise at a much earlier stage, with the SRA potentially taking the lead on investigating matters, rather than allowing firms to conclude their own investigations before making a report. There is an emphasis on the obligation of individual solicitors to report misconduct which is likely to be in conflict with firms’ current policies.
- Engagement letters
The detailed requirements for engagement letters have largely been done away with in favour of a more limited set of principles. Firms are unlikely to want to trim down their template engagement letters, as these have benefits beyond regulatory compliance, but need to be mindful of the SRA’s clear desire that such letters are clear and in plain English.
- Solicitors can practise in non-regulated employers
Perhaps the most fundamental reform the new rules will bring is solicitors will have far more latitude to provide legal services to the clients of unregulated firms. Solicitors will still be prohibited from undertaking certain types of work outside of a regulated firm, such as court litigation and immigration work, but in other areas new opportunities may emerge. It remains to be seen whether solicitors will hive off certain aspects of their practice to an unregulated subsidiary or affiliate.
- Freelance solicitors
Another headline-grabbing development has been the advent of the freelance solicitor. This type of solicitor, similar to but distinct from sole practitioners, comes in two flavours: those who are entitled to carry on the full range of legal activities (including litigation, real estate conveyancing and immigration) and those which are not. The former type carries more restrictions, including the requirement to take out professional indemnity insurance. In either case, however, it is notable how easy it is for a solicitor to set up shop as a freelancer. Established firms may end up using freelance solicitors in the same way as consultants or may come across them on the other side of matters. Restrictions on freelance solicitors include their not being permitted to hire staff or handle client money.
- Better information
The new transparency rules which have been in force since December 2018 (which require the publication of costs information in relation to certain types of legal work), have been combined with other requirements which apply to all SRA-regulated firms. These include an obligation to ensure complaints information is prominently located on the firm’s website alongside the firm’s SRA number and digital badge.
- Insurance requirements
The SRA has maintained the requirement for law firms which are companies or UK LLPs to have a minimum of £3 million of cover in respect of any one claim. However, this is now more emphatically a minimum and will not always be sufficient: the firm’s level of cover must be “adequate and appropriate”, taking into account the relevant characteristics of the firm’s practice. Notably, the accompanying guidance appears to emphasise that firms should not cap its liability to clients as a matter of routine, which will no doubt come as a surprise to the many firms whose standard Ts&Cs feature such a cap on liability as standard.
Fox Williams has extensive experience advising law firms on the Standards and Regulations. Please speak with Daniel Sutherland or your usual Fox Williams contact.