Yearly Archives: 2015

SRA publishes version 15 of the Handbook

The fifteenth version of the Handbook was published on 1 November 2015, and all the changes in this version came into effect on that date. The changes are outlined in these notes: please refer to the Handbook itself for full details.

Separate businesses

Chapter 12 of the SRA Code of Conduct 2011 has been amended to replace restrictions on links with certain types of separate business with new outcomes on client protection when separate businesses are involved.

Activities of a recognised body or recognised sole practice

The SRA Practice Framework Rules have been amended to allow a wider range of professional activities to be carried out within recognised bodies and recognised sole practices.

Accounts and overseas practice

The SRA Accounts Rules 2011 and the SRA Overseas Rules 2013 have been amended. The changes are:

  • exempt some firms from the requirement to obtain an accountant’s report
  • remove rigid restrictions on the format of the report to allow the accountant to exercise their professional judgement and concentrate on risks to client money
  • simplify the overseas accounting requirements.

Authorisation of sole practitioners

Changes have been made throughout the Handbook to reflect the new approach to the way the SRA authorises sole practitioners and to remove various references to Recognised Sole Practitioners. From 1 November 2015:

  • existing Recognised Sole Practitioners became Recognised Sole Practices
  • their authorisation is granted under the SRA Authorisation Rules 2011; previously, authorisation was granted under the SRA Practising Regulations 2011
  • sole practitioners no longer need to renew their authorisation annually and have an endorsement on their practising certificates; instead, sole practitioner firms are given lifetime authorisation in line with other types of firms authorised by the SRA.

Regulatory reform programme

The SRA has introduced a number of changes and improvements to its regulatory arrangements through the Amendments to Regulatory Arrangements (Regulatory Reform Programme) Rules 2015 and made changes to the SRA Code of Conduct 2011, SRA Authorisation Rules 2011 and SRA Practising Regulations 2011.

Training regulations – apprenticeship pathway

The SRA Training Regulations 2014 have been amended – Qualification and Provider Regulations to enable people to qualify as a solicitor through completing an apprenticeship.

Qualified Lawyers Transfer Scheme

The requirement in the SRA Qualified Lawyer Transfer Scheme Regulations 2011 for candidates to obtain a certificate of eligibility has been removed.

Financial services – consumer credit activities

Guidance to Rule 5.11 of the SRA Financial Services (Scope) Rules 2001 has been amended to reflect the extension of the transitional period which will now run until 31 March 2016.

Insolvency practice

The SRA Insolvency Practice Rules 2012 have been removed to give effect to the SRA’s decision to cease regulating solicitor insolvency practitioners from 1 November 2015.

Guidance available for new accountants’ reports

The Solicitors Regulation Authority has published guidance to explain changes to accountant’s reports which come into effect for accounting periods ending on or after 1 November.

The SRA has been working with the profession for more than a year on how to make accountants’ reports more targeted and relevant for firms and accountants alike. Solicitors’ practices that present little or no risk – such as those firms that do not hold much client money – will now be exempt from obtaining a report from their accountant.

The form that solicitors’ accountants complete each year has also been changed to make use of accountants’ expert analysis. The new forms enable accountants to advise on areas of potential improvement in processes for handling client money, helping to support the form. The new guidance explains the changes.

Crispin Passmore, SRA Executive Director for Policy, said: “This is the second phase of a project aimed at making our regulation more proportionate and targeted. The changes continue our work to remove the obligation for firms deemed low risk to go through the reporting process.

“For those firms that still have the obligation to obtain a report, the changes strengthen the reports by giving accountants more scope to advise firms on how they handle client money. That will help clients and build confidence in law firms. We’ve published the guidance to help firms and their accountants get the most out of the changes we’ve made.”

The guidance sets out what accountants need to consider in their report, factors that might lead to the report being submitted to the SRA, and examples of the types of checks that may be undertaken by the accountants. The new form comes into effect from 1 November.

The guidance can be found here:

Go to the guidance

Proposals for consumer credit regulation adopted by SRA Board

Solicitors should be able to carry out certain consumer credit activities under SRA authorisation as long as their activities are central to the legal services they provide, the SRA Board has agreed.

