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Closed consultations

The regulation of international practice

16 February 2012

  • The deadline for submission of responses to this consultation was 15 February 2012.
  • The information below is for reference purposes only.
  • An analysis of responses is in progress.

Executive summary

  1. In July 2011, the SRA published a paper on the international challenges that it is facing and outlined the actions that we proposed to take in order to respond to them. One of these actions was the publication of a Green Paper setting out ideas on how the SRA Handbook should apply outside England and Wales and how we might regulate international practice more generally. This paper represents the next stage in this work.

  2. Under the new outcomes-focused approach we will be targeting our efforts on regulating what matters, rather than following up on every breach by an individual and entity that we regulate, however minor. This outcomes-focused approach now needs to be applied outside of England and Wales and this may well require a different approach to that followed inside this jurisdiction. Our aim should be to ensure that the standards that clients, courts and fellow regulators can expect of our regulated community are upheld internationally and that clients and consumers can be sure that any legal services delivered under a "brand name" associated with the English and Welsh system comes with clarity about how they are regulated.

  3. We also need to ensure that we have the ability to identify and act on problems arising outside this jurisdiction in advance of any adverse consequences occurring either in England and Wales, or to the reputation of the standard of SRA-regulated practice. But we need to do this in a proportionate, outcomes-focused way.

  4. In addition to setting out a rationale for SRA regulatory engagement overseas, this paper sets out who and how we believe we could best regulate outside of England and Wales. It makes a case for narrowing the application of the Handbook to cover only those entities that are branches of a law firm or related to a law firm group that is headquartered in England and Wales. For these types of practices, we are proposing a new approach based on a single, group level recognition which would cover all of the individual entities under that group. We would then require only the application of the SRA principles to the group outside England and Wales and the rest of the Handbook, including the outcomes in the Code of Conduct, would be disapplied. Individual solicitors practising abroad would still be governed by these principles regardless of where they were practising.

  5. The paper also sets out how group level recognition could work in practice. We would still need to maintain an interest in who owns a legal practice in order to ensure that the principle of independence is not undermined and that we have not granted recognition as a law firm to a body that should be licensed as an alternative business structure. But we also believe there is a strong case for a liberalisation in the recognition of law firm structures abroad, not least because of the increasing patchwork of approaches to non-lawyer involvement in law firms taken by different regulators. We are therefore suggesting that we should be able to allow SRA-regulated recognised bodies to take whatever structure they would be permitted to take as law firms locally, as long as they are regulated as law firms.

  6. We are also advocating a radical change in the Registered Foreign Lawyers regime. The changes introduced by the Legal Services Act 2007 which allow lawyer managers to work in partnership, even where they are separately regulated, can usefully be used as the basis for a new regime for foreign lawyer partners. We want to simplify the process of bringing new partners from different jurisdictions into SRA-regulated practices without undermining standards. We feel this can best be done by, more or less automatic recognition of legal titles from other jurisdictions coupled with the application of suitability tests for individuals entering into ownership or management of SRA-regulated practices via this route. We would also want to be able to use our powers to register foreign lawyers in order to enable lawyers to accede to partnership from jurisdictions that cannot currently get recognition because there is no formal local regulation or because they must surrender their practising certificates on joining a foreign firm.

  7. The paper also sets out how we intend to supervise and carry out enforcement in relation to entities under group supervision. The approach outlined attempts to focus on potential risks to consumers in England and Wales, to the business of the firm in England and Wales, or the risk of collateral damage to the reputation of English and Welsh practice, the SRA as a regulator or to other English and Welsh firms by the actions of one of their number overseas.

  8. There are specific consultation questions posed throughout the paper but these are not intended to be exhaustive. We are seeking views from consultees on any aspects of the regulation of international practice relevant to this paper. We are asking for views by 15 February 2012.

Green paper on international regulation

1. Introduction

  1. The move to an outcomes-focused and risk-based regulatory approach, set out in the SRA Handbook1, has brought with it a new emphasis on the regulation of entities which cannot easily be applied outside of England and Wales.

  2. There would be a risk to the SRA's regulatory model in England and Wales if the Handbook were to be limited in its territorial application. This would leave us unable to assess properly the risk profile of firms with operations outside of England and Wales. It would also undermine our ability to protect consumers in circumstances where the overseas operations of solicitors firms were engaged in supplying services to the market back home.

  3. The presumption must be therefore that the Handbook does apply but that its detailed application must be modified to take account of the specific challenges posed by international practice. Addressing this question allows us also to take into consideration the outcomes we are aiming to achieve. One of these is to ensure that our regulatory reach over individual practices is appropriate. The application of the Handbook currently results in some overseas operations of English and Welsh firms sitting outside SRA regulation, contrary to what might be expected by clients and regulators in other jurisdictions, whilst a number of foreign firms also have entities outside England and Wales which are currently subject to the SRA Handbook regime.

