How are the new SRA StaRs shaping up in 2020? (copy)

How are the new SRA StaRs shaping up in 2020?Professional Indemnity InsuranceWith the implementation of StaRs becoming accepted practice within law firms since last year, this article addresses the challengesContents

Thank you for reading PII - Are you prepared for the new Standards and Regulations?

The Solicitors Regulation Authority (SRA) Standards and Regulations (StaRs) have been in place since 25 November 2019 and should be starting to become accepted practice within law firms.

The Changes

The distinction has been drawn between honesty and integrity, which have become two separate principles¹
A Code of Conduct for Firms² has been established, that sits alongside the Code of Conduct for Solicitors³. The Codes are augmented by guidance notes
The Enforcement Strategy⁴ which underpins the SRA’s approach to regulation details the types of breaches to report to the SRA, how to consider whether to report and in what circumstances the SRA would typically take action.

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^{1. Principles

2. Code of Conduct (Firms)

3. Code of Conduct Solicitors

4 .SRA Enforcement Strategy}

Reporting Obligations

Serious breaches are required to be reported to the SRA, but the SRA does not expect to receive reports or allegations that are ‘without merit, frivolous’ or are ‘minor or technical in nature.’The SRA accepts that deciding whether to report is a ‘matter of judgement, which will depend on the individual facts and circumstances,’ however if unsure you should ‘err on the side of caution’ and report the matter.The SRA Enforcement Strategy provides guidance detailing what must be reported and what factors to consider:

Serious concerns that represent a risk to clients, the public or the wider public interest.

This may include abuse of trust, taking unfair advantage of clients, misuse of client money, sexual and/or violent misconduct and dishonesty, lack of honesty or integrity.

Lack of honesty or integrity might include providing false details on a CV or reference, falsifying or backdating documents.

Cybercrime and any attacks against a firm. This is to ensure the regulator can understand and monitor patterns or trends which may impact on other firms or consumers.

Use of the client account as a banking facility there must be a proper connection between the underlying legal transaction or advice and the payments you are being asked to make or receive.

Involvement in a transaction which bears the hallmark of fraud.

Actions / findings taken by another regulator, court or tribunal. This is likely to include when a data protection breach is made to the Information Commissioners Office.

Within the Code of Conduct for Solicitors³ the following matters would also need to be reported:

Criminal charges, convictions or cautions: subject to the Rehabilitation of Offenders Act 1974, paragraph 7.6 (a) Code of Conduct for Solicitors.

Insolvency Event: paragraph 7.6 (b)Code of Conduct for Solicitors.

Material changes to those previously provided to the SRA. Paragraph 7.6 (c) Code of Conduct; the SRA is concerned here about the integrity of the roll given the publics reliance on it.

Questions that should be considered for reporting

The SRA Enforcement Strategy suggests that the following issues should be considered when deciding whether to report:

Intent/Motivation: the seriousness of a breach may be dependent on the intention or motivation behind it. Was the breach deliberate, planned and premeditated? If so then it may display dishonesty and/or a lack of integrity.Harm/Impact: consider the number of victims, the financial impact, any physical, mental or emotional harm, how many times the breach occurred.Vulnerability: if a client has been impacted then are they more susceptible to harm due to their vulnerability? Were they taken advantage of due to their vulnerability?The SRA Guidance note on Reporting and Notification Obligations³ further details your obligations and how to comply with them in this area.

What else needs to be reported?

There exists a further reporting obligation under paragraphs 7.7 and 7.8 of the Code of Conduct for Solicitors³ that ‘you report promptly’ ‘any facts or matters that you reasonably believe are capable of amounting to a serious breach.’

It seems clear from this, the Enforcement Strategy and recent SRA investigations that the reporting obligations also cover actions taken by the SRA’s regulated community in their private lives.

Record Keeping /Show your workings

Are you ‘able to justify your decisions and actions to demonstrate compliance with your obligations under the SRA’s regulatory arrangements?’³

It is strongly recommended that to ensure compliance you should maintain a record of any breaches, or allegations or indications of a breach, the impact on clients and others of the breach, the actions taken to both mitigate the impact, resolve the breach and prevent it reoccurring.

If you do decide that the matter does not warrant referral to the SRA, pending further enquiries, then you should be prepared that you may need to report the matter in the future, and at that point you may need to explain why the matter was not previously reported.

Conclusion

The key messages to take away are: -

Serious breaches must be reported promptly to the SRA
Records of all compliance decisions must be maintained
Compliance officers must ensure that all managers, employees and third parties with whom your firm contracts with comply with the SRA’s regulatory arrangements
Lastly, any serious failure to comply with the requirements of the StaRs may result in the SRA taking regulatory action against the firm itself as an entity, or its managers or compliance officers. In addition, the SRA may also take action against employees working within the firm for any breaches for which they are responsible

John Hosie
Lead Associate, FINEX Global

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