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Outcomes-focused regulation at a glance

Your quick guide to getting started with OFR and the new Handbook

Last updated 10 October 2011

1. About this guide

We have designed this guide to help you get used to the SRA's new approach to regulation, outcomes-focused regulation or "OFR" and the new SRA Handbook.

In this guide we will:

  • Explain OFR and how it differs from the current approach to regulation
  • Show how it will work in practice, with examples of common ethical dilemmas and how these are affected by the changes
  • Provide you with a quick overview of the Handbook

This guide is relevant to all individuals and firms regulated by the SRA, including solicitors practising in-house. However, some aspects are less relevant to those practising in-house, e.g. the requirements for compliance officers for legal practice and finance and administration (COLP and COFA).

This guide does not form part of the Handbook, but where we refer to specific parts of the Handbook we have provided links.

2. Overview of the new SRA Handbook

The new SRA Handbook brings together, in one place, all of the regulatory requirements that apply to everyone we regulate—not just solicitors in traditional firms and in-house practice but also, in due course, new entrants to the legal services market such as non-lawyer managers of alternative business structures (ABS). This format will enable you to navigate easily between the various sections.

The new Handbook came into effect on 6 October 2011. It applies to all types of firms regulated by the SRA, so that clients of all such firms receive the same level of protection.

The following diagram provides a snapshot of what the Handbook contains.

Snapshot of the handbook

handbook-overview-snapshot


  • The Principles – 10 mandatory Principles which underpin all of the Handbook requirements;
  • The SRA Code of Conduct – New outcome focused conduct provisions, which show how the Principles apply in practice to conduct matters, and provide clarity for consumers about the outcomes and protections they can expect;
  • The Accounts Rules – Rules for protection of client money, including new outcomes-focused provisions on authorising withdrawals from the client account and accounting for interest;
  • Authorisation and Practising Requirements – New approach to authorisation, appointing compliance officers (COLP and COFA), notification requirements and admission and education requirements;
  • Client Protection – New outcomes and rules in relation to indemnity insurance and the Compensation Fund;
  • Disciplinary and Costs recovery – New approach to fining and disciplining firms and individuals;
  • Specialist Services – Provisions on financial services, property selling and European cross-border activities;
  • Glossary – Definitions for the whole Handbook.

3. About OFR

3.1 What is OFR?

The Solicitors Regulation Authority (the "SRA") is transforming its approach to regulation in the public interest and for the benefit of clients, by introducing outcomes-focused regulation ("OFR"). This is a regulatory regime that focuses on the high level Principles and outcomes that should drive the provision of services for clients.

OFR is...
  • Designed to enable you to put clients first, where this doesn’t prejudice the public interest
  • About achieving the right outcomes for clients
  • Flexible
  • A move away from prescriptive rules wherever this is appropriate
OFR isn't...
  • Light-touch regulation
  • A tick-box approach to regulation
  • A "one-size-fits-all" approach to regulation

3.2 What's different about OFR?

Responsibility for meeting the requirements in the Handbook, and for operating effective systems and processes, lies with you. In the SRA Code of Conduct (the Code) in particular, we have stripped out a lot of the detail of the previous Code to empower you to implement the right systems and controls for your clients and type of practice. You will have more flexibility in how you achieve the right outcomes for your clients, which will require greater judgement on your part.

The changes are reflected, not only in the new Handbook, but also in our approach to authorisation, supervision and enforcement. This will be risk based, proportionate and targeted and will involve a more open and constructive relationship between the SRA and those we regulate. Firms that are already well-managed and providing a good service to their clients should have nothing to fear from this approach.

3.3 The Principles

There are ten Principles. Most of these will be familiar to you as they are similar to the core duties contained in rule 1 of the current Code of Conduct, but there are some new ones. They now stand alone at the beginning of the Handbook and underpin all of the regulatory requirements. This is because we expect you to act in accordance with the Principles in everything you do; for example, when dealing with clients, or the SRA. Whenever you have to consider a regulatory issue, your first point of reference will always be the Principles.

4. OFR in practice – a different way of thinking

4.1 The new Code of Conduct

The new Code looks very different from the 2007 Code. Rather than containing prescriptive rules, supported by guidance, it comprises mandatory outcomes and non-mandatory indicative behaviours.

  • Outcomes – these describe what you are expected to achieve in order to comply with the Principles in specific contexts, as set out in the different chapters in the Code. The outcomes are mandatory.
  • Indicative behaviours – these provide non-mandatory examples of the kind of behaviours which may establish whether you have achieved the relevant outcomes and complied with the Principles.