The Board approved the move at its meeting yesterday (Wednesday 9 September). It will ensure that firms do not also have to be regulated by the Financial Conduct Authority (FCA) and are not over-burdened with significant additional rules for consumer credit, and that their client protections remain in place.

Crispin Passmore, SRA Executive Director for Policy, said: “This is a positive step forward. Everyone at the SRA and Financial Conduct Authority has worked exceptionally hard to ensure that the proposals offer a balanced and proportionate approach to regulation for firms following the transfer of responsibility for regulating consumer credit from the Office of Fair Trading to the FCA.”

The SRA has been working with the FCA for over a year on the best way to approach its regulation of solicitors providing consumer credit services. This follows the transfer of the responsibility for regulating consumer credit work from the Office of Fair Trading to the FCA on 1 April 2014.

SRA guidance on carrying out consumer credit activities is set to be published in the autumn. Firms will need to read the guidance, in addition to new rules, when carrying out consumer credit work.

The SRA consulted on its proposals for consumer credit regulation between 26 June and 7 August 2015. The consultation can be viewed here: http://www.sra.org.uk/sra/consultations/consumer-credit-activities-sra-arrangements.page.

The consumer credit approach will need to be approved by both the FCA and the Legal Services Board. If agreed, changes to the SRA Handbook will come into effect on 1 April 2016.

Raft of changes to cut red tape and open up the profession

A raft of changes that will further cut red tape and provide new ways of becoming a solicitor has been approved by the SRA Board.

The changes focus on eight separate areas of the Handbook. They will reduce duplication in administration for many, and improve regulation. The changes include:

  • simplifying compliance officer approval for small firms;
  • including an apprenticeship qualification under the Training Regulations;
  • operational changes and improvements for ABS authorisation; and
  • simplifying candidate declaration and notification processes.

Paul Philip, SRA Chief Executive, said: “Taken together these eight changes are a significant reduction in red tape and bureaucracy, marking a step forward in freeing up firms and individuals to do business. They support small firms which are often stretched for time and resource and they provide greater opportunity for a wider range of talented people than ever before to enter the profession.”

The changes agreed by the Board were part of a formal consultation between 16 April and 11 June this year.

The SRA received more than 100 responses to the consultation earlier this year. The proposals approved by the SRA Board were:

  • Simplify compliance officer approval for small firms (1-4 managers): Streamlining the application process for sole practices and small firms (and some medium firms) by removing the need for a stand-alone application for compliance officers.
  • Simplify candidate declaration and notification processes: Removing the need for candidates to sign a declaration separate to the applicant firm, and removes a requirement in the rules for us to notify each candidate of any decision separately, in writing
  • Revise the rules relating to reserved legal activities: Revising the rules to reflect the SRA’s view that firms apply for the entitlement to offer reserved legal activities, whether they choose to do so at any given point in time is a matter for them
  • ABS authorisation – operational changes and improvements: Removing the requirement for us to approve individual managers within ABS corporate owners, and removing the seven-day notification requirement for deemed approved manager or owner applications
  • Changes to insolvency rules: A minor change to the rules to fill in an existing gap – partnerships that have entered into administration are not currently covered by the regulations
  • Guidance on recording of non-material breaches: Providing further clarification and guidance on the current requirement
  • Recording and reporting of diversity data: Minor changes to be made to the Code of Conduct to reflect the above existing requirement more clearly
  • Enable qualification as a solicitor through an apprenticeship route: Making an addition to the Training Regulations to include the new apprenticeship route to qualification, which has recently been approved by BIS

These will now need Legal Services Board approval before being adopted as part of the SRA Handbook.

The consultation document can be found here: http://www.sra.org.uk/sra/consultations/regulatory-reform-programme.page.

New ADR rules delayed further

 

Under the EU directive on Alternative Dispute Resolution Regulations (ADR) which came into force on 9th July 2015, the Legal Ombudsman (LeO) had applied to become a certified entity under the directive. This would have meant that the Ombudsman’s scheme rules would have had to have been brought in line with the directive’s provisions, meaning changes to your client care letters, terms and conditions, website and complaints procedure.

LeO has now announced it has withdrawn its application to become an ADR entity, stating it wants further consultation to take place. The consultation will run from 7th September 2015 for eight weeks.