  4. How we should apply the Handbook to international practice was the primary motivating force behind the publication of this Green Paper, but there are other regulatory issues with an international dimension which we also want to take the opportunity to revisit. Regulation of international practice has grown up organically and we may well be able to achieve better results by thinking again about the outcomes we are trying to arrive at and how best to achieve them. These issues include, for example, the SRA's approach to the jurisdictional approvals required for Registered Foreign Lawyer (RFL) registration and Qualified Lawyer Transfer Scheme (QLTS) recognition, the application of the training authorisation rules outside of England and Wales, and our implementation of the European Establishment Directive.

  5. The Legal Services Board has also recently launched a consultation 2 on the boundaries of regulation. Given the very fundamental nature of this review it is opportune for us also to pose the question and ask for views on whether, and to what extent, there should be any regulation of foreign providers of legal services to the consumer market in England and Wales.

  6. This paper is therefore intended to launch a debate about the SRA's entire approach to "international regulation" 3. We consider this to be an early stage consultation and wish to use it to suggest ideas, indicate where our thinking is going and provoke comment rather than to lay out a definitive approach. Once the direction of travel has been determined we will then need to see whether, and how, this can be achieved under current legislation. We are aware that some of these ideas are a radical departure from current practice and they may not be quick or easy to achieve. We feel, however, that our objective should be to strive for the right result even if this will not be straightforward to attain.

  7. The discussion we wish to have about our regulatory approach to practice outside of England and Wales means that we cannot publish definitive statements about how the Handbook will apply internationally at this stage. We are clear however that the Handbook is not expressly limited to practice in England and Wales. But we will be proportionate in any supervision or enforcement work, taking full account of local circumstances. There is no intent in the drafting of the Handbook to create a conflict with local law and regulation.

  8. The rest of this paper sets out the underlying philosophy the SRA intends to adopt in dealing with the regulation of international practice, the objectives and results it believes it should target, and proposes some ideas about how these might translate into regulation in practice.

2. The underlying approach

2.1 Why do we need to regulate international practice?

  1. The regulation of international practice may be desirable on a number of counts but the question needs to be posed of what actual harm it is intended to combat or avoid. This discussion can perhaps best be couched in terms of the regulatory objectives laid out in the Legal Services Act 2007. Not all of these are applicable to international practice but the following clearly have a role to play:

    • Protecting and promoting the interests of consumers: Most purchasers of advice provided from abroad by SRA-regulated entities are businesses or sophisticated clients. Their interest is in the efficient provision of services and, provided they have sufficient information on how the services they are buying are regulated, they can make informed choices. The provision of legal services by recognised, and in the future licensed, bodies from overseas to the consumer market in England and Wales is more complex. Consumers have an interest in cheaper legal services, which has led to greater offshoring 4 by providers. This is not in itself a bad thing, but consumers also need clarity on the protections they will receive and some guarantees of the standards to which providers will adhere. The SRA therefore needs to ensure that there are no problems that might arise from the offshored operations of its regulated community overseas.

    • Promoting and maintaining adherence to the professional principles: Professional principles are the cornerstone of the SRA's regulatory approach. Clients or consumers should be able to buy services from SRA-regulated entities on the understanding that such principles apply wherever the service is provided, even where it has involved input from offices of the same law firm across multiple jurisdictions.

    • Protecting and promoting the public interest: The public interest in the appropriate regulation of overseas practice arises not least from the contribution that the legal services sector makes to the UK economy from its overseas activity. The SRA therefore needs to regulate in ways that support the ongoing health and competitiveness of this sector of the legal market. This does not necessarily mean an absence of regulation, but rather appropriate and proportionate regulation. Given the advent of ABS, and some degree of suspicion from legal regulators in other jurisdictions, there is also a public interest consideration in the maintenance of international confidence in the way in which the English and Welsh system as a whole is regulated.

    • Promoting competition in the provision of services: Openness to providers from other jurisdictions has been a major part of the success of England and Wales as a legal jurisdiction over the last twenty years We need to ensure that efforts to raise standards in the provision of legal services in England and Wales do not inadvertently and unnecessarily reduce openness in this jurisdiction.

2.2 What are we trying to achieve?

  1. Given the importance of proportionality in our regulatory approach, we need to identify the specific regulatory outcomes that we are targeting for international practice in seeking to meet the above regulatory objectives. This suggests the need for an approach that

    • ensures both consumer protection and that there are no regulatory gaps, which could for example, allow a body authorised by the SRA and based overseas to supply services back to England and Wales without the same regulatory controls as a home-based body would face when supplying the same services, or allow a body supplying reserved work from overseas to avoid authorisation by the SRA;

    • ensures adherence to professional principles and high standards both in the conduct of individuals authorised by the SRA and in the way businesses recognised by the SRA are run;

    • recognises the complex multi-jurisdictional nature of many law firms with whom the SRA has a regulatory relationship and reflects this in the flexibility of approach taken to supervising entities engaged in international practice and ensures that regulatory requirements are proportionate;

    • avoids extra-territoriality or unnecessary duplication with other regulators, but equally creates confidence that bodies recognised by the SRA are subject to some oversight 5 regardless of where they practise.