4.2 Table comparing old and new approaches

Issue Old approach - 2007 Code New approach - new Code
Client care Rule 2 - sets out a detailed and prescriptive list of the type of information that you must give to clients. Chapter 1 - general outcomes e.g. clients are in a position to make informed decisions about their matter. Indicative behaviours set out how you might go about this e.g. agreeing an appropriate level of service with the client. Allows greater flexibility, according to the needs of the client and the type of work you do, but there is also greater emphasis on the needs of the individual client, particularly those who are vulnerable.
Equality and diversity Rule 6 reflects legal requirements. A written policy is mandatory. Now elevated to the status of a Principle with outcomes in the Code focusing on creating a culture in which equality of opportunity and respect for diversity are encouraged.
Conflict of interests Detailed rules, particularly in respect of conveyancing. Greater emphasis on identifying and dealing with conflicts in all types of matters, and having systems and controls to enable you to do so.
Managing your business Rule 5 provides detailed rules for effective management of your firm in limited areas Now elevated to the status of a Principle with outcomes which focus on identification of risks and effective system and controls for mitigating these risks
Reporting requirements Rule 20 contains reporting requirements on limited areas New Principle on co-operating with regulators and ombudsmen. Outcomes on reporting require you to engage with the SRA in an open and constructive manner to enable the SRA to respond proportionately

4.3 Q&As and case studies

At the end of this guide you'll find some Q&As and case studies on particular issues, to help illustrate an outcomes-focused way of addressing them.

Q&As:

Case studies:

4.4 Accounts Rules

The principal purpose of the Accounts Rules is to protect client money. To achieve this end, they have to be clear, specific and detailed. Large parts of the existing rules have been retained in what is accepted to be a high-risk area. Nevertheless, some operational flexibility has been introduced, for example in relation to the payment of interest and signing on client account. These are areas where firms can exercise appropriate judgment without unnecessary prescription.

However, external owners of firms who are neither managers nor employees of an ABS are prohibited from signing on client account as there needs to be some element of proximity to client matters when determining appropriate client account signatories.

5. OFR in practice – a different way of operating

5.1 Managing risk and ensuring compliance

Our approach to supervision will encourage you to identify, manage and mitigate risks to your ability to meet the requirements of the Handbook. This will allow us to concentrate on those who can't or don't manage these risks. We expect you to be straightforward in your dealings with us, forward-looking and able to identify emerging risks, for example, risks associated with changes in the legal services market and the economic climate. We may discuss with you what risks you foresee.

Your approach to dealing with risk will vary depending on the way in which you practise. If you are employed in-house you will still need to manage the risks associated with the work you undertake. This will generally form part of your employer's existing risk management arrangements.

Effective compliance arrangements

When considering the issues of risk and compliance, it would be helpful to think about all aspects of your firm, including:

Your work
  • What type of work do you do?
  • Does this pose particular risks to meeting the Handbook requirements?
  • Is it subject to specific/additional regulatory requirements? (e.g financial services, property selling.)
Your governance and culture
  • Is compliance with the Handbook a priority?
  • Is there effective communication throughout the firm on regulatory issues?
  • Is there effective oversight of regulatory matters by your managing body?
Your infrastructure
  • Do you have clear reporting lines?
  • How are risks identified, managed and mitigated?
  • How are regulatory issues identified and escalated?
Your people
  • Have you appointed a COLP and COFA, with the necessary skills and experience?
  • Do they understand their role, responsibilities and accountabilities?
  • Do they have sufficient resources and authority to do their job properly?
  • Do your management structure and reporting lines facilitate their roles?
  • Is their performance reviewed regularly by management?
  • Are other staff appropriately trained in compliance issues, including the role of the COLP and COFA?
Your policies
  • Are your systems, controls and policies effective?
  • Do they meet all of the Handbook requirements and any relevant legal requirements?
  • Are they appropriate to your type of firm, client base and the type of work you do?
  • Are they appropriately documented, consistently applied and updated?
  • Are your policies clearly communicated throughout the firm?
Monitoring and reporting
  • Is compliance with the firm's policies and procedures regularly monitored?
  • Is there regular reporting to the managing body on regulatory issues and risks?
  • Are there procedures for resolving issues identified through monitoring?

Identifying and managing risks

 The new Code requires firms to have effective systems and controls to enable them to meet the requirements of the Code. The nature of those systems and controls will vary according to the size of the firm or form of practice (e.g. in-house), its complexity, the activities that it conducts and its client base. For this reason, it is for you to decide on the form that your systems and controls take, bearing in mind:

  • the application of the Handbook to your work;
  • your assessment of the risks that you are running;
  • your determination of the most effective means of mitigating those risks.

This is illustrated below:

Managing risks

ofr-quick-guide-managing-risks-diagram

5.2 Thinking about your COLP and COFA

The SRA Authorisation Rules contain requirements that mean that ultimately all firms which we authorise (but not in-house legal teams) will need to appoint compliance officers for legal practice and for finance and administration (COLPs and COFAs). Risk management and proper governance is at the heart of these requirements.