This means that the anticipated changes to client care letters, terms and conditions, website and complaints procedure necessary when LeO becomes an ADR body, should not yet be implemented.

SRA publishes 2015/2016 Risk Outlook

The SRA has published its third Risk Outlook. The Outlook is the SRA’s assessment of the most significant risks law firms will have to address over the coming 12 months.

The purpose of the Risk Outlook is to communicate the SRA’s view of risk in the legal services market, demonstrate the priorities to which the SRA will allocate its resources, explain how the regulator will control these risks and act in the public interest and to help solicitors and firms manage risk.

The Risk Outlook is divided into two sections. The first sets out the factors that the SRA believe are driving change in the legal market, and the second discusses each of the eight priority risks which are:

  • Failure to provide a proper standard of service particularly for vulnerable people
  • Misuse of client money
  • Lack of a diverse and representative profession
  • Lack of independence
  • Failure to act with integrity: improper or abusive litigation
  • Information security and cybercrime
  • Bogus law firms
  • Money laundering – inadequate systems and controls over the transfer of money.

The SRA state it is important that firms try and manage these risks in order to help support the rule of law and the proper administration of justice, whilst providing proportionate protections for users of legal services.

Each of the priority risk includes:

  • A description of the risk
  • Why the risk matters
  • Trends of the risk
  • Information on SRA controls over the risk
  • Case studies based on real events
  • Information on how to manage that risk within a firm

Along with the publication of the Risk Outlook, the SRA have produced a webinar to provide a detailed overview of the Risk Outlook.

To view/download the Risk Outlook and webinar, click here.

Reporting Accountants’ requirements relaxed

Changes to the format of accountants’ reports for solicitors’ practices – and the criteria for qualifying accounts and submitting them – should further improve their value and reduce the burden on firms, the Solicitors Regulation Authority has said.

Following a decision by the SRA Board at its meeting today, Wednesday 15 July, existing, rigid requirements on the submission of accountants’ reports are set to be relaxed. Accountants will be able to use their professional judgement in future to assess if the reports they prepare for solicitors’ practices comply with SRA account rules. Accountants will no longer need to qualify accounts for trivial breaches of the rules, but instead can focus on risks to client money.

Crispin Passmore, Executive Director, Policy said: “These changes give accountants more scope to use their expertise and advise firms on potential risks. Some firms may find that obtaining reports is very expensive because of their size and structure, so it makes sense to use accountants’ expert views in this way to ensure value for money.

“At the other end of the scale, where firms hold smaller amounts of client money and are relatively low-risk, relaxing the current arrangement is sensible. This second phase of changes is part of our drive to reduce bureaucracy and be proportionate.”

The SRA changes are subject to approval by the Legal Services Board. If approved, the amendments would be part of the Version 15 of the SRA Handbook that goes live on 1 November 2015. Revised accountants’ report forms will be available for use after 1 November 2015 and will apply to all firms whose accounting period ends on or after November.

Guidance on the new approach has been developed through an external working group of key stakeholders and will be available on the SRA’s website well in advance of implementation. The exemption from the requirement for lower-risk firms to obtain an accountant’s report will be extended to include firms with an average client balance of less than £10,000 a year and a maximum account balance of £250,000.

Amending accountants’ reports was one of the first strands of work in the regulatory reform programme launched in May 2014 aimed at reducing the burdens on firms without reducing the protections for consumers of legal services. The first phase of the project saw removal of the need for firms to deliver unqualified reports (ie those where no breaches of the rules were identified) to the SRA and of the need for those firms that receive all of their fees from legal aid to obtain reports in the first place.

A third phase, currently being developed, will begin in the autumn and will look at simplifying the Accounts Rules themselves.

Go to the accountants’ reports page

Changes to client care documentation and Ombudsman complaint limit (update)

There has been some confusion in the press over the last few days regarding the EU Alternative Dispute Resolution Directive (ADR) and exactly when the requirements of new Ombudsman scheme rules come into effect. Other commentators have added to the confusion.

LeO have said:

The Legal Ombudsman has applied to be certified as an alternative dispute resolution (ADR) provider under regulations implementing the requirements of the EU ADR Directive. 