  2. We would therefore suggest that our approach will need to be assessed against the following tests:

    • Does the proposed application of the Handbook to international practice ensure that standards are upheld in an appropriate manner? (i.e. that those who should be covered by the Handbook outside England and Wales are covered, but only to the extent necessary).

    • Does the proposed application of the Handbook uphold protections for consumers of legal services in England and Wales?

    • Does its application to international practice take into account the need to ensure the competitiveness of our regulated community and fairness in the application of rules?

    • Is the proposed application proportional (i.e. where it is introducing a new requirement in order to remedy some actual or potential harm or where it is relaxing a requirement that might create a new harm?)

  3. Harm, in this context, is defined as the

    • unacceptable risk to consumers in England and Wales from the supply of legal services from abroad by an entity carrying an SRA regulated "brand name",

    • undermining of standards of professional conduct,

    • undermining of the competitiveness of the UK economy or of bodies regulated by the SRA.

2.3 Questions

  1. Comments are invited not just on the suggested philosophy underlying our approach as set out above but also on the extent to which we have reflected this appropriately in the detail of our proposed approach, as expounded in the rest of this paper. In particular:

    • Have we selected the right balance of regulatory objectives to target internationally?

    • Have we identified clear enough outcomes for regulation internationally?

    • Have we chosen the right tests against which to assess any resulting regime for international practice?

3. Who should we regulate in relation to international practice?

3.1 Who do we currently regulate?

  1. Outside of England and Wales the SRA currently regulates

    • all individual solicitors based overseas,

    • authorised bodies overseas – most of these are recognised bodies and take the form of traditional partnerships. There are a handful of Legal Disciplinary Practices (LDPs) 6 whose overseas offices will ultimately need to become licensed bodies even though they only comprise lawyers. They have been formed because the individual lawyers involved come from countries which the SRA does not recognise for Registered Foreign Lawyer 7 (RFL) status and so the firms concerned have formed non-lawyer LDPs;

    • foreign lawyers who are partners, managers or owners alongside solicitors, regardless of where they are based, provided there is at least one solicitor partner based in England and Wales. These lawyers must currently register as RFLs;

    • in addition, in England and Wales, we regulate Registered European Lawyers 8 (RELs) both as individuals and REL firms, whether or not they employ, or are in partnership with, solicitors.

  2. We do not regulate

    • foreign lawyers 9 in England and Wales who do not work with or for solicitors,

    • foreign lawyers working in-house in England and Wales. But we are required to regulate European lawyers working in-house where they would be regulated in their home jurisdictions;

    • foreign lawyers who employ solicitors, whether inside or outside England and Wales;

    • solicitors who work abroad in non-authorised bodies provided those bodies are legally owned and controlled by lawyers, or the solicitor is only providing services to his or her employer;

    • solicitors who are owners, partners or managers in non-authorised lawyer-owned and controlled bodies abroad, provided that the body is not doing reserved work and does not have an office in England and Wales.

3.2 How well does this work?

  1. The principles underlying this approach are that ownership, or some form of controlling interest by a solicitor, where combined with a link to a practising address in England and Wales should trigger a requirement for the recognition of a legal practice. Whilst this makes sense in theory, in terms of what the SRA is trying to capture, in practice it has sometimes yielded illogical results. Tax requirements and local regulations mean that law firms often have had to form a series of separate, overlapping partnerships. This has resulted in the separate recognition by the SRA of multiple, linked entities as well as differential regulatory requirements imposed by the SRA on the branches of English and Welsh firms in foreign jurisdictions, depending on how they are constituted.

  2. It has also resulted in the recognition of a significant number of law firms and individuals who should not need to be regulated by the SRA (e.g. overseas branches of the English partnership end of a US law firm, and partners in US law firms working in third countries who are registered as RFLs because the firm is part of a structure linked to an English partnership). At the same time, an entity which appears to be an English and Welsh law firm in another jurisdiction, even with English and Welsh solicitor partners, may be a non-recognised body because a separate local partnership has been created.

  3. We therefore need an authorisation system that covers practice outside England and Wales but which allows us to divorce the need for proper regulatory oversight from the minutiae of structures.

3.3 What are we proposing for the future?

  1. In future, we think that the following might make sense in terms of who we should be regulating outside England and Wales:

    • (a) All solicitors of England and Wales holding practising certificates.

    • (b) Firms "headquartered" 10, or with a substantial centre of gravity in England and Wales would have the SRA as their "lead" or "home" regulator 11. All bodies that were part of an economic entity or "group" for business and management purposes would be included under the umbrella of SRA regulatory oversight. This would not include outsourcing structures, best friend or association arrangements which SRA recognised firms might have with overseas partner firms.

