Charities and internal investigations
In November 2015, the Solicitors Regulation Authority (SRA) published its position paper “Looking to the Future”, through which it committed to a phased review of the SRA Handbook and its overall approach to regulation. It was also at this stage that a new regulatory model, with two distinct strands, was first proposed. This model sought, on the one hand, to regulate individuals through education and entry standards, on-going competence and ethical behaviours. On the other hand, it sought to regulate firms, with emphasis being on their systems and controls.
The decision to have two Codes of Conduct with an overarching set of Principles very much reflected this model and became the focus of Phase One of the review. Let us first turn to the new Principles which will be in force from 25 November 2019, when the SRA launches its new Standards and Regulations (StaRs).
The main message to take away is that the Principles comprise the fundamental tenets of ethical behaviour, which the SRA expects all those it regulates to uphold. All other provisions within the StaRs should be read with these revised Principles in mind. They are as follows:
You may well be wondering: what has happened to the other 2011 Principles? Well, three of them now feature, albeit in a revised form, in the Code of Conduct for Solicitors, RELs and RFLs. These are as follows:
5. You must provide a proper standard of service to your clients [now paragraph 3.2]
7. You must comply with your legal and regulatory obligations and deal with your regulators and ombudsmen in an open, timely and cooperative manner [now mostly paragraphs 7.3 and 7.4]
10. You protect client money and assets [now paragraph 4.2]
This clearly has the effect of removing duplication within the StaRs but more importantly, it narrows the 2019 Principles to purely ethical standards, with professional standards and behaviours now covered by the Codes of Conduct.
As we referred to above, the 2019 Principles apply universally to all those the SRA regulates. This includes solicitors, registered European lawyers (RELs) and registered foreign lawyers (RFLs), as well as authorised firms and their managers and employees (who can be non-solicitors). In relation to licensed bodies, they will apply to those individuals and the part of the body (where applicable) involved in delivering the services the SRA regulates in accordance with the terms of that body’s licence. This contrasts with the 2011 Principles, where the former Principle 8 (dealing with firm management and systems and processes) did not apply to in-house employees of firms, even if they were solicitors. Equally, the obligation to safeguard client money only applied to those sections of the profession which handled client money. The confusion is no longer there, having removed these provisions as Principles.
Although the preamble to the 2019 Principles does not state this specifically, you should bear in mind that the Principles (comprising the fundamental tenets of ethical behaviour, which the SRA expects all those it regulates to uphold) will apply inside, but also, where appropriate, outside of practice (i.e. in your private life). This contrasts to the 2011 Principles, where only former Principles 2 and 6 were really applied in the context of conduct outside of practice.
We can safely say there isn’t a hierarchy as such, but the SRA makes clear in its Introduction to the Principles that if circumstances arise where there is a conflict between Principles, those which safeguard the “wider public interest” (such as P1 and P2) will take precedence over those which safeguard an individual client’s interest (such as P7). So it is perhaps not a coincidence that P7 is positioned where it is!
The Principle that you act with honesty is new to the 2019 StaRs. That said, acting dishonestly has for a long time been an important threshold in determining whether a solicitor should be struck off for the conduct alleged or a non-solicitor employee face a similar outcome via a section 43 order under the Solicitors Act 1974. As Lord Bingham observed in Bolton v Law Society:
“Any solicitor who is shown to have discharged his professional duties with anything less than complete integrity, probity and trustworthiness must expect severe sanctions to be imposed upon him by the Solicitors Disciplinary Tribunal. Lapses from the required high standard may, of course, take different forms and be of varying degrees. The most serious involves proven dishonesty, whether or not leading to criminal proceedings or penalties. In such cases the Tribunal has almost invariably, no matter how strong the mitigation advanced by the solicitor, ordered that he be struck off the roll of solicitors." (Our emphasis added)
More recently, in 2018, the position was described by Lord Justice Jackson in the Court of Appeal in Wingate and Evans v Solicitors Regulation Authority:
“None of the Principles in Part 1 of the Code specifically require a solicitor to act honestly. Therefore dishonesty by a solicitor is not a discrete offence under the Code. It is an aggravating feature. If the SRA consider that a solicitor’s breach of any of the Principles involved dishonesty, they will assert that as a separate allegation. If the Solicitors Disciplinary Tribunal finds there was dishonesty, it will take a more serious view of the breach of Principle which has been proved”.
In explaining its reasoning for including this as a new Principle, the SRA has stated: “We believe that honesty is one of the most fundamental tenets of the solicitor's profession, and should be reflected in the new Principle 4. We are comfortable that the terms "honesty" and "integrity" may overlap, but that action can be taken if someone fails to demonstrate one or another.”
Accordingly, whilst being a new addition to this set of Principles, there is no getting away from the fact that it has played a central role in determining the seriousness of one’s conduct for many a year.
