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SRA enforcement strategy

13 January 2011

We consulted on this enforcement strategy in April-July 2010. Stakeholders reacted positively to the draft strategy, and we are now progressively implementing the approach it outlines alongside the new authorisation and supervision functions set out in Delivering outcomes-focused regulation - policy statement (November 2010).

  • 1.

    The SRA's effective and proportionate use of its enforcement powers plays an important role in the pursuit of the regulatory objectives and professional principles in the Legal Services Act 2007. These are reflected in the core principles in the SRA's draft new Handbook.

    You must:

    1. uphold the rule of law and the proper administration of justice;
    2. act with integrity;
    3. not allow your independence to be compromised;
    4. act in the best interests of each client;
    5. provide a proper standard of service to your clients;
    6. behave in a way that maintains the trust the public places in you and in the provision of legal services;
    7. comply with your legal and regulatory obligations and deal with your regulators and ombudsmen in an open, timely and cooperative manner;
    8. run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles;
    9. run your business or carry out your role in the business in a way that encourages equality of opportunity and respect for diversity;
    10. protect client money and assets.
  • 2.

    The outcomes we seek to achieve by enforcement include

    • (a) credible deterrence of behaviours that breach the core principles,
    • (b) the encouragement and facilitation of compliance with the core principles and other regulatory requirements,
    • (c) control of firms1 that represent a risk to the public or the core principles,
    • (d) removal of those who represent a serious risk to the public.
  • 3.

    Proportionate and targeted enforcement contributes to the achievement of these outcomes. For example:

    • robust and publicised enforcement action on priority issues improves standards and deters lack of integrity,
    • a settlement with a firm may be a more effective and quicker outcome than prolonged formal proceedings,
    • advice and guidance may be more effective ways to raise a firm's standards than a formal sanction,
    • identifying low priority areas where the regulatory outcomes are not at risk can release resources to deal with higher priorities.
  • 4.

    We will seek to exercise our enforcement powers transparently, proportionately, fairly and in the public interest.

Constructive engagement

  • 5.

    Our methods of constructive engagement will be flexible and develop over time but are likely to include

    • relationship management,
    • supervision,
    • advice and firm-specific guidance,
    • agreed compliance plans, and
    • regulatory settlement agreements.
  • 6.

    Unless we consider that a firm is a serious risk to the objectives and outcomes set out in this strategy, we will aim to encourage compliance, change the firm's behaviour where appropriate, and to deter future non-compliance. We will expect firms to correct harm caused by their non-compliance. If a firm represents a serious or persistent risk, we will seek to remove it from practice or control its form of and ability to operate.

Relationship management

  • 7.

    Dedicated supervisory staff will have regular contact with the firm including face to face or by telephone. Continuing dialogue between the SRA and the firm will concentrate on the firm's internal systems and its exercise of judgement. There may be periodic assessment of the firm's processes to achieve required outcomes. The form and scale of relationship management will depend on the risk posed by the firm. We may use permanent relationship for some and others may be in relationship management for a period of time.

Supervision

  • 8.

    Supervision will involve both supportive and robust challenge and will include, where necessary collaborative and intensive supervision. Supervision will involve a variety of methods, such as desk-based supervision based primarily on documentation and correspondence, meetings and visits, assessments, telephone and written contact. The form and scale of supervision engagement will vary for each firm based on the risk that they pose.

Advice and firm-specific guidance

  • 9.

    Where we find issues, we may choose to address these via "Dear Managing Partner" letters that go out to an individual firm or, where appropriate, a number of firms who may be affected by a specific issue. We may also choose to provide specific guidance to firms that are or have been engaged in relationship management or the supervision process.

Agreed compliance plans

  • 10.

    When we identify specific issues within a firm that requires corrective action, we will consider whether agreeing a compliance plan with the firm provides proportionate outcome. This would not prevent further action being taken in some cases where necessary, but may often enable firms to engage constructively with us, limit the impact of the non-compliance, and satisfy us that they are committed to compliance with the core principles.

  • 11.

    We are aware of the risks of "regulatory capture" and engagement with firms will always be on the basis that ultimately we will act in the public interest.

Enforcement action

  • 12.

    Enforcement is only one of our regulatory tools. As a risk-based regulator with limited resources, we must target resources at areas which we think pose the main threats to the public. While we will take a proportionate approach, we recognise that it is also important to avoid minimal compliance and assumptions that detailed obligations do not matter. They do matter - and where necessary they will be subject to enforcement action or will be noted for future action if necessary.

  • 13.