    • (c) Firms that are English and Welsh law firm partnerships but part of a larger Verein structure would be expected to designate the SRA as the lead/home regulator of the "English and Welsh" part of the Verein12.

    • (d) A "foreign" firm with subsidiary operations in England and Wales which contains solicitor partners and has the majority of its turnover and activity outside England and Wales would either

      • be subject to the Handbook regime only in England and Wales, or
      • be able to have the SRA as its lead/home regulator worldwide. This option would only be likely to apply where solicitor managers and/or reserved work were relatively widespread throughout the firm, or where the firm wished part of its partnership to be led from England and Wales. This would undoubtedly be the exception rather than the rule.
    • There would most likely need to be a discussion between the SRA and foreign firms in order to determine what would be most appropriate in each individual case.

    • (e) An alternative business structure must have an operation in England and Wales which is licensed to provide services in at least one reserved area and must contain at least one solicitor.

    • (f) Anglo-Scottish MNPs would be able to choose, as many already do in practice, to have either the Law Society of Scotland or the SRA as their "lead/home regulator" and the regime which applied would follow from this choice.

  2. If we adopted this kind of approach then we would no longer need to recognise as separate bodies the head offices, or branches outside England and Wales, of European or "foreign firms" which had English and Welsh solicitors partners based abroad, where those firms carried out no reserved work and were not part of a law firm "group" associated with England and Wales. This would remove around 120 separately recognised bodies from SRA jurisdiction. Conversely around 160 entities abroad that are currently not recognised by the SRA, usually because they are separate partnerships although they are part of an English and Welsh law firm "group", would be brought under the umbrella of SRA regulatory oversight. Under the approach we are proposing, however, these entities would not need to be individually recognised but would be subject to the form of regulation which is described later in this paper.

3.4 Foreign firms

  1. No evidence has been presented to the SRA of any harm to the legal services market in general, or to consumers in particular, as a result of the lack of regulation of foreign legal service providers. But in the context of this broad ranging policy review, and the review of the boundaries of regulation recently launched by the Legal Services Board, it is worth ensuring that due consideration has been given to the question of whether there are specific issues for the consumer market arising from the supply of legal services by foreign legal service providers established in England and Wales.

  2. The absence of any explicit registration regime for foreign law firms in England and Wales means that new entrants to the market are left to work out what their rights and obligations might be. This lack of transparency is sometimes cited as a barrier to entry into the English and Welsh legal market by international organisations such as the WTO and OECD.

  3. Set against this, there is the important consideration of the openness of England and Wales as a jurisdiction with the benefits that this brings to clients and consumers here, and the role of England and Wales as a competitive global centre for legal services.

3.5 Questions

  1. We would welcome observations in general on our suggestions of who should come under our regulatory purview, and views on the following issues in particular:

    • Is it possible to separate regulatory oversight from firm structure?

    • How do we define those firms whose operations outside England and Wales would be part of group recognition?

    • Would we inadvertently create other regulatory gaps by following this approach?

    • Are there other types of entity that currently require recognition that are not covered in the approach outlined in section 3.3?

    • Is there any justification for regulating foreign legal service providers, where these are providing services to the consumer market?

4. How are we proposing to regulate?

4.1 How do we currently regulate overseas practice?

  1. In the old Solicitors' Code of Conduct, overseas practice was dealt with in Rule 15. Regulation overseas was undertaken on the basis of individual adherence to the Code and allowance was made for the need for some different application of the rules outside England and Wales. The new Handbook also makes some allowances for overseas practice but it was always envisaged that this question would be tackled in more detail at a later date.

  2. If the Handbook were to be applicable in its entirety outside of England and Wales then COLPs and COFAs would need to report in detail on breaches which would generate a great deal of information that would not necessarily be useful or meaningful for the SRA. In these circumstances the question would also arise of what breaches should be reported. The SRA could find itself receiving information about breaches of rules committed in other jurisdictions but arising as a result of the application of the English and Welsh rules. We clearly need a different approach.

4.2 How should overseas practice be regulated in future?

  1. The SRA's new regulatory model comprises three main pillars: authorisation, supervision and enforcement. This section of the Green Paper sets out how we would expect to address the specificities of international practice in each of these stages, subject to any required statutory changes being enacted.

4.2.1 Acquiring the standard – Authorisation
  1. The following are the main elements of how we envisage that authorisation could work overseas in future:

    • Solicitors – the forms of practice for which individual solicitors could be authorised would not need to change.

    • Group Recognition – Individual entities within a defined "group" of entities that shared a common identity and were economically interdependent, would not need to be recognised separately. A single recognition would take place of the group as a whole. To qualify for group recognition, there would need to be a recognised body in England and Wales that was subject to relationship management supervision. Consideration would need to be given to how reserved activities could properly be undertaken within the group and there will need to be clarity on how the group and its individual entities are held out. Group recognition would imply:

      • an expectation that the recognised group would take responsibility for checking on every new manager's character and suitability,

      • management/ownership of a firm would be able to take whatever form was permitted for a law firm in question in the jurisdiction concerned, or up to 10 per cent non-lawyer ownership where the firm in question was not subject to any local regime for law firms (the SRA default). It is worth noting that lawyers from some jurisdictions who are currently regarded as non-lawyers under the RFL regime would, under our proposals, now be able to gain recognition as lawyers and therefore bodies which may have previously been ineligible for recognition would now be able to be part of overall group recognition;

      • recognition of the group could also make any of its entities eligible to become training establishments 13.