Your quick guide to the key issues
  COLP COFA
What do they do?
  • Take all reasonable steps:
    • to ensure that the authorised body complies with all terms and conditions of its authorisation (except any obligations imposed under the SRA Accounts Rules);
    • to ensure that the authorised body complies with relevant statutory obligations (see guidance notes to rule 8 of the SRA Authorisation Rules);
    • to record any failure to comply with authorisation or statutory obligations and make such records available to the SRA.
  • Report any material failure (either taken on its own or as part of a pattern of failures) to the SRA as soon as reasonably practical and all non-material failures to the SRA in the annual information report completed and provided on an annual basis in accordance with rule 8.7(a) of the SRA Authorisation Rules.
  • Take all reasonable steps to ensure that the authorised body, its employees and managers, comply with any obligations imposed under the SRA Accounts Rules;
  • Keep a record of any failure to comply and make this record available to the SRA.
  • Report any material failure (either taken on its own or as part of a pattern of failures) to the SRA as soon as reasonably practical and all non-material failures to the SRA in the annual information report completed and provided on an annual basis in accordance with rule 8.7(a) of the SRA Authorisation Rules.
Who can be appointed?

A lawyer of England and Wales, a Registered European lawyer or an individual registered with the Bar Standards Board under regulation 17 of the European Communities (Lawyer's Practice) Regulations 2000; and who is

  • a manager or employee of the authorised body;
  • is designated as its COLP and whose designation is approved by the SRA; and
  • is of sufficient seniority and in a position of sufficient responsibility to fulfil the role.

A manager or employee of the authorised body; and who is

  • designated as its COFA and whose designation is approved by the SRA; and
  • is of sufficient seniority and in a position of sufficient responsibility to fulfil the role.
Can the same person fulfil both roles?

Yes, providing they have the necessary skills to fulfil both roles.

Yes, providing they have the necessary skills to fulfil both roles.

Will the COLP and COFA have sole responsibility for compliance with the Handbook requirements?

No, definitely not. All individuals in the firm have a role to play in complying with the requirements of the Handbook. Ultimately compliance is the responsibility of the firm. The COLP and COFA have a key role in ensuring that systems and controls are in place and in reporting material issues to the SRA.

See guidance note (viii) to rule 8 of the SRA Authorisation Rules and Chapter 10 of the SRA Code of Conduct.

The responsibilities are the same as those of the COLP.

See guidance note (ix) to rule 8 of the SRA Authorisation Rules and Chapter 10 of the SRA Code of Conduct.

Will the COLP and COFA have responsibility for systems and controls?

Yes, the COLP is responsible for ensuring that the firm has systems and controls in place to enable the firm, its managers and employees and anyone who has any interest in the firm to comply with Handbook requirements on them.

The type of systems etc needed is not prescribed and very much depends on what is appropriate for the type and size of the firm, its areas of risk, and the type of work and client base. See guidance note (iii) to rule 8 of the SRA Authorisation Rules.

Yes, as for the COLP, but again the type of systems and controls is not prescribed.

See Guidance note (iii) to rule 8 of the SRA Authorisation Rules

Planning for these changes – what do you need to do?

You will need to decide:

  • who are you going to appoint?
  • how will the COLP and COFA operate within your business structure?
  • what systems are needed to support those roles?
  • do you need to change your governance and reporting lines to empower the COLP and COFA?
  • how will management review the effectiveness of the COLP and COFA?

Timelines for appointing a COLP and COFA

If you are an existing recognised body (including a sole practitioner, as these will become recognised bodies on 31 March 2012), and are not planning to convert to be an ABS, you will need to nominate your COLP and COFA for approval by 31 March 2012 and they will be authorised from 31 October 2012.

New recognised bodies will apply as from 28 February 2012 under the new Authorisation Rules and will need to nominate a COLP and COFA for approval as part of the authorisation process. Again, the COLP and COFA will be authorised as from 31 October 2012.

All LDPs with non-lawyer managers are ABS and have a grace period but will need to become licensed as such by 31 October 2012 at the latest. This will be dealt with by the SRA as a passporting exercise. However such firms could elect to be passported as soon as the SRA is designated as a licensing authority. They will need to make an application to the SRA and apply for approval of their designated COLP and COFA. For firms wanting to take advantage of the grace period they will be asked to designate COLPs and COFAs by 31 March 2012.

New ABS will have to nominate a COLP and COFA for approval as part of the authorisation process and they will take up their responsibilities at the point when the firm is authorised. Applications can be submitted to the SRA when it is designated as a licensing authority. For the latest information, visit www.sra.org.uk/abs.

Where will you find the key notification and information requirements in the Handbook?

You will find the key notification and information requirements in the following places:

  •  SRA Authorisation Rules – rules 3, 8, 18, 23, 24 and 25;
  •  SRA Practice Framework Rules – rule 18;
  •  SRA Practising Regulations – regulations 1.2, 4.3, 4.5 and 15;
  •  SRA Code of Conduct – Chapter 10;
  •  SRA Accounts Rules – rule 31 

Relevant statutory requirements include s84 of the Solicitors Act 1974 and paragraph 21 of Schedule 13 to the Legal Services Act 2007.

6. Key dates

Note: We will shortly be publishing on our website more information on what you need on each of these dates.

Type of firm Authorisation COLP and COFA
If you are intending to be a new ABS...

