SRA Handbook

General conditions on authorisation

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Rule 8: General conditions on authorisation

8.1

Regulatory compliance

(a)

An authorised body and its managers must ensure that:

(i)

any obligations imposed from time to time on the authorised body, its managers, employees or interest holders by or under the SRA's regulatory arrangements are complied with; and

(ii)

any other statutory obligations imposed on the authorised body, its managers, employees or interest holders, in relation to the body's business of carrying on authorised activities, are complied with.

(b)

Without prejudice to the generality of sub-rule (a) above, an authorised body and its managers must agree to be subject to the SRA Disciplinary Procedure Rules 2011 and in particular the power of the SRA to:

(i)

impose a written rebuke and publish details of a written rebuke or a decision to impose a penalty, in accordance with Rule 3 of those rules; and

(ii)

conduct an internal appeal of a decision in accordance with Rule 11 of those rules,

subject to any right of appeal or challenge under those rules or any other enactment in relation to any action taken by the SRA under those rules.

(c)

Nothing in Rule 8 or any other provision in the SRA's regulatory arrangements affects the generality of the condition in Rule 8.1.

8.2

Suitable arrangements for compliance

(a)

An authorised body must at all times have suitable arrangements in place to ensure that:

(i)

the body, its managers and employees, comply with the SRA's regulatory arrangements as they apply to them, as required under section 176 of the LSA and Rule 8.1 above; and

(ii)

the body and its managers and employees, who are authorised persons, maintain the professional principles.

(b)

A licensed body must at all times have suitable arrangements in place to ensure that, as required under section 90 of the LSA, the employees and managers and interest holders of that body who are non-authorised persons do nothing which causes or substantially contributes to a breach by the licensed body or its employees or managers of the SRA's regulatory arrangements.

8.3

Payment of periodical fees

(a)

Every authorised body must pay to the SRA the prescribed periodical fees applicable to that body by the prescribed date.

(b)

The SRA shall determine the amount of any fees required under these rules and the SRA's decision shall be final.

(c)

The SRA may prescribe from time to time a fee moderation process under which an authorised body may make an application, in accordance with sub-rules (d) to (l) below, for the prescribed periodical fees applicable to that body to be varied. A decision under this process shall be final.

(d)

The turnover of an authorised body for the purpose of determining the prescribed periodical fees applicable to that body is based on a historic turnover figure submitted to the SRA. Where in the 12 months following the submission of that figure an authorised body merges or splits, a notice of succession identifying all authorised bodies, recognised bodies and recognised sole practitioners affected by the merger or split and any resulting apportionment of the historic turnover figures for those firms will enable the SRA to ensure that the turnover figure on which the fee is based reflects the impact of the merger or split.

(e)

A turnover figure submitted to the SRA shall be calculated in accordance with the SRA's prescribed method of calculation.

(f)

An authorised body which has succeeded to the whole or a part of one or more authorised bodies, recognised bodies or recognised sole practitioners must within 28 days of the change taking place deliver to the SRA a notice of succession in the prescribed form.

(g)

For the purposes of Rule 8.3(f), "succeeded" includes any taking over of the whole or any part of an authorised body, recognised body or recognised sole practitioner, for value or otherwise.

(h)

An authorised body which:

(i)

has split or ceded part of the practice to an authorised body and/or recognised body or recognised sole practitioner; and

(ii)

wishes this change to be considered by the SRA when determining the authorised body's next prescribed periodical fees applicable to that body

must within 28 days of the change taking place deliver to the SRA a notice of succession in the prescribed form.

(i)

A notice of succession delivered under these rules must:

(i)

identify all authorised bodies, recognised bodies and recognised sole practitioners affected by the succession; and

(ii)

provide details of any resulting apportionment of the turnover figures for those authorised bodies, recognised bodies and recognised sole practitioners.

(j)

An authorised body delivering a notice of succession under these rules must seek the agreement of all affected authorised bodies, recognised bodies or recognised sole practitioners to the contents of the notice of succession.

(k)

Where a notice of succession is delivered to the SRA which has not been agreed by all affected authorised bodies, recognised bodies or recognised sole practitioners, the authorised body delivering the notice of succession shall be treated as having made an application for the SRA to apportion the turnover figures of the affected authorised bodies, recognised bodies or recognised sole practitioners for the purposes of determining the periodic fee or the fee for renewal of recognition.

(l)

Before apportioning the turnover figures under Rule 8.3(k), the SRA will contact any affected authorised body, recognised body or recognised sole practitioner identified in the notice of succession who has not agreed with the notice of succession and may require the production of additional information.

8.4

Carrying on of activities

(a)

An authorised body may not carry on an activity unless through a body and individual who is authorised to carry on that activity.

8.5

Compliance officers

(a)

An authorised body must have suitable arrangements in place to ensure that its compliance officers are able to discharge their duties in accordance with these rules.

(b)

An authorised body must at all times have an individual:

(i)

who is a manager or an employee of the authorised body;

(ii)

who is designated as its COLP;

(iii)

who is of sufficient seniority and in a position of sufficient responsibility to fulfil the role; and

(iv)

whose designation is approved by the SRA.

(c)

The COLP of an authorised body must:

(i)

take all reasonable steps to:

(A)

ensure compliance with the terms and conditions of the authorised body's authorisation except any obligations imposed under the SRA Accounts Rules;

(B)

ensure compliance with any statutory obligations of the body, its managers, employees or interest holders in relation to the body's carrying on of authorised activities; and

(C)

record any failure so to comply and make such records available to the SRA on request; and

(ii)

as soon as reasonably practicable, report to the SRA any failure so to comply, provided that:

(A)

in the case of non-material failures, these shall be taken to have been reported as soon as reasonably practicable if they are reported to the SRA together with such other information as the SRA may require in accordance with Rule 8.7(a); and

(B)

a failure may be material either taken on its own or as part of a pattern of failures so to comply.

(d)

An authorised body must at all times have an individual:

(i)

who is a manager or an employee of the authorised body;

(ii)

who is designated as its COFA;

(iii)

who is of sufficient seniority and in a position of sufficient responsibility to fulfil the role; and

(iv)

whose designation is approved by the SRA.

(e)

The COFA of an authorised body must:

(i)

take all reasonable steps to ensure that the body and its employees and managers comply with any obligations imposed upon them under the SRA Accounts Rules;

(ii)

record any failure so to comply and make such records available to the SRA on request; and

(iii)

as soon as reasonably practicable, report to the SRA any failure so to comply, provided that:

(A)

in the case of non-material failures, these shall be taken to have been reported as soon as reasonably practicable if they are reported to the SRA together with such other information as the SRA may require in accordance with Rule 8.7(a); and

(B)

a failure may be material either taken on its own or as part of a pattern of failures so to comply.

(f)

The SRA may approve an individual's designation as a COLP or COFA if it is satisfied, in accordance with Part 4, that the individual is a suitable person to carry out his or her duties.

(g)

A designation of an individual as a COLP or COFA has effect only while the individual:

(i)

consents to the designation;

(ii)

in the case of a COLP:

(A)

is not disqualified from acting as a HOLP; and

(B)

is:

(I)

a lawyer of England and Wales;

(II)

an REL; or

(III)

registered with the BSB under Regulation 17 of the European Communities (Lawyer's