The Directive aims to improve access to redress for European citizens and to improve the consistency and quality of dispute resolution schemes. 

The Legal Ombudsman’s application is made on the basis that all necessary changes to its scheme rules will, subject to the necessary approvals, come into force within six months of the Directive’s 9 July 2015 implementation date. 

These changes will:

  • Increase the time limit within which consumers can bring a complaint to the scheme; from within six months of the service provider’s final response to 12 months
  • Align and amend the grounds for dismissal of a complaint to reflect those specified in the ADR regulations
  • Remove the current six-year and three-year time limits for bringing a complaint to the scheme
  • Set out how ‘stale’ complaints, which are too old to be investigated satisfactorily, will be handled under the revised grounds for dismissal 

The Ombudsman will shortly publish proposals for how these changes will be implemented. The proposals will not require service providers to make any changes to their existing document retention policies.

3 July 2015

LeO has confirmed in a further statement that the scheme rules changes will not be coming into effect in July and have indicated that they expect the changes to be implemented by no later than 9th January.

Note that both, the time limit following a firm’s final response will change, together with removal of the limitation periods for bringing a complaint.

New consumer credit proposals

New proposals for the regulation of solicitors doing consumer credit work have been drawn up by the Solicitors Regulation Authority (SRA).

The proposals would enable solicitors to carry out certain consumer credit activities as long as they are central to the legal services they provide. They would also ensure that law firms are not over-burdened with additional rules, and that client protections remain in place.

The SRA has been working with the Financial Conduct Authority (FCA) over the last 12 months to identify the best way to approach its regulation of solicitors providing these services. This follows the transfer of the responsibility for regulating consumer credit work from the Office of Fair Trading to the FCA on 1 April 2014.

Crispin Passmore, SRA Executive Director for Policy, said: “Our discussions with the FCA have produced a set of proposals that will ensure regulation is balanced. The proposals would focus regulation on the substantive activities undertaken by solicitors, in a way that would not be overly burdensome.”

The SRA is consulting on its new proposals until 6 August and is keen to have feedback from across the sector. Following the consultation, final recommendations on the regulatory approach are expected to be presented to the SRA Board at its meeting in September.

SRA-authorised firms that mainly carry out consumer credit activities already require FCA regulation. The changes mean firms may now also require authorisation by the FCA if they undertake prohibited activities that are not considered central to their legal services practice.

These activities are listed in the SRA consultation document. The consultation is available on the SRA’s website here:

Go to the consultation page

The SRA will also produce specific guidance around consumer credit work, and will hold a webinar to give those affected the opportunity to hear current thinking and pose questions directly to the SRA. Further information on the webinar is here:

Go to the webinar page

Changes to client care documentation – Ombudsman complaint limit rises from six to twelve months

The  EU directive on alternative dispute resolution (ADR) comes into force in the UK on 9th July 2015. The Legal Ombudsman has applied to become a certified entity under the directive. It can be expected that this application will be successful.

This means that the Ombudsman scheme rules have to be brought in line with the directive’s provisions, and firms will therefore need to update their client care letters, terms and conditions, website and complaints procedure from 9th July.

The length of time clients have to bring a complaint to the Legal Ombudsman against legal services providers will increase from six months to twelve months from the date of a final response from a lawyer. All final response letters sent to clients on or after 9th July must include the twelve months limit.

Terms and conditions  will need to reflect this change and also must show the website address of the Legal Ombudsman (www.legalombudsman.org.uk).

Firms will have to ensure their website also shows the name and website address of the Legal Ombudsman.

Complaints handling procedures should also be amended to reflect the changes.

Further, whenever a firm has received a complaint from a client and has exhausted its internal complaints handling procedure, the firm will now be required to inform the client:

  • that they are unable to settle the complaint with the client,
  • of the name and website address of an ADR certified entity which would be competent to deal with the complaint (i.e the Legal Ombudsman) should the client wish to use alternative dispute resolution, and
  • that they are obliged to submit to the ADR procedure operated by the Legal Ombudsman

Click here to see the guidance provided by the Legal Ombudsman.

Click here to see the regulations issued by the government on the introduction of the ADR.