You can make an application as soon as the SRA is designated as a licensing authority. For the latest information, visit www.sra.org.uk/abs.

You must provide details of the individual(s) who will be the firm's COLP and COFA and seek approval of that designation from the SRA.

If you are an existing Legal Disciplinary Practice ("LDP")...

Existing LDPs with non-lawyer managers will continue to be treated as recognised bodies until 31 October 2012. However, they can choose to "passport" to ABS status status when the SRA is designated as a licensing authority.

If you choose to "passport", you will need to designate a COLP and COFA and seek approval of that designation from the SRA.

If you decide not to be passported early, then you must consider the requirements below which apply to existing recognised sole practitioners and existing recognised bodies.

If you are an existing recognised sole practitioner or an existing recognised body...

31 March 2012 - recognised sole practitioners will be "passported" to become recognised bodies.

All recognised bodies, (including those with non-lawyer managers who have not chosen to "passport" by this date and recognised sole practitioners), will become subject to the Authorisation Rules.

31 October 2012 -remaining LDPs with non-lawyer managers will be "passported" to become ABS and the first round of annual reporting commences for all firms.

All these types of firms must provide details of their prospective COLP and COFA to the SRA prior to 31 March 2012 (together with details of their managers and owners) in order that their designation can be approved.

31 October 2012 - COLPs and COFAs in existing recognised bodies must start to fulfil their obligations.

If you are intending to be a new recognised sole practitioner or recognised body...

28 February 2012 - applications for authorisation as new recognised bodies (including recognised sole practitioners) will be dealt with under the SRA Authorisation Rules from this date.

SRA must be provided with details of the prospective COLP and COFA in order that their designation can be approved in readiness for 31 October 2012.

Q&As - Acting for a buyer and seller of land

Q1. Why are there no specific outcomes in relation to acting for buyers and sellers of land?

A. Whilst the 2007 Code contained provisions in relation to conveyancing, the aim of these provisions was to prevent firms from acting for buyers and sellers of land in a conflict of interests. Although there were some exceptions which enabled firms to act for a buyer and seller, these provisions were still subject to a proviso that there was no conflict of interests.

The new Code retains this approach: you cannot act for a buyer and seller of land in a conflict of interests. What is new and in keeping with OFR is that the decision as to whether or not a conflict of interests arises now rests with you.

Q2. What is a conflict of interests?

A. When acting for a buyer and seller a conflict of interests arises 'where you owe separate duties to act in the best interests of two or more clients in relation to the same or related matters and those duties conflict or there is a significant risk that those duties may conflict'. (See Handbook glossary.)

The outcomes in chapter 3 of the Code support Principle 4 which requires you to act in the best interests of clients. The outcomes require you to have effective systems and controls to help you identify and assess conflicts of interests.

Q3. How do I assess if there is a conflict of interests?

A. Using your systems and controls for assessing and identifying conflicts of interests you need to consider all the factors which might result in your independence or your ability to act in the best interests of the buyer and the seller being compromised. Outcome 3.3 of the Code requires you to consider such factors as: difference in the clients' interests, whether there is a need to negotiate, whether there is an imbalance in bargaining power or if any of the clients are vulnerable.

Q4. Won't there always be a significant risk of a conflict of interests between a buyer and seller?

A. Acting for a buyer and seller is an area which carries a high risk of conflict of interests and we would not expect firms routinely to act for a buyer and seller. (See IB 3.14) This is because acting for a buyer and seller often involves some form of negotiation over matters of substance, and there may also be inequality of bargaining power. However there may be rare instances when it is possible to conclude that there is no conflict of interests. It will be for you to justify acting in these circumstances.

Q5. What if I conclude there is no conflict of interests?

A. If you are satisfied there is no conflict of interests you should also satisfy yourself, that if you were to act, there is no other risk to the Principles. In particular your decision to act for a buyer and seller should be of benefit to both clients, rather than in your own commercial interests. You should monitor the issue of conflicts, particularly when the impact on a conveyancing chain could be considerable, should you have to pull out due to a conflict.

Q6. Should I keep a record?

A. You may be asked to demonstrate compliance with the Principles and it will be easier to demonstrate compliance if you have kept a record of your decision. If you cannot demonstrate compliance we may take regulatory action.

Q7. What other Principles and outcomes may become relevant if I am considering acting for a seller and buyer?

A. The other key Principles to consider are that you must:

  • act with integrity (Principle 2)
  • not allow your independence to be compromised (Principle 3)
  • provide a proper standard of service to your clients (Principle 5)

Also, the outcomes in Chapter 4 (Confidentiality) may become relevant. For example, the buyer may want you to keep certain information confidential, but this information may also be material to the seller. In order to achieve Outcome 4.3 (which requires your duty of confidentiality to take precedence) you would have to consider ceasing to act for the seller.

Q8. Do the above questions and answers apply to a lessor and lessee?

A. Yes the above responses do apply to a lessor and lessee.

Q&As – Lender and borrower

Q1. Can I act for a lender and borrower on the mortgage of land?

