SRA Standards and Regulations 2019

StaRs: Reporting concerns - understanding your obligations

5 November 2019

In the second blog in this series, we referred to the cooperating and reporting obligations in the new Codes of Conduct being notably different, when compared to corresponding provisions in the 2011 Code of Conduct and to other rules and regulations in the 2011 Handbook. 

 

This is without doubt one of the areas within the new Standards and Regulations (StaRs) that is keeping everyone on their toes.  We know, first-hand, that working out when your obligation to report is triggered and then assessing the scope and extent of what you report, are issues which SRA regulated firms and regulated individuals are regularly grappling with, some almost on a daily basis.

The reason for change – from the horse’s mouth

In its application to the Legal Services Board (LSB) seeking approval for the proposed changes the SRA explained its rationale as follows (Paragraph 11):

“In summary the new drafting ensures:

  • That we receive reports of facts or matters which could comprise a serious breach, rather than allegations identifying specific and conclusively determined breaches.
  • The obligation applies the same threshold as that which we apply when deciding to open an investigation (that the concerns, if proven, are capable of amounting to a serious breach).
  • …Early reports are made where we might need to use our powers to investigate or take urgent action to protect the public.
  • Those making reports are supported in making these, sometimes difficult, decisions and that those we regulate are clear that they should not subject anyone making, or intending to make, a report to detrimental treatment for doing so.”

 

The effect of change and the need for a steer

The new requirements in the StaRs both widen the scope and lower the threshold for the obligation to report; this raises real practical issues which the SRA itself acknowledges in its Enforcement Strategy. In the “Reporting concerns” section, it says:

“We understand that making such judgments can be difficult, and we are aware that internal pressures and influences may be at play.” 

Despite this explicit recognition of the challenges around this decision making, we are yet to see much of a steer from the SRA on this issue. The SRA has at least confirmed that there will be guidance and supporting case studies (many of which, we understand, the profession has helped to draft) in relation to reporting concerns which will be published pre-implementation.

 

Your reporting obligations – what do they say?

In the SRA Code of Conduct for Solicitors, RELs and RFLs (the “Code for Individuals”), the relevant provisions are as follows:

7.7       You report promptly to the SRA or another approved regulator, as appropriate, any facts or matters that you reasonably believe are capable of amounting to a serious breach of their regulatory arrangements by any person regulated by them (including you). If requested to do so by the SRA you investigate whether there have been any serious breaches that should be reported to the SRA.

7.8       Notwithstanding paragraph 7.7, you inform the SRA promptly of any facts or matters that you reasonably believe should be brought to its attention in order that it may investigate whether a serious breach of its regulatory arrangements has occurred or otherwise exercise its regulatory powers.

In the Code for Firms, these provisions are replicated at paragraphs 3.9 and 3.10.

 

Additional key requirements to bear in mind as COLP or COFA and beyond

  • In addition to the reporting obligations set out above, paragraph 7.12 of the Code for Individuals provides that you notifying the firm’s COLP or COFA would satisfy your obligation to report if you did so “on the understanding” that the COLP or COFA will report the matter. 
  • If you are a COLP, paragraph 9.1(d) of the Code for Firms also requires you to “ensure that a prompt report is made to the SRA of any facts or matters that you reasonably believe are capable of amounting to a serious breach of the terms and conditions of your firm's authorisation, or the SRA's regulatory arrangements which apply to your firm, managers or employees”.  Identical provisions apply to COFAs at paragraph 9.2(b). 
  • Obligations to report don’t just sit within the Codes. The SRA Assessment of Character and Suitability Rules apply – unsurprisingly - where the SRA is making a decision as to whether it is satisfied as to your character and suitability. These rules apply in relation to the approval of various role holders, including as a COLP, COFA and manager of a firm (the latter would usually include partners).  If you fall into this category, rule 5.3 places an on-going obligation on you: “to tell the SRA about any material change in your circumstances or any relevant matter relating to your character and suitability.”

 

Your reporting obligations – what do they actually mean?

