The FCA – Transformation to Assertive Supervision
The regulatory year ahead will see the SRA seeking to bolster its fining powers as it turns its attention to law firm culture, NDAs and technology; as well as more traditional areas such as anti-money laundering
As law firms lift their binoculars to the year ahead, what key developments will be appearing on the regulatory horizon? We have identified five key areas.
The Solicitors Regulation Authority (SRA) is looking to finally beef up its fining powers. The maximum fine it can currently impose on traditional law firms or individual lawyers is just £2,000 – and so anything that warrants a higher financial penalty must be sent on to the Solicitors Disciplinary Tribunal (SDT). The SRA now proposes raising this limit to £25,000, in a consultation that closes on 11 February. This will still be much lower than its powers in relation to Alternative Business Structures (ABS), however. The SRA can fine an ABS manager or employee up to £50 million; and the ABS itself up to £250 million.
News that the regulator is looking to increase its fining powers might sound worrying to solicitors; but in fact, it is a good thing for the profession. The SRA will deal with matters much more quickly than the SDT, which takes 960 days on average – over two-and-a-half years – to deal with a case, compared with 458 days for the SRA. Matters before the SDT also attract more publicity.
With greater fining powers, the SRA will be able it to deal with a broader range of matters in-house, as the Financial Conduct Authority does in the financial sector. But more serious or complex matters will still go to the SDT; as will any case where a financial penalty is not appropriate. In future, we may see all cases involving sexual misconduct fall into that category; particularly if the solicitors’ profession follows the Bar, where the Bar Tribunals and Adjudication Service (BTAS) is planning to introduce a starting point of 12 months’ suspension for sexual misconduct, discrimination or harassment.
As it is now over ten years since the SRA first began regulating law firms as well as individual solicitors, the regulator is moving beyond technical nuts and bolts to look at broader issues; particularly law firm culture. As part of its updated regulatory framework published in November 2019, the SRA’s Code of Conduct for Firms talks about creating ‘the right culture and environment’ for delivering ethical legal services. Building on this in a practical way, the SRA is expected to publish guidance very soon to explain what it considers a good law firm culture to look like; with a focus on having appropriate policies, systems and controls. When the guidance is published, it should be priority reading for law firms.
The SRA has long seen money laundering as one of the biggest risks in the legal services sector. This year, it will be focusing even more intensely on compliance with anti-money laundering (AML) measures, and ramping up its AML visits to law firms. It will also be engaging with firms to review how well anti-money laundering officer roles are working in practice, and will publish its findings by October 2022.
The SRA has rightly identified that technology will play a big role in shaping legal services in future; and actively supporting technology that helps the public, business and firms is one of its strategic objectives.
In 2022, it will be looking at how technology is impacting different parts of the legal services market, including the interplay between new technology and how people and businesses can access justice. The central pillar of the SRA’s strategy here is engagement with law firms and technology providers, so there should be plenty of opportunity for law firms to contribute to discussions on the SRA’s research findings.
The final regulatory development to watch for involves non-disclosure agreements (NDAs), which have gained prominence thanks to the #MeToo movement. In November 2020, the SRA issued an updated warning notice highlighting, among other things, that NDAs should not be used to stop people from reporting matters to the SRA or other regulators; and that solicitors should not take ‘unfair advantage’ of other parties when dealing with NDAs. NDAs are an important issue for the legal profession itself, with many junior staff being expected to sign NDAs when they leave a law firm.
The government has indicated that it will legislate to improve the law on NDAs in future. The SRA will certainly want to move in tandem with any legislation brought in; or it may decide to update its position ahead of any legislative changes, to ensure that NDAs are written in appropriate terms.
The bigger picture
Many of the issues above are ultimately intertwined. An NDA, for example, often stems from an unhealthy environment in which inappropriate behaviour is tolerated, and a junior lawyer leaves the firm as a result.
The SRA does not have the resources to police every law firm for its treatment of staff, compliance with regulations, or appropriate use of technology. But its new emphasis on having a good law firm culture is seen as the most effective way to ensure that all these other pieces fall into place.
If you have any questions about the issues raised in this blog, please contact a member of our regulatory team.
Julie Norris is a partner in Kingsley Napley’s Regulatory team specialising in the legal services sector.
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