A. Yes you can act for a lender and borrower providing you can comply with the Principles in the Handbook and the Outcomes in the SRA Code of Conduct (the Code). The key Principle is Principle 4 which requires you to act in the best interests of clients. The key Outcomes which support Principle 4 are:

  • 3.4 – you do not act if there is an own interest conflict;
  • 3.5 – you do not act if there is a client conflict;
  • 1.4 – you must have the resources, skills and procedures to carry out your clients' instructions.

There may be other Principles and outcomes which become key but this will depend on the circumstances (see Q.9).

Q2. Why are these Principles and outcomes of particular relevance?

A. The lender's instructions will often require you to undertake a number of tasks which could lead to an increased risk of a conflict of interests or require you to report on matters which fall outside your remit as a legal adviser.

Q3. Are there any specific provisions for standard mortgages or transactions which are not at arms length?

A. No there are no specific provisions for standard mortgages1 or individual mortgages2 The Principles and outcomes will apply to standard mortgages1, individual mortgages2, where the property is commercial or residential and whether or not the transaction is at arm's length. (See also Question 8)

Q4. What is a conflict of interests?

A. A conflict of interests is defined in the glossary to the Handbook and can arise in two ways:

  • where you owe separate duties to act in the best interests of two or more clients in relation to the same or related matters, and those duties conflict or there is a significant risk that those duties may conflict ("client conflict"),
  • where your duty to act in the best interests of any client in relation to a matter conflicts, or there is a significant risk that it may conflict, with your own interests in relation to that or a related matter ("own interest conflict").

Outcomes 3.1 and 3.3 require you to have effective systems and controls to help you identify and assess both types of conflict of interests.

Q5. How do I assess if there is a conflict of interests?

A. Using your systems and controls you will need to consider all factors which might result in your independence or your ability to act in the best interests of the lender and the borrower being compromised. Outcome 3.3 requires you to consider such factors as: differences in the clients interests, whether there is a need to negotiate, whether there is an imbalance in bargaining power or if any of the clients are vulnerable.

Q6. Are there particular issues which I need to consider in relation to own interests conflicts?

A. If the firm in which you work is an ABS, it is likely that there will be a high risk of an own interest conflict if you are considering acting for a borrower and the lender has a significant interest in the ABS.

Q7. Are there particular issues which I need to consider in relation to conflicts between a lender and borrower?

A. There is likely to be an increased risk of a conflict of interests if the mortgage is an individual mortgage of land at arm's length as the terms may be prejudicial or may involve negotiation.

Q8. Are there any situations where I can automatically act for a lender and borrower?

A. IB 3.7 provides an example of when it may be possible to act for a lender and borrower and reflects situations where the mortgage is a standard mortgage and the property is residential. However you should never automatically assume in these circumstances that there is no conflict of interests and that it is permissible to act.

Q9. What other Principles and outcomes may become relevant to a lender and borrower?

A. You may find there are circumstances when a borrower discloses information to you, which you have an obligation to keep confidential. You will need to bear in mind that you also have obligations to disclose information to the lender if it is material to them. Where these duties conflict, outcome 4.3 requires that your duty of confidentiality prevails and you may not be able to continue acting for the lender.

1Standard mortgage definition- a mortgage which is provided in the normal course of the lender's activities which forms a significant part of the lender's activities and the mortgage is on standard terms

2Individual mortgage definition-any other mortgage

Q&As – referrals

Q1. I am thinking of entering into a referral arrangement with an estate agent. Where do I need to look in the Handbook?

A. Your starting point, as always, will be the Principles. You must keep these in mind both when entering into any referral arrangement and when acting for clients referred under these arrangements. The most relevant principles in relation to referral arrangements will be:

  • Acting with integrity
  • Acting in the best interests of your clients
  • Not allowing your independence to be compromised
  • Providing a proper standard of service to your clients

You should then look at chapter 9 (fee sharing and referrals) which sets out the outcomes you must achieve in relation to your fee sharing and referral arrangements. These include:

  • ensuring your independence and professional judgement are not prejudiced by the arrangement,
  • ensuring that your clients' interests are protected regardless of the interests of the introducer or your interest in receiving referrals,
  • clients are in a position to make informed decisions about how to pursue their matter,
  • clients are informed of any financial or other interest which an introducer has in referring the client to you,
  • not making payments to introducers in respect of clients who are the subject of criminal proceedings or who have the benefit of public funding,
  • ensuring that that all financial arrangements is in writing.

The indicative behaviours set out examples of behaviour that may indicate whether you have achieved (or not achieved) the outcomes.

You also need to bear in mind the outcomes in chapter 1, including the need to treat clients fairly and to tell the client about any arrangement that are relevant to the client's instructions.

Q2. What information do I need to give to clients about the arrangement?

A. The outcomes require that clients are in a position to make informed decisions about how to pursue their matter and that clients are informed of any financial or other interest which an introducer has in referring the client to you.