The first reporting obligation: promptly reporting facts or matters that you reasonably believe are capable of amounting to a serious breach (paragraph 7.7 in the Code for Individuals and 3.9 in the Code for Firms)

The question of whether a report should be made to the SRA is often a difficult one, particularly in the firm context and as we have said above, the SRA recognises this.  It is likely that a decision to report will often have a detrimental impact on the firm’s relationship with the individual or individuals concerned.  As a result, there is an understandable reluctance to place matters in the hands of the SRA if it is unnecessary to do so and thereby face an extended period of uncertainty for all concerned.  Nonetheless, none of these factors should form part of your consideration; if a matter is properly reportable and your obligation is triggered a report must be made. 

In deciding whether there is an obligation to report, it is helpful to break down the obligation into three component parts.  You should ask yourself:

  • Is the potential breach serious/is a serious breach indicated? 
  • How do I assess the evidential threshold of my understanding of/take on the facts I am presented with (i.e. are these matters I think are capable of amounting to a serious breach)?
  • What does promptly mean (in these circumstances)?

Component #1 - serious breach

The concept of whether something is a serious breach is not always an easy one to fathom.  Whilst the guidance to the 2007 Code of Conduct stated that: “in general, any conduct involving dishonesty, deception or a serious arrestable offence (as defined by the Police and Criminal Evidence Act 1984) would amount to ‘serious misconduct’”, it is clear that the SRA considers the threshold to now be much lower and the scope to be much wider in terms of relevant factual circumstances.

The primary source, when trying to assess what the SRA might consider to be ‘serious’ is its Enforcement Strategy (See section 2.1):

We focus our action on the most serious issues: our codes of conduct confirm that we will take action in relation to breaches which are serious, either in isolation or because they demonstrate a persistent failure to comply or a concerning pattern of behaviour. The concept of "serious breach" is described further below. However, this includes within it matters that can be described as serious "misconduct" - or conduct that is improper and falls short of ethical standards. It also includes other serious breaches of our standards or requirements - for example, those relating to failures of firms' systems and controls.”

The section entitled, “Factors which affect our view of seriousness”(Section 2.2) includes the following helpful steer:

“We see certain types of allegations as inherently more serious than others: for example, we will always take seriously allegations of abuse of trust, taking unfair advantage of clients or others, and the misuse of client money; as we will sexual and violent misconduct, dishonesty and criminal behaviour…. Information security is also of high importance to the public and protection of confidential information is a core professional principle in the Legal Services Act 2007”.

The Enforcement Strategy also identifies other factors that affect the level of seriousness such as intention, motivation, “deliberate or reckless disregard for obligations”, lack of integrity, harm, impact, vulnerability of the client and the role, seniority and experience of the individual concerned.

Component # 2 – evidential threshold

The SRA described this element of the test in its application to the LSB as follows:

“The test combines a subjective element (what the person making a report believes) with an objective element…(that this belief was reasonable bearing in mind the circumstances, information and evidence available to the decision-maker). This serves to avoid the reporting of mere allegations or suspicions and provides a balance on the spectrum between this on the one hand, and fully investigated findings on the other. We believe this also provides support for appropriate reflection, investigation and professional judgment”.

There are real practical difficulties in determining when “mere allegations and suspicions” become something more, thus triggering your obligation to report.  For example, if an employee makes serious allegations against another person in the firm which on their face appear cogent and as such are capable of amounting to serious misconduct, but they have not been investigated, does this amount to “mere allegations” as described in the statement above? 

In the Enforcement Strategy, the SRA addresses the issue in a slightly different way: 

“We do not want to receive reports or allegations that are without merit, frivolous or of breaches that are minor or technical in nature – that is not in anyone's interest. We do want to receive reports where it is possible that a serious breach of our standards or requirements has occurred and where we may wish to take regulatory action.”

The following passages are also relevant:

Firms may wish to investigate matters themselves – and indeed we want to encourage firms to resolve and remedy issues locally where they can. However, where a serious breach is indicated, we are keen for firms to engage with us at an early stage in their internal investigative process and to keep us updated on progress and outcomes.”