We thought it important to highlight that when seeking to prove whether this Principle has been breached, the Courts and the SDT will now rely upon the case of Ivey v Genting Casinos (UK) Ltd (trading as Crockfords Club) determined by the Supreme Court in 2017. In that judgment, the Court identified serious issues in relation to the second limb of the test set out in R v Ghosh, and concluded that directions based upon it should no longer be given. Instead, it stated:
“When dishonesty is in question the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.” (Our emphasis added)
The Court of Appeal subsequently considered this new test for dishonesty in Wingate and Evans v Solicitors Regulation Authority. It said:
“Honesty is a basic moral quality which is expected of all members of society. It involves being truthful about important matters and respecting the property rights of others. Telling lies about things that matter or committing fraud or stealing are generally regarded as dishonest conduct. These observations are self-evident … The legal concept of dishonesty is grounded upon the shared values of our multi-cultural society. Because dishonesty is grounded upon basic shared values, there is no undue difficulty in identifying what is or is not dishonest.
As explained most recently in Ivey, the test for dishonesty is objective. Nevertheless, the defendant’s state of mind as well as their conduct are relevant to determining whether they have acted dishonestly”. (Our emphasis added)
There will now be two distinct Codes – one for individuals; and one for firms.
The Code for Individuals describes the “standards of professionalism” expected of individuals authorised by the SRA, wherever they practise. It covers the core personal, ethical and regulatory responsibilities which apply to all solicitors, RELs and RFLs.
The Code for Firms describes the expected “standards and business controls” for SRA authorised firms. Where there is a serious failure to meet these standards or a serious breach of the SRA’s requirements, the SRA makes clear in its introduction to the Code for Firms that it could take regulatory action against “the firm itself as an entity, or its managers or compliance officers, who each have responsibilities for ensuring that the standards and requirements are met.” The SRA states that it could also take action “against employees working within the firm for any breaches for which they are responsible.”
The structure of these new Codes seeks to resolve what we would describe as a fundamental weakness of the 2011 Code, in that it did not successfully distinguish between individual and entity regulation, as it set out to do. The new Codes make more explicit the approach of the SRA which is to focus both on the behaviour of individuals and the systems, policies and culture of firms.
In its June 2016 consultation document “Looking to the future – flexibility and public protection”, the SRA admits that the 2011 Code does not reflect the variety of modern solicitor practice and that the SRA has had to develop workarounds to the regulatory arrangements to reflect the increasingly diverse range of business models. The two new Codes are therefore intended to address this by being universal and modern in application.
We are all aware that the 2011 Code of Conduct has been simplified and pared down but we might not know in what ways the SRA has sought to achieve this.
Well, it is clear that there has been a marked simplification in structure. The 2011 Code comprised five sections, each containing chapters dealing with specific regulatory issues. These were made up of mandatory Outcomes which had to be achieved and non-mandatory indicative behaviours. The two new Codes will simply provide a set of standards, referred to by the SRA as paragraphs, which you will be expected to meet. Whilst this offers more flexibility and encourages those to whom the Codes apply to exercise their own judgement in applying the standards to their specific situation – having in mind their role and responsibilities, area of practice and the nature of their client base - the structure no longer lends itself to one which has examples of how to apply the standards in any given situation. We would hope this gap can be addressed by SRA guidance and helpful and realistic case studies, where needed.
The two new Codes of Conduct are also significantly shorter than the 2011 Code. The SRA has removed provisions which exist elsewhere in the StaRs, are imposed by legislation or are no longer required. For example, the previous Outcome stating that solicitors must not be paid or pay a prohibited referral fee does not feature in the new Codes, as these requirements merely reflect the legislative position in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and the Criminal Justice and Courts Act 2015, with which solicitors are already legally obliged to comply. Similarly, the 2011 Code contained several requirements for solicitors to “comply with the law”, such as Outcome 1.3: “when deciding whether to act, or terminate your instructions, you comply with the law and the Code”. The SRA has decided it is unnecessary to include requirements of this nature.
Whilst there are some provisions which merge parts of the former Indicative Behaviours and former Outcomes, there are also some entirely new provisions within both Codes of Conduct. Looking at both Codes in turn, we consider the following additions to be of most interest.
First, whilst there will now be two distinct Codes of Conduct, you should be aware that there is some crossover in the application of them. For example, there are provisions within the Code for Individuals which will apply to a firm – see paragraph 7.1 of the Code for Firms, which confirms that paragraphs 2.1 to 2.7; 5.1 to 5.3; and 8.1 to 8.11 from the Code for Individuals apply in their entirety to firms. Equally, the Code for Firms comprises some paragraphs which have implications for both individuals and firms because they place specific obligations on managers and compliance officers (see paragraphs 8.1 and 9.1 to 9.2). Similarly, in order for a solicitor to comply with their individual requirements under the Code for Individuals, it may be necessary for them to be assured that appropriate systems are in place within their organisation.
Second, it is important that you consider how the Codes will apply to you in the context of the nature of your business and how you, as a regulated person, operate within that. For example, those working within a law firm setting will work within two layers of obligations, those of the firm and those applying to them as an individual. Those working in-house or providing legal services to members of the public outside an authorised law firm setting, will only be regulated on an individual level, but nonetheless will need to understand how their obligations map across within the working environment they operate in.
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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