The FCA – Transformation to Assertive Supervision
Ethics sits at the very heart of the updated regulatory framework launched by the Solicitors Regulation Authority (SRA) at the end of 2019. Ethical behaviours (and associated decision making) and culture are emphasised in a way which they simply were not in the 2011 Handbook, where risk and compliance were the principal focus. Long gone are the days of compliance-based box ticking; we have entered an era of legal regulation where firms and their lawyers have positive, enforceable, ethical obligations. Firms will be expected to support all their staff in complying with their regulatory obligations and to actively create and foster a culture based upon them. Where this fails to happen, firms should not be surprised if the SRA takes an interest.
It is fair to say that the teaching of legal ethics does not feature much during the academic stage on the journey to becoming a lawyer, let alone it being a compulsory subject as it is in many other common law jurisdictions. While ethics in England and Wales is taught in passing, the effect of such a fleeting acquaintance with the subject is often to marginalise its (central) importance to practice and to leave the prospective lawyer in a slightly precarious position vis à vis the regulator. This means that the SRA is speaking a language that those it regulates may not readily understand, or at least may struggle to understand until suitably translated.
Accordingly, the onus, we suggest, is very much on firms to help employees better understand what is expected of them in terms of ethical and acceptable behaviours.
The seven SRA Principles set out the overarching high-level standards of ethical behaviour expected. Crucially, they apply both in respect of professional life and, where appropriate, life outside of work, and, something which many people do not realise, or at least forget, is that they apply to all those the SRA regulates. This includes individual solicitors, registered European lawyers (while they still exist), registered foreign lawyers (RFLs) and law firms, as well as all non-solicitor employees.
Sitting beneath these Principles are a now separate Code of Conduct for Firms and a Code of Conduct for Individuals. The Code for Individuals states in its introduction that it “comprises a framework for ethical and competent practice which applies irrespective of your role or the environment or organisation in which you work”. In terms of individual ethical standards, while there are many to choose from, the following requirements are mission-critical to know about:
In terms of the Code for Firms, with a shift towards standards rather than rules, there is now a clear focus on a firm’s culture as well as its systems and controls. The introductory section sets the tone for how the standards need to be read, with the reminder that they “…aim to create and maintain the right culture and environment for the delivery of competent and ethical legal services to clients”.
In the Code for Firms, there are additional obligations on partners and managers for how work and employees should be managed. Key provisions include:
Underpinning both the revised Principles and the new codes is the SRA’s revised Enforcement Strategy. This signposts what the SRA sees as the ‘big ticket’ issues and where the SRA intends to focus its regulatory action. Crucially, it states that the SRA will take action against a firm, either alone, or in addition to taking action against an individual, “when the events demonstrate a failure which relates to culture, systems, supervision arrangements or processes for which the firm, as a whole, should be held accountable”. It includes detail of what the SRA will take into account when determining the seriousness of any concerns raised about a failure to meet its standards and makes clear that the purpose of the principles and the codes of conduct is to show “what a competent and ethical legal profession looks like”. It leaves no doubt that its regulatory approach is now to “promote a culture in which ethical values and behaviours are embedded”; in fact, this is one of three main objectives, alongside ensuring a strong, competitive and highly effective legal market; and ensuring a focus on quality and client care.
Firms can approach this task in several ways. Starting with the most innovative (read expensive), firms could look to employ their own objective ‘moral compass’, in the form of an individual dedicated to advising on ethics, or alternatively commission an expert to advise when things go wrong or prospectively, when (ethical) judgement calls needs to be made. Perhaps a more realistic model for most firms will be where a working knowledge of legal ethics becomes an essential component of the job description for general counsel or those working in compliance more generally. Either way, expert ethical in-house expertise is a must.
The early essential steps for firms to take are to make employees aware of the relevant regulatory provisions, notably the SRA Principles and Codes of Conduct, and to introduce effective training so that staff become more confident in their own ethical decision making. This up-skilling should lead to improved decision making in ethically complex situations and will tend towards individuals understanding that they are (or may be) personally accountable and avoid the potential pitfalls of ‘group think’, where the decisions of some are accepted unthinkingly by others, in a desire to achieve harmony or consensus on an issue. This, all too common, type of decision-making is a red flag for law firms as it poses insidious risks to matters of regulatory compliance.
An ‘ethics audit’ can identify (and improve or correct where necessary) those areas where ethical decision making may become compromised. It enables a firm to mitigate the risks to it and its managers by being able to demonstrate that they have done what is necessary to create an unimpeachable culture and environment. Areas to consider in undertaking such an audit might include:
Some examples include the following:
Firms should pay particular attention to structures, systems and processes that are new or novel within their organisations as these may present risks that have perhaps not been previously accounted for. Non-lawyer manager/owners in SRA-regulated entities, for example, may need training on the ethical and regulatory obligations expected of them. Lawyers from other jurisdictions, may, along with their jurisdiction-based adopted methodologies to matters such as anti-money laundering, bring with them a difference in approach to the over-laying ethical obligations expected of them. Given these individuals may well be RFLs, identification of these risks and a mitigation strategy is a must for firms.
Safe and supportive workplace
As well as ensuring compliance with all the applicable legislative and regulatory obligations to create a diverse, inclusive and safe workplace, a firm’s obligations extend to ensuring that the wellbeing of employees is effectively supported to minimise the risk of unethical behaviours creeping in, for example, to counterbalance the effect of stress and anxiety that may otherwise be all too present in a busy legal practice.
In our blog “All well and good”, you can see some suggestions as to how firms might do this.
Promoting professional behaviours
While employees are themselves primarily responsible for ensuring on-going adherence to an (SRA) acceptable ethical and professional code, the environment cultivated by the firm must enable and support, and to a certain extent, protect, individuals in that endeavour. Alcohol-related social events and skiing trips are paradigm examples of firm-based activities where professional misconduct can (and does) thrive – firms would do well to consider if such events should be replaced with something altogether more inclusive, where alcohol perhaps does not feature so greatly. At the very least, firms need to have in place a well-publicised and tightly enforced suite of policies around expected behaviours at such events so that those attending are aware of their personal responsibilities and better understand the risks these events can pose.
The messaging from the SRA is inescapably clear: there will be little room for excuses premised upon a lack of understanding as to the applicable ethical and professional obligations. The days when a firm might have been able to turn a blind eye to the suspected conduct of its employees or managers on the basis that responsibility to take any actions lays solely at the door of the SRA, are long gone. The SRA expects that firms will take more responsibility for the actions (or inactions) of employees, promote a culture where allegations of misconduct are taken seriously and investigated at firm level and that prompt and early engagement with it becomes routine practice.
Firms that do not prioritise culture and do not place behaviour and values front and centre of their drive to achieve a good workplace culture, can expect to be held to account when one of their own goes rogue. Think of culture as being part of your compliance agenda; firms ought to have as strong a focus on ethical infrastructure and the culture that makes the firm work as they do on legal and technical knowledge and their client-facing skills.
Julie Norris is a partner in the Regulatory Team. She predominantly acts in the professional services sector, advising lawyers, accountants and built environment professionals on regulatory compliance, investigations, adjudication, enforcement and prosecutions. Julie is top ranked in both major legal directories for her work in this field. She is recognised as a leader in her field.
Jessica Clay is a Senior Associate with over a decade’s worth of experience specialising in legal services regulation. Jessica’s work in this sector focuses on advising her clients in relation to complying with regulatory obligations, better understanding the importance of legal ethics within regulation, regulatory investigations and public law matters, including reviewing regulatory frameworks and decision making processes.
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