    When a firm has failed to comply with its regulatory duties, we may be able to deal with it without formal enforcement action. Properly received guidance, supervision and monitoring of firms, coupled with an open, cooperative and constructive approach by firms, may lead us to decide against taking formal action. In those cases, we will expect the firm to take prompt remedial action, agreed with us where necessary. The firm must also demonstrate an understanding and acceptance of applicable principles and the outcomes we seek. If the firm does not do this, we may at any time take disciplinary or other enforcement action in respect of the original behaviours. Failure to take prompt remedial action will be an aggravating factor.

  • 14.

    While we will offer support and guidance when appropriate, we do not expect firms to try to argue that such support provides them with some sort of amnesty. Supportive and constructive engagement is of a different nature to detailed factual investigation and we are sure that firms would prefer that constructive engagements are frank and open rather than defensive on either side.

Factors to be taken into account

  • 15.

    In deciding on an appropriate outcome after the identification of possible misconduct, all the circumstances will be taken into account. Examples of relevant factors include:

    • 15.1 The number of clients or others affected and the impact on them;
    • 15.2 The impact or risk to public confidence in the administration of justice arising from the firm's conduct;
    • 15.3 Whether the firm accepts promptly and genuinely that it has acted incorrectly, including whether it has reported the circumstances to us itself;
    • 15.4 Whether the firm genuinely accepts the underlying principles applicable to its behaviour and that it will apply them in future in other, perhaps factually different, situations;
    • 15.5 What the firm has done and is going to do to correct the situation;
    • 15.6 Whether the behaviour:
      • 15.6.1 formed or forms part of a pattern of, or repeated, misconduct or other regulatory failure;
      • 15.6.2 continued for an unreasonable period taking into account its seriousness;
      • 15.6.3 persisted after the regulated person realised or should have realised that it was improper;
      • 15.6.4 affected or had the potential to affect a vulnerable person or child;
      • 15.6.5 affected or had the potential to affect a substantial, high-value or high-profile matter;
    • 15.7 The usual factors relevant to regulatory decisions - such as previous regulatory history, evidence of deliberate intent, recklessness or dishonesty, and personal mitigation.
  • 16.

    We also publish more specific guidance about, for example, the tests to be applied in deciding whether to prosecute at the SDT or to impose practising controls.

Regulatory settlement agreements

  • 17.

    We have published our approach to reaching agreements with firms. Agreements are not commercial settlements but an agreed regulatory outcome in the public interest. Discussions about possible agreements can be held "without prejudice".

Case selection

  • 18.

    Case selection is primarily based on the facts of the individual case but we will also use enforcement action to address priorities.

  • 19.

    What we consider to be a priority at any particular time may influence how we allocate enforcement resource. Our priorities will also influence the use of resources in our non-enforcement work. That will make it more likely that we will identify possible breaches in such priority areas and take formal action to deal with them.

  • 20.

    We may focus on priority areas by thematic work. Themes are likely to be selected because there appears to be a particular risk that we need to understand better or to tackle directly. Thematic work will not start with the presumption that it will lead to enforcement outcomes, but it clearly might. Also, the fact that thematic work is likely to relate to areas that are of concern to us means that they are proportionately more likely to result in enforcement action than issues in lower priority areas.

  • 21.

    This does not mean that we will only take enforcement action in priority areas. There will always be cases where enforcement is necessary by application of the factors set out above or cases that we consider are necessary to achieve credible deterrence or public protection.

  • 22.

    The combination of the priority given to certain types of misconduct over others and our risk-based approach to enforcement means that some cases will be subject to enforcement and others not, even when they may be similar in nature or impact. Our choice as to the use of enforcement is therefore a question of how we use our resources effectively and efficiently and how we ensure that the public is protected.

  • 23.

    Before we proceed with an investigation, we will satisfy ourselves that we have proper power and justifiable grounds to investigate under criteria that will be published from time to time. To assist these decisions, we have developed a set of assessment criteria. The current criteria are framed as a matrix. They take account of our conception of risk to the public. Not all of the criteria will be relevant to every case and there may be other considerations which are not mentioned in the list but which are relevant to a particular case. Our assessment will include considering whether using alternative tools is more appropriate taking into account the overall circumstances of the firm and the wider context.

Who will be investigated?

  • 24.

    We will focus on compliance by firms and enforcement action may often be against the firm. Individual misconduct will be subject to enforcement action where appropriate in accordance with published guidance. Investigations will often have to consider the position of both the firm and individuals for a proper decision to be made as to who may be subjected consequential action. We have published the criteria we apply in deciding whether to take action against a firm or an individual.

Informants, witnesses and others with a legitimate interest in a case

  • 25.

    People other than the firm may have a legitimate interest in information such as the progress or outcome of an investigation or our supervisory work. We aim to be as transparent as possible and will disclose information when it is appropriate to do so. We have published details of how we will decide to disclose information.


1When we refer to "firms" in this strategy that includes all people and organisations we regulate or against whom we can exercise regulatory powers.

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