The information you give to clients will depend on the nature of the arrangement and any payments you are making to the introducer. Simply telling the client that you have a financial arrangement may not be sufficient to enable the client to make an informed decision.

Q3. When do I have to give this information to clients?

A. The outcomes do not specify when the information should be provided. However, in order to achieve outcome 9.3, you will need to consider whether you need to give the information before the client has committed themselves to instructing your firm i.e. at the outset of the matter. The nature of the referral arrangement may affect the client's decision to instruct your firm.

Q4. How do I decide whether a proposed arrangement meets the SRA's requirements? Can I have it approved by the SRA?

A. The SRA does not approve any referral arrangements. It is up to you to satisfy yourself that the arrangements you enter into are appropriate for your firm, the type of work you do and your client base and enable you to meet all the requirements in the Handbook.

Q5. Do I need to review my existing referral arrangements or can I assume that if they complied with the 2007 Code they will comply with the new one?

A. You should always keep your referral arrangements under review to ensure that they are not causing you to breach the Principles or any other regulatory requirements. In particular you may need to think about whether:

  • the arrangements continue to operate in the interests of your clients
  • you continue to be confident that your independence or professional judgement is not being compromised by the arrangement
  • any clients have complained about the nature of the arrangement, the conduct of the introducer, or the work you have carried out under the arrangement,
  • you are satisfied that the quality of the work or the level of client care is not affected by the arrangement or the interests of the introducer

The new code does not impose any new requirements, nor does it prevent any arrangements that were permitted under the 2007 Code. However, you do need to bear in mind that the referrals provisions now apply to referrals between lawyers, so you will have to ensure that any such arrangements are disclosed to client and, if they involve the payment of a referral fee, are put in writing. You will also need to be satisfied that they comply with the Principles and meet the outcomes.

Q6. It's not my responsibility to ensure the introducer is behaving properly is it?

A. Yes. You should not enter into, or continue with, any arrangement which prejudices the interests of the clients referred under that arrangement, for example if the introducer's publicity is misleading or if the client is being treated unfairly. If you have any reason to doubt the integrity of the introducer, or have concerns about the way clients are being treated, you should investigate further and if necessary terminate the arrangement.

Q&As - client care

Q1. Rule 2 of the 2007 Code clearly sets out the information I need to give to clients. How will I know what to put in my client care letters under OFR?

A. Client care issues are dealt with in Chapter 1 of the Code. Apart from information about complaints, the outcomes in Chapter 1 do not specify the information that must be given to clients, or the form that it should take. This is because OFR requires you to focus on the Principles and achieving the right outcomes for your clients, and gives you flexibility in how you meet these outcomes. The indicative behaviours provide some examples of the information you may provide in order to meet the outcomes, but these are not mandatory and you will need to work out what is appropriate for your clients, taking into account their particular needs and circumstances.

You will also need to consider whether other rules etc. require you to give particular information to clients e.g. in relation to financial services and the interest provisions in the Accounts Rules.

The most relevant Principles in the context of client care will be:

  • Providing a proper standard of service (Principle 5)
  • Acting in the best interests of each client (Principle 4)

Q2. Which outcomes do I need to achieve?

A. The outcomes you will need to achieve include:

  • you treat clients fairly;
  • clients are in a position to make informed decisions about the services they need, how their matter will be handled and the options available to them;
  • clients receive the best possible information, both at the time of engagement, and when appropriate as their matter progresses, about the likely overall cost of their matter; and
  • you inform clients whether and how the services you provide are regulated; and how this affects the protections available to the client.

Q3. How will I know whether I am achieving these outcomes?

A. You will need to consider the needs and circumstances of your clients when deciding the best way to meet these outcomes.

The indicative behaviours include: agreeing an appropriate level of service with the client; clearly explaining your fees and if and when they are likely to change; and explaining your responsibilities and those of the client. These are not mandatory and you may develop your own ways of meeting the outcomes, which are suited to the needs of your clients and the type of work you do. Also these are not an exhaustive list: there may be other information you need to give the client. You know your clients best.

This gives you the freedom to decide what information you give to your clients to ensure they understand the basis on which they are instructing you. Factors you should consider are:

  • Whether your client is used to dealing with law firms - the way you deal with a sophisticated commercial client will be very different from the way you deal with a first-time property buyer. When formulating your systems and procedures you will need to consider the firm's client base and areas of work. You may need to adopt a different approach for different types of work and different types of client.

  • Whether standard letters are appropriate for all clients and all types of work - if you provide a client with so much, or such complex, information that they are unable to understand the basis on which they are instructing you, you may not have met the outcomes that clients are in a position to make an informed decision.

  • Whether the client is vulnerable e.g. if the client has a learning difficulty or other disability that may affect their ability to understand the information you are providing, or if English is not the client's first language. You will also need to bear in mind your duties under the Equalities Act, in particular the need to make reasonable adjustments in relation to clients with disabilities. (Chapter 2 Equality and diversity)

Providing clear information at the outset and as the matter progresses, is of benefit not only to clients but also to your firm. Some of the most common causes of complaints are lack of clear information about costs, failure to follow instructions, delay and failure to keep clients informed. It is important to monitor complaints to your firm, as these can indicate failure to provide good client care as well as other problems within the firm.