    • Jurisdictions – we would propose to move away from focusing on the currently separate processes of recognising jurisdictions individually for the purposes of either granting certificates of eligibility for the QLTS or in order to register foreign lawyers as eligible for partnership. In future, we would propose simply to recognise any title of a legal practitioner where that title granted eligibility to supply legal services in the lawyer's home country. Individuals wishing either to obtain a certificate of eligibility for the QLTS or recognition as a foreign lawyer partner would instead need to pass a suitability test. A single list of jurisdictions, titles and regulators (where appropriate) would be maintained by the SRA and added to whenever necessary. This would obviate the long drawn out task of gathering detailed information on how other jurisdictions admit and regulate their lawyers, and would allow us to put greater focus on the ability and suitability of individual lawyers.

    • Registered Foreign Lawyers – The RFL regime initiated by the Courts and Legal Services Act 1990 is now outdated. We see merit in replacing it with a new scheme which could contain the following elements designed to bring the RFL regime into line with the principles underpinning the new regulatory system – a greater focus on individual suitability and greater flexibility in terms of who can work in partnership with solicitors:

      • Foreign lawyers who are regulated as lawyers in their home jurisdictions would be eligible to become "foreign lawyer managers" and enter into partnership with solicitors in any parts of the group. Foreign lawyer managers would be analogous to other types of "lawyer manager" but would not be eligible to become sole principals. Foreign lawyer managers would be expected to adhere to the SRA principles except where there were conflicts with their own professional rules of conduct.

      • Foreign lawyers who are entitled by statute to be lawyers in their home jurisdictions but who are not regulated as such because of the absence of local regulatory structures, or who have to give up their practising certificates on entering into a partnership with English and Welsh solicitors would be able to register with the SRA and become a "Recognised Foreign Lawyer" 14. Recognised Foreign Lawyers would need to register with the SRA and adhere to the professional principles.

    • Unregistered Foreign Lawyers – Under current legislation foreign law firms with offices in England and Wales do not need to register with the SRA. If this were to change in future, the following options might be considered:

      • A foreign law firm registration scheme for all foreign firms practising law in England and Wales. This need not include more than the provision of simple information to the SRA, telling us what they are doing, where their people are based in England and Wales, who is in overall charge and making sure they know what their legal and compliance responsibilities are. We would not envisage imposing requirements that required firms to change their structure, or adhere to English and Welsh rules. In most cases we would expect this to be a fairly automatic process.

      • An authorisation scheme – an alternative would be only to draw into the scope of domestic regulation those foreign firms that provided services to the retail consumer market. The question then arises of whether such an authorisation would impose the same requirements on foreign and English and Welsh providers and then, in turn, what this means for both how these providers hold themselves out to consumers and how far the compensation fund and other protections apply.

    • European law firms – Law firms from the EU, EEA and Switzerland are subject to the regime set up by the European Establishment Directive. Since coming into effect in the UK in May 2000, the Directive has required European law firms to register and become regulated by the SRA when present in England and Wales. This has sometimes meant that EU firms opening offices here have had to change or ring fence their structures in England and Wales in order to comply with our rules, even where they had no solicitors in their practice and no intention of supplying English and Welsh legal services. The Directive is due to be reviewed by the European Commission in the near future. Even if there are no major changes introduced at a European level, there may be scope for the SRA to adopt an approach within this jurisdiction which allows European firms to meet the registration requirements of the Directive, without requiring them to submit to the full weight of regulation as an English and Welsh law firm, unless they wished to practise English and Welsh law and have solicitors in their partnership. We would welcome views on the ways this could happen.

4.2.2 Questions on Authorisation
  1. We would welcome observations on the suggested approach that we are considering for authorisation in overseas markets and are interested in responses to the following questions in particular:

    • Are there circumstances in which solicitors might need to work overseas that are not currently covered by current rules?

    • Does Group recognition impose sufficient oversight to protect the public interest effectively?

    • Is automatic recognition of the legal professions of other jurisdictions, accompanied by a greater reliance on individual practitioner checks for suitability, a sufficiently rigorous approach?

    • Does foreign legal manager status for regulated foreign lawyers based in England and Wales, mirroring the lawyer manager status held by other lawyers of England and Wales, offer adequate guarantees that standards will be upheld?

    • Is it appropriate to retain RFL status as an option for lawyers joining a recognised body or its wider group, where they have no home regulator or have had to surrender their regulated status?

