Monthly Archives: January 2013

SRA compliance officers? exercise moves into new phase

The SRA has published its latest update on the approval of compliance officers.

As at 22 January 2013:

  • 9744 firms (98.5 per cent of the total expected to nominate) have now completed the nomination process.
  • Of the completed nominations, 9165 have now been approved ? representing 94 per cent of those that completed the nomination process (of these some 200 have yet to be informed of the approval whilst we resolve issues arising from the provision of inaccurate data in the original nomination forms).
  • 579 firms who have completed their nominations have yet to have these nominations approved. This is for a range of reasons, including declarations that have required further investigation, those who have failed to disclose suitability issues subsequently identified by the SRA and nominations that were made late. Outstanding nominations continue to be progressed by the SRA and firms will be notified as these are concluded. In the vast majority of cases this will be by the end of January.
  • 152 firms have not completed their nominations in spite of repeated requests and offers of assistance, and enforcement action has now commenced against these firms.

SRA Executive Director, Samantha Barrass, commented on the approach that the SRA has taken: ?In general, our strategy to achieve compliance by engaging with firms to actively seek alternative nominations, encourage completion of nominations and investigate issues that have been identified, has paid dividends. However, we are now at the stage where there are only a small proportion of outstanding approvals to be made and our focus will switch to proportionate enforcement action against those firms that have refused to nominate or other wise failed to engage appropriately with the process.?

Those subject to enforcement activity fall largely into three categories:

  • Those firms who have not nominated at all or failed to co-operate with the SRA as required, and are therefore in breach of the Authorisation Rules/Practising Regulations
  • Firms who nominated individuals with significant issues relevant to the SRA Suitability Test
  • Firms who nominated individuals with significant issues relevant to the SRA Suitability Test and which were not declared despite the fact that declaration was required under the SRA Suitability Test and Rules

Samantha Barrass added: “Enforcement action will be proportionate and will range from letters of advice, fines, rebukes, through to revocation of authorisation, and referral to the Solicitors Disciplinary Tribunal. The importance of having the right people in place in these key compliance roles cannot be overestimated and we are pleased at the high levels of co-operation we have received from the great majority of firms.

?However, our efforts are now quite properly focussed on the minority of remaining firms who have failed to co-operate or engage with the SRA.”

The SRA will shortly be communicating with the COLP and COFA community to advise them on the processes it is putting in place to facilitate engagement with the Authority.

SRA amends Handbook for Financial Advisers

The Solicitors Regulation Authority (SRA) has amended its Handbook to allow solicitors to refer clients needing financial advice to any financial adviser.

Version 6 of the Handbook went live on 1 January and includes the change to the Code of Conduct that allows solicitors to refer to the financial adviser that offers the best outcome for the client. Previously, solicitors have only been allowed to refer to financial advisers deemed “independent” by the Financial Services Authority (FSA).

The SRA has changed the Code to ensure that best outcomes for clients are achieved as there is a risk that only allowing solicitors to refer to those advisers deemed “independent” might be contrary to that aim. The FSA’s definition of independent is also to change soon as part of its Retail Distribution Review.

Agnieszka Scott, SRA Director of Strategy and Policy, said: “The amendment has been brought in to remove any barriers solicitors may face when trying to achieve the best outcome for their client. Doing away with the prescriptive rule about what kind of financial adviser should be referred to achieves this aim.

“It needs to be reiterated that we are not making a judgement on who provides the best financial advice?independent advisers or otherwise?which is what a lot of people who responded to the consultation did. We have simply removed an administrative blockage, allowing the solicitor to make a considered judgement on what’s best for their client.”

The consultation exercise took place over the late summer and the majority of respondents argued for their respective positions. There were comments too from the Financial Services Consumer Panel, which represents the public in the development of financial services.

The Panel said: “We support consumer choice and think it entirely right that the client should be provided with sufficient information to make a decision on the type of advice service that would meet his/her needs, rather than automatically being referred to an independent financial adviser. This is particularly important given the potential cost of independent financial advice and the availability of possibly more appropriate and cost-effective advice services, such as restricted advice.”

Other amendments to the Handbook for Version?6 included the removal of the section 69 sunset clause for the Compensation Fund, which means that any claims for compensation made against law firms set up as alternative business structures will be dealt with by the existing fund rather than creating a new fund.

First joint research into work of solicitors’ firms published

The Law Society, the Legal Services Board and the Ministry of Justice have published the results of a research project into the supply of legal services by solicitors’ firms.

The report ? A time of change: solicitors’ firms in England and Wales ? is the culmination of one of the largest ever surveys into the activities of solicitors’ firms. It is also the first time that these three organisations have partnered together in this fashion for research of this type, scale and scope, with a sample of 2,007 firms. The report reveals how solicitors’ firms of all types are performing, in the context of recession, market changes, regulatory developments and legal aid reforms.