Q4. What evidence do I need to show that I am meeting the outcomes on client care?

A. Individual client files will often provide the best evidence of good client care. Well maintained files will contain copies of letters to the client, attendance notes or some other record of the information and explanations to the client and the steps you have taken to protect the client's interests. For example:

  • In a case where you were concerned about the client's mental capacity the file should clearly document the steps you took to establish that the client had the necessary capacity to instruct you on the matter.
  • In a case where you were concerned about the client's ability to speak and/or understand English, the file should indicate whether an independent interpreter was used.
  • In a matter involving significant delays, there should be evidence that you have explained the reasons for these delays to the client.
  • Where you have acted for a large multi-national company on a number of matters under a general retainer, it should be clear that the matter is being dealt with on terms previously agreed with the client.

Q&As – Complaints handling

Q1. We are reviewing all our firm's policies and procedures in anticipation of the introduction of OFR, including our complaints handling policy. Which aspects of the handbook are relevant?

A. Your starting point, as with any regulatory issue, will be the Principles. The most relevant Principles will be:

  • Acting with integrity (Principle 2)
  • Acting in the best interests of each client (Principle 4)
  • Providing a proper standard of service to your clients (Principle 5)
  • Complying with your legal and regulatory obligations and dealing with your regulators and ombudsmen in an open, timely and co-operative manner (Principle 7)

You will need to keep these Principles in mind, not only when reviewing your policy but when dealing with each complaint.

The outcomes in chapter 1 require that client complaints are dealt with promptly, fairly, openly and effectively and that clients are given information about their right to complain to the firm and the Legal Ombudsman.

The new Code does not require you to have a written complaints handling procedure. Instead the focus is on ensuring that clients know about their right to complain and that complaints are dealt with properly at firm level. However, having a written policy is a good way of showing your commitment to dealing with complaints properly, ensuring that complaints are dealt with consistently and ensuring that everyone in your staff is familiar with the way complaints should be handled.

You will also need to consider:

  • the outcomes relating to client care generally. It is often possible to avoid complaints by ensuring that clients are well informed about issues such as cost, funding options and the time it will take to deal with their matter; and
  • how you will monitor complaints received to identify whether they are the result of any underlying problems - for example, in relation to a particular department, staff member or procedure - and what steps you can take to address any problems you identify. This is an important part of your risk assessment process.

Q2. Does the SRA intend to publish a standard form of complaints handling procedure that we can adopt in order to ensure that we comply with the Handbook requirements?

A. No. The content of your policy is a matter for you and will depend on the nature of the firm, your client base and the type of work you do. The indicative behaviours describe certain issues your policy should aim to deal with, such as allowing complaints to be made by any reasonable means, providing for decisions to be based on a sufficient investigation of the facts and providing for appropriate redress.

You can find information about the Legal Ombudsman and how it handles complaints at www.legalombudsman.org.uk. The Ombudsman has also produced a "Guide to good complaint handling", which sets out how it expects lawyers to deal with complaints.

Q&As – Outsourcing

Q1. Outcomes 7.9 and 7.10 in the SRA Code of Conduct contain provisions on outsourcing. What is outsourcing?

A. Outsourcing is not defined in the Handbook, but Outcomes 7.9 and 7.10 are aimed at firms or in-house solicitors who use a third party to undertake work that the firm or in-house solicitor would normally do themselves and for which the firm or in-house solicitor remains responsible. It is important that when firms outsource work this does not affect our ability to regulate the firm's activities and that clients remain fully protected.

Q2. I outsource a number of activities, what sort of activities are caught by outcome 7.10?

A. Outcome 7.10 refers to the outsourcing of 'legal activities or any operational functions that are critical to the delivery of any legal activities'. Legal activities are defined in the glossary to the Handbook and include the provision of legal advice or assistance, or representation in connection with the application of the law or resolution of legal disputes. Outcome 7.9 prohibits the outsourcing of reserved legal activities to a person who is not authorised to conduct such activities (since to conduct unauthorised reserved legal activities is unlawful).

Q3. Can you provide examples of activities which would be caught by outcome 7.10?

A. This list is not exhaustive, but the following are examples of the type of activities which, if outsourced, would be caught by Outcome 7.10:

  • activities which would normally be conducted by a paralegal
  • initial drafting of contracts
  • legal secretarial services - digital dictation to an outsourced secretarial service for word-processing or typing
  • proofreading
  • research
  • document review
  • Companies House filing
  • due diligence, for example in connection with the purchase of a company
  • IT functions which support the delivery of legal activities
  • business process outsourcing

Q4. What about when I instruct counsel - is this not caught by the outsourcing provisions in the Handbook?

A. The outsourcing provisions in the Code apply when you outsource work that you could have conducted and do not apply when you use a specialist service to assist with the provision of legal services to a client, for example instructing counsel, medical experts, tax experts or accountancy services.