    • Is it appropriate to replace the requirement for individual RFL registration for foreign lawyer partners based abroad with a requirement for initial approval and training in the SRA principles where these partners are in SRA-regulated bodies?

    • Are there other aspects of RFL status, such as the limited rights to conduct reserved immigration work or the portability of the status between firms that are important and would be lost in such a proposal?

    • If the boundaries of reserved legal services are extended in future, does it add anything to have a separate authorisation process for foreign legal service providers?

    • How can we make the recognition of European law firms more straightforward? Could we offer the option of either a Framework Services Directive or Establishment Directive approach? This could imply for example that we would give automatic recognition to a European firm opening a branch in England and Wales, regardless of its structure, and only require full recognition, equivalent to an English and Welsh law firm, if a firm intended to bring solicitors into the partnership or if its partners wanted to make use of article 10 of the Directive which allows for assimilation into the solicitors' profession.

4.2.3 Maintaining standards – Supervision
  1. Recognised law firm groups and individuals under the above scheme would then be subject to the following proposed supervisory approach:

    • Individual solicitors would be subject to the SRA principles wherever they are based.

    • For an English and a Welsh firm the SRA would be the "lead or home regulator". All parts of the group within England and Wales would be subject to the Handbook regime in full and those outside England and Wales would be subject to oversight. This approach could apply equally well to multi-jurisdictional law firms or sole practitioner firms with branch offices abroad and in both cases would reduce the compliance burden. The oversight regime we are proposing could include provisions such as:

      • The SRA principles would apply internationally to the entities in the group. These would be divorced from the outcomes and indicative behaviours.

      • We would expect the firm to ensure that all owners and managers in the group were fit and proper people.

      • We would expect the firm to be able to supply information on what entities were in the group worldwide and who the owner/managers of these entities were, if required.

      • In supervisory discussions with the recognised firm in England and Wales, we would expect to cover issues such as the overall economic health of the group, the effectiveness of risk and compliance systems, relations with regulators and other systemic issues such as patterns of complaints.

      • We would expect the firm to designate the relevant individual to take responsibility for this oversight but we would not necessarily expect it to be the COLP/COFA. The COLP/COFA for the England and Wales recognised body should however be given access to information from the group internationally that they need to comply in England and Wales.

      • We would not propose to make any amendments to the overseas accounts rules.

      • There might be an argument for retaining some training obligation, for owners and managers in relation to the SRA principles. This is something on which we would welcome views.

    • For partnerships within a Verein structure the SRA would need to understand more about each particular structure before determining the best approach. There are different types of Verein, including "federated" structures in which two or more partnerships have responsibility for various sub-partnerships and "confederated" structures under which a Verein is composed of many separate entities all regulated by their local jurisdictions. There are also Vereins which are formed of entities that are "engaged with a view to marriage" and which have adopted this structure as a prelude to subsequent merger.

    • The SRA should not necessarily treat all of these structures in the same way for supervision purposes. The level of SRA regulatory interest in Verein structures might vary depending on the extent to which they shared a brand identity which could give rise to confusion over how the entity was regulated or where there might be a risk of knock-on reputational effects from one part of the Verein to another, despite formal economic independence 15.

    • A foreign law firm with English/Welsh solicitor partners 16 – As a minimum, a foreign law firm containing both foreign lawyer partner and English/Welsh solicitor partners and which has an English and Welsh practising address, would need to be regulated in England and Wales in exactly the same way as an English and Welsh firm, and would be subject to the Handbook. The options for any of its linked foreign entities would be as follows:

      • If a foreign firm with an English and Welsh practising address adopted the SRA as the "lead/home regulator" for some or all of its entities, it would be regulated in the same way as an "English and Welsh" group entity.

      • A foreign firm with no English and Welsh practising address but solicitors in the partnership outside England and Wales would, as at present, not need to become a recognised body. The solicitors would, however, continue to be regulated as individuals.

      • A foreign law firm with an English and Welsh practising address which contained no solicitors practising in England and Wales but did contain solicitors in the partnership overseas would not need to be recognised, provided it did not undertake reserved legal work or hold itself out as providing English and Welsh legal advice. The individual solicitors would continue to be individually regulated.

    • A European law firm established in England and Wales would need to be supervised in the same way as an English and Welsh firm unless changes were made to the application of the Establishment Directive in England and Wales.

    • A foreign law firm – If foreign law firms were to be brought under some kind of registration or supervisory scheme, the following might be the sort of options that could be examined:

      • A registration scheme for all foreign firms practising law in England and Wales. This could in practice require no more than the provision of firm information to the SRA, informing us of what they are doing, where their people are practising in England and Wales and who is in overall charge in this jurisdiction. This would enable us to make sure that such firms understand their statutory legal and compliance responsibilities, such as anti-money laundering reporting, without requiring any additional SRA compliance.

      • An authorisation scheme: there may be an argument in certain circumstances for foreign firms currently outside the scope of regulation to be required to obtain authorisation to provide services where those are targeted at the retail consumer market. This is likely to depend on the outcome of the current deliberations on the scope of reserved services.