Some of the key findings thrown up by the research suggest that:

firms report their most common problems as compliance with regulations (29? per cent of firms), responding to competition (23? per cent), adapting to changes in legal aid (23 per cent), and in securing finance (21 per cent). Of those reporting problems in securing finance, just over half have experienced problems obtaining bank finance and the remainder with equity funding

  • 42 per cent of firms have reported a decrease in turnover in the past three years, compared to 32 per cent reporting an increase and 27 per cent reporting no change. Smaller and medium-sized firms are significantly more likely to have reported decreases in turnover
  • six per cent of firms are giving consideration to seeking external investment under ABS provisions
  • 64 per cent of firms engaged in media advertising with the most common form of advertising being the internet (54 per cent), followed at a distance by local newspapers and magazines (30 per cent)
  • 31 per cent of firms currently working with legal aid funded cases were considering withdrawing from one or more areas of legal aid in the next three years, particularly those firms working in family law.

The report’s findings also indicate that:

  • residential property (48 per cent of firms) and wills, trusts, probate and estate administration (40 per cent of firms) are the most common areas of work. 27 per cent of firms reported that they conducted at least 90 per cent of their activities in a single category of work
  • new firms, those with a majority of female partners, firms with a majority of BAME partners and those doing 50 per cent or more work in crime or immigration reported lower income per fee earner than other firms ??? 19 per cent of firms in the sample were new within the past three years, 50 per cent of which were single solicitor firms
  • 87 per cent of firms outsourced one or more internal or external activities

Commenting on the research, Des Hudson, the Law Society chief executive said:

‘Solicitor-led firms are the single largest group of suppliers of legal services. Understanding how these firms structure themselves and deliver services is vital to understanding the market as whole.

‘This research provides valuable insight into the challenging issues facing our members and a crucial foundation for monitoring change over time and for assessing the impacts of and response to liberalisation of the legal services market and changes to legal aid funding.’

Chris Kenny, LSB chief executive said:

‘We are really pleased to have been able to partner with the Ministry of Justice and the Law Society to undertake this research. The findings provide knowledge about solicitors firms that didn’t previously exist and helps to fill gaps that had previously been filled by assumption and anecdote.

‘The results of the survey confirms the diversity of firms in terms of their financial performance, the very different things they do for very different consumers, and the fact that many firms mix up different market segments, all of which tests the assumption that all firms face the same challenges. It also shows that a significant proportion of these firms are performing well, despite tough economic conditions.

‘The findings also outline the reality that competition exists in legal services, with some firms doing better than others across all the different market segments ? just like in most other sectors.’

To view a copy of the report, click here.

SRA publishes version 6 of the Handbook

The sixth version of the SRA Handbook was published yesterday.

In brief, the changes are:

SRA Code of Conduct 2011

Outcome (6.3) and indicative behaviour (6.2) in the SRA Code of Conduct 2011 have been amended. The effect of these changes is that regulated individuals will no longer be obliged to refer clients who need investment advice to an independent financial adviser. Instead, when making referrals, both in respect of investment advice and also more generally, regulated individuals will need to consider what is in the best interests of their client and ensure that the client is in a position to make an informed decision about how to pursue their matter.

SRA Financial Services (Scope) Rules 2001

References to ‘packaged product(s)’ in Rules 5.1 and 5.3 of the SRA Financial Services (Scope) Rules 2001 have been replaced with references to ‘retail investment product(s)’..

SRA Financial Services (Conduct of Business) Rules 2001

References to ‘packaged product’ in rule 8.1 and in note (iii) to rule 13.1 of the SRA Financial Services (Conduct of Business) Rules 2001 have been replaced with references to ‘retail investment product’.

SRA Compensation Fund Rules 2011

At the time when the Legal Services Act 2007 came into force, the Compensation Fund’s statutory framework would not allow the SRA to collect contributions to the Compensation Fund (the Fund) from licensed bodies (ABSs) or to make payments from the Fund to the clients of licensed bodies.

As a temporary measure, an Order was made in 2011 under section 69 of the Legal Services Act 2007 (s69) to modify the basis of the Fund so that the SRA was able to collect contributions to the Fund from ABSs and to make payments from the Fund to the clients of ABSs (the 2011 Order).

The 2011 Order included a “sunset clause”, which would take effect on 31 December 2012. This meant that, in the absence of a further Order, the relevant provisions of the 2011 Order would expire on that date and the SRA would no longer be able to collect contributions to the Fund from ABSs or to make payments from it in respect of ABSs. A further s69 order has been made in 2012 removing the “sunset clause”.

Corresponding changes have been made in the SRA Compensation Fund Rules 2011 with the amendment of rules 1 and 2, and the deletion of previous rule 26. The purpose of the amendments is to ensure that SRA Compensation Fund Rules 2011 apply to licensed bodies indefinitely pending the outcome of the SRA’s Compensation Arrangements Review by removing the “sunset clause” and references to the “transitional period”.

SRA Handbook Glossary 2012

The definition of ‘independent intermediary’ has been replaced with the definition of ‘independent financial adviser’. The definition of ‘packaged product’ has been replaced with that of ‘retail investment product’ which will have the meaning given in the FSA Handbook. These amendments are in response to the changes flowing from the FSA’s Retail Distribution Review and will provide compatibility between the SRA Handbook and the FSA Handbook.

As a consequence of the changes to the SRA Compensation Fund Rules 2011, rule 4 (Transitional Provisions) of the SRA Handbook Glossary 2012 has been deleted.

These changes are effective from 1st January 2013.