“Whether or not a matter should be reported is a matter of judgment, which will depend on the individual facts and circumstances. If you are unsure about whether to make a report, you should err on the side of caution and do so.”

These statements, in our view, only seek to confirm the fact that that the SRA considers the evidential threshold to be relatively low; it includes where a serious breach is “possible” or “indicated”.  What follows is that even if an allegation has not yet been investigated, if it appears cogent, then it is likely it would need to be reported to the SRA.

Component #3 - Reporting promptly

The question of what “promptly” means is inevitably one that is fact-dependent as well as being proportionate to the risk presented.  It is likely that, for example, if as a firm you become aware that money is missing from your client account, you will need to report this with some urgency.  However, other matters may be less time-critical but nonetheless should be drawn to the SRA’s attention as soon as it is reasonably practicable to do so. This would normally allow for you to take advice (if necessary) and notify those affected by the report (if appropriate) before a report is made. The SRA’s Enforcement Strategy deals with the issue in the following way (SRA Enforcement Strategy, paragraph 1.2):

“Prompt reporting is important. We may have additional information relating to the issues, and/or may need to use our powers to investigate or take urgent steps to protect the public. This may include imposing practice restrictions or in the most serious cases of all using our intervention powers to close a firm.”

The second reporting obligation: reporting matters you reasonably believe should be brought to the SRA’s attention

This second obligation is free standing and directed at a different target to the first reporting obligation. The obligation is likely to arise in relation to matters that have occurred outside of your firm.  In such circumstances, it may not be possible to come to an informed view as to whether there is a serious breach of the SRA’s regulatory arrangements, but nonetheless, the observed behaviour causes concern, which you reasonably believe should be brought to the SRA’s attention.

There has always been a longstanding practice of solicitors reporting other solicitors. Sometimes, cynically and inappropriately, this is done as part of a tactical ploy to further a wider dispute. More often, such reports have arisen out of a genuine concern to maintain the reputation of the profession. By writing this provision into the 2019 Codes, the SRA has simply codified the existing obligation. A failure to meet the requirements of the second reporting obligation resulting in enforcement action being taken by the SRA, will be rarer (we anticipate, at least) than enforcement action being taken for a failure to comply with the requirements under the first reporting obligation.

Show your “workings out” and mitigate the risk

In the early part of the Enforcement Strategy, the SRA recognises that:

“Whether or not a matter should be reported is a matter of judgment, which will depend on the individual facts and circumstances. (SRA Enforcement Strategy, paragraph 1.2)

Nonetheless, it is always possible that further down the line, any decision you took not to report something may be put under the spotlight, particularly if it turns out that you erred in reaching that decision.  So, what can you do now to mitigate the risk of criticism later on? 

You should record all of your decision making processes and detail the rationale underpinning the decisions you have arrived at. It will be crucial that you can demonstrate that the decision you took was well reasoned and underpinned by thorough and robust decision-making.  Authoritative records of reporting decisions should be kept (whether this led to a report being made to the SRA or not) as well as the basis for them. 

To drive this point home, there are corresponding regulatory obligations. Paragraph 2.2 of the Code of Conduct for Firms requires you to “keep and maintain records to demonstrate compliance with your obligations under the SRA's regulatory arrangements.”  And paragraph 7.2 of the Code for Individuals requires you to be able “to justify your decisions and actions in order to demonstrate compliance with your obligations under the SRA’s regulatory arrangements”.

We won’t dwell on this too much here, as our next blog will look at the importance of record keeping in more detail…

We hope the insight we have provided will help make some of these decisions in relation to reporting easier for you. We are of course here if you need further assistance in relation to any specific issues you have. 

 

About the authors

Iain Miller is a Partner in the Regulatory department and specialises in advising law firms and the legal professionals on legal ethics, investigations, and public law matters

Jessica Clay is a Senior Associate in the Regulatory department and specialises in legal services regulation, with a focus on regulatory compliance, legal ethics, investigations and public law matters. 

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