4.2.4 Questions on Supervision
  1. The following are the sort of supervisory issues on which we would be particularly interested to hear views from interested parties:

    • Are the kind of supervisory requirements suggested above for overseas offices under group supervision appropriate?

    • We recognise that questions may be raised in relation to the standard to be applied in relation to conflicts of interest which vary in their definition in different jurisdictions. We would welcome views on how to reflect this appropriately in a complex multi-jurisdictional environment.

    • Is it appropriate to treat different types of Verein structures differently for supervision purposes and if so, what level of supervision/information is appropriate for these different types, bearing in mind the legal limits of the SRA's regulatory reach over any Verein structure?

    • Would it be appropriate for the SRA to require foreign firms to register but then to have no further regulatory involvement with them. Would the benefits of clarifying the obligations of foreign firms in the English and Welsh market be counterbalanced by the potential for such status to mislead consumers?

    • Should the SRA create a different supervisory regime for European law firms that are not practising English and Welsh law but which are still required to register with us under the Establishment Directive?

    • Are there any further amendments needed to the application of the overseas account rules in light of group entity supervision?

4.2.5 When things go wrong – enforcement and discipline
  1. The SRA cannot prevent firms going bankrupt or partnerships breaking up. This is the market in operation. However, regulation, where carried out appropriately, can help to limit any adverse consequences for clients, consumers, other law firms and any negative impact on the reputation of the system as a whole. This means that standards not only need to exist but they need to be both observed and be seen to be observed.

  2. We would therefore expect a firm subject to supervision as a group to have appropriate compliance arrangements in place across the group. The tests of this compliance would be imposed on the England and Wales headquarters and would be focused on ensuring independence and reputation. The kinds of things we might want to look at include:

    • Are we being kept informed appropriately about the group's structure and management?

    • Are there complaints from regulators in other jurisdictions which form a pattern?

    • Is the group admitting suitable people as managers and interest holders

    • Is it still appropriate for all the entities within the group to be part of the recognised body rather than licensed bodies?

  3. Where appropriate we would be looking to work with firms on the introduction or tightening of compliance systems to combat systemic or regularly occurring issues of concern. We might also look at requiring training of relevant staff in overseas jurisdictions where such a solution would help to address an ongoing problem.

  4. There might also be instances of more serious misconduct occurring overseas which could result in a disciplinary sanction, such as rebukes, financial penalties, disqualification or other outcomes following referral to the Solicitors Disciplinary Tribunal. We will need to consider the issues that could potentially arise in these circumstances in terms of cooperation with regulators in other jurisdictions.

  5. We would, of course, continue to discipline individuals holding PCs wherever they practised but would do so overseas only for a breach of SRA principles.

4.2.6 Questions on Enforcement and Discipline
  1. We are interested in any observations on the topic of enforcement and discipline for SRA regulated entities overseas but in particular, we would like to hear views on the following:

    • Are the sort of compliance tests outlined above the right ones?

    • Will it always be appropriate to hold the English and Welsh practice to account for actions undertaken elsewhere in a "group" and if not, what alternative enforcement arrangements can we put in place?

5. Conclusions

  1. This paper has attempted to set out the broad outlines of how the SRA might regulate international practice under the new Outcomes Focused Regulatory regime. It has done so by taking the outcomes which the SRA is seeking to achieve with its new approach and it has applied these to the specificities of international practice. In aiming to set out how we might approach this challenge, we will inevitably not have covered all circumstances in which solicitors currently work in recognised bodies in other jurisdictions. This is not meant to imply that this type of work will not be possible in future; only that we have focused at this stage on how the majority of international practice is conducted. It would therefore be very useful to hear from those who are practising overseas in other ways, during the consultation process.

  2. We would also be interested to hear views from consultees on whether there should be a new overseas practice chapter of the Handbook or whether this would be dealt with equally well by revisions in the Handbook itself?

  3. We welcome views from all who wish to contribute to this discussion, but we are particularly interested to hear from SRA recognised bodies that would be covered by the proposed approach to international supervision, especially where they have multinational operations involving lawyers qualified in different jurisdictions, some of which may currently be outside SRA supervision. We would also be interested to hear from European recognised bodies and foreign law firms on recognition within England and Wales.

  4. This consultation is open until 17.00 on 15 February 2012.


Summary of questions

The following is a summary of the questions posed in the paper. They are not intended to limit the scope of comments from consultees and we welcome views on any aspects of international regulation that stakeholders wish to submit.

  1. Have we selected the right balance of regulatory objectives to target internationally?

  2. Have we identified clear enough outcomes for regulation internationally?

  3. Have we chosen the right tests against which to assess any resulting regime for international practice?

  4. Do we need to authorise any entities outside England and Wales or should we simply regulate individuals?

  5. Is it possible to separate regulatory oversight from firm structure?

  6. How do we define those firms whose operations outside England and Wales would be part of group recognition?

  7. Would we inadvertently create other regulatory gaps by following this approach?

  8. Are there other types of entity that currently require recognition that are not covered in the approach we outline?

  9. Is there any justification for regulating foreign legal service providers, where these are providing services to the consumer market?