Q5. Outcome 7.10(b) requires me to ensure that my contractual arrangements with a third party allow the SRA to obtain information from that third party? When does this provision take effect?

A. Outcome 7.10(b), like the rest of the Code, will come into force on 10 August 2011 in respect of ABS and 6 October 2011 for all other purposes. We would therefore expect all new outsourcing agreements to contain provisions that meet this outcome by 6 October 2011. In relation to existing outsourcing agreements, we are unlikely to take action against firms before 6 April 2012 purely on the basis that an agreement does not include specific terms to meet this outcome. However, we would expect you to have taken reasonable steps to ensure that the SRA can obtain access to relevant information if necessary, bearing in mind that Principle 7 requires you to deal with your regulator in an open, timely and co-operative manner. This could mean, for example, ensuring that the party with whom you have the agreement is aware of your professional obligations and that you keep adequate records relating to outsourced matters.

Q6. I am thinking of entering into an outsourcing arrangement. What should I consider?

A. (i) Your clients
  • Is it in your client's interests to outsource?
  • Informing clients of your arrangements and the risks attached
  • Obtaining clients consent and if necessary informed consent
  • Billing appropriately
  • Do not rubber stamp, take ownership of the outsourced work
(ii) Assess the risks

Outsourcing carries specific risks which you need to consider before making the decision to outsource, and manage throughout the term of the outsourcing and not simply at the outset. This diagram should assist you to identify and manage these risks.

Outsourcing

ofr-quick-guide-outsourcing-diagram

(iii) The third party should be reputable so consider due diligence:
  • investigate the background of the third party company
  • review the ethical standards of those who perform the work
  • obtain references of the company
  • be aware of qualifications of the individuals carrying out the work
  • what are their systems for conflict checking?
  • what are their systems for protecting client confidentiality?
  • Informing clients as to what activities are outsourced and the risks attached
  • If the third party is based overseas, are there different laws or ethical standards which may be relevant?
(iv) Your arrangements with the third party
  • must not compromise your independence and integrity;
  • must not breach the outcomes in chapter 12 (separate businesses) of the SRA Code of Conduct

Case study 1 – complaints

Your firm, which specialises in conveyancing, receives a complaint from a client concerning unexpected additional charges. The client feels that they were misled about the overall cost of the conveyance, both over the telephone and in the client care letter.

Having investigated the complaint you identify that:

  • the property was leasehold and the client was quoted the cost for a freehold conveyance;
  • the member of staff who provided the quote had not asked sufficient questions to understand that the transaction involved a leasehold property before giving the quote;
  • it also appears that some charges are routinely being treated as disbursements when in fact they are additional fees.

An outcomes-focused approach to looking at this issue:

Outcome 1.1 requires you to treat all your clients fairly. Where complaints have been received, an outcomes-focused approach would involve:

  • treating the complainant fairly - making sure their complaint is properly investigated and that they are offered an appropriate remedy;
  • treating current and former clients fairly - considering whether other clients may have been misled in the same way and proactively contacting them to rectify that situation;
  • understanding the root cause of the complaint and making sure this situation does not arise again.

Case study 2 – conflict of interests

Your firm has decided to act for two co-defendants charged with assault. To begin with, their stories are consistent. However, one of the defendants is particularly concerned about a custodial sentence in view of past convictions and changes his story to blame his co-defendant. This individual is a long-standing client of the firm. You are uncertain whether you can continue to represent both or either of them.

An outcomes-focused approach to looking at this issue:

Key issues to bear in mind are:

  • as the matter is the same, can you act in the best interests of both clients?
  • if you decide that you can't, can you continue to act for either of them, bearing in mind confidentiality and the duty of disclosure of material information to clients?

These issues are to be considered in the light of the outcomes that you should be achieving:

  • neither client's interests are prejudiced;
  • each client's confidentiality is protected;
  • you are in a position to disclose material information
  • the court is not misled;
  • your independence is not prejudiced by your own commercial interests.

Case study 3 – Compliance Officer for Finance and Administration

You are the COFA for a small, three partner firm. You are an employee and not a manager of the firm. In accordance with reporting procedures that you have established, the cashier explains to you that they have been unable to pay the firm's invoices because the firm has exceeded its overdraft. Further investigation reveals that the overdraft facility has been extended on a number of occasions but the bank is now refusing to extend it further.

You approach the managing partner to discuss the matter, since you are concerned that the firm is in serious financial difficulties. The managing partner tells you that this is a temporary cash-flow problem and there is no necessity to report the matter to the SRA.

An outcomes-focused approach to looking at this issue:

As the COFA, you have specific reporting responsibilities. When deciding whether the matter is reportable, points to consider are:

  • how prolonged is this issue?
  • how severe is the problem?
  • are clients' interests at risk?
  • is there a risk to client money?
  • can you still say that you are being open with the SRA if you keep this information to yourself?
  • is the firm trying to prevent you from reporting, or is this a difference of opinion that can be resolved?