  10. Are there circumstances in which solicitors might need to work overseas that are not currently covered by the current rules?

  11. Does group authorisation impose sufficient oversight to protect the public interest effectively?

  12. Is automatic recognition of the legal professions of other jurisdictions accompanied by a greater reliance on individual practitioner checks for suitability, a sufficiently rigorous approach?

  13. Does foreign legal manager status for regulated foreign lawyers based in the UK, mirroring the lawyer manager status granted to other regulated UK legal professionals, offer adequate guarantees that standards will be upheld?

  14. Is it appropriate to retain RFL status as an option for lawyers joining an authorised body or its wider group, where they have no home regulator or have had to surrender their regulated status?

  15. Is it appropriate to replace the requirement for individual RFL registration for foreign lawyer partners based abroad with a requirement for initial approval and some training requirement in the professional principles where these partners are in SRA-regulated bodies?

  16. Are there other aspects of RFL status, such as the limited rights to conduct reserved immigration work or the portability of the status between firms that are important and would be lost in such a proposal?

  17. If the boundaries of reserved legal services are extended, does it add anything to have a separate authorisation process for foreign providers?

  18. How can we make the recognition of European law firms more straightforward? Would it make sense to combine a Framework Services Directive and Establishment Directive approach, so that we would give automatic recognition to a European firm opening a branch in England and Wales, regardless of its structure, and only require full authorisation if a firm intended to bring solicitors into the partnership or if its partners wanted to make use of article 10 of the Directive which allows for assimilation into the profession?

  19. Are the kind of supervisory requirements suggested above for overseas offices under group supervision appropriate?

  20. How should the Handbook deal with the specific issue of different conflict rules in different jurisdictions?

  21. Is it appropriate to treat different types of Verein structures differently for supervision purposes and if so, what level of supervision/information is appropriate for these different types, bearing in mind the legal limits of the SRA's regulatory reach over any Verein structure?

  22. Should the SRA seek the powers to require foreign firms to register in some form or would this potentially mislead consumers as to the extent of this regulation?

  23. Should the SRA create a lighter supervisory regime for European law firms that are not practising English and Welsh law but which are still required to register with us under the Establishment Directive?

  24. Are the sort of compliance tests outlined above the right ones?

  25. Will it always be appropriate to hold the English and Welsh practice to account for actions undertaken elsewhere in a "group" and if not, what alternative enforcement arrangements can we put in place?

  26. Should there be a new overseas practice chapter of the Handbook or can these issues be dealt with simply by including guidance and qualifications within the existing structure of the Handbook?

 

Notes

1 SRA Handbook available at www.sra.org.uk/handbook

2 "Enhancing consumer protection, reducing regulatory restrictions", Legal Services Board, July 2011

3 International regulation is defined in the context of this paper not just in terms of practice outside of England and Wales but also the regulation of foreign, European and other UK practitioners in England and Wales who fall under the SRA's jurisdiction and the admission of new foreign practitioners by transfer.

4 Offshoring, where work is carried out by the entity itself should be distinguished from outsourcing where work is sub-contracted to a separate entity. Outsourcing both inside and outside England and Wales raises other issues which the SRA will be addressing separately.

5 This sort of regulatory oversight by a "home regulator" may in fact be a necessary part of local licensing.

6 Legal Disciplinary Practices as defined in the Legal Services Act 2007

7 Registered Foreign Lawyers as defined in the Courts and Legal Services Act 1990

8 Registered European Lawyers as defined in the Lawyers' Establishment Directive 98/5/EC

9 "Foreign" in this context means lawyers from outside the EU/EEA or Switzerland.

10 Given the increasingly multi-jurisdictional nature of many large international firms, this is not perfect terminology. In some cases a judgment may need to be made based on factors such as client perception of the firm's "home state". It should also be possible for this status to change over time as a firm changes its structure.

11 This is not meant to imply that local regulation in another jurisdiction is subsidiary but that the SRA has an overview of the entities which may be defined as part of the same overseas "group".

12 A Swiss Verein is a structure that allows separate partnerships or member firms to form an association with legal personality.

13 The requirements of the training regulations in terms of the need to provide supervision by an English and Welsh solicitor or lawyer experienced in the law of England and Wales, as well as experience in English and Welsh law would still apply.

14 This new terminology is simply used to prevent any confusion with Registered Foreign Lawyers since the proposed "Recognised Foreign Lawyers" would be unable, under current rules, to become RFLs.

15 This has been challenged once successfully in the US in Cromer Fin., Ltd. v. Berger, 2002

16 i.e. A firm with English and Welsh partners but a headquarters or "centre of gravity" outside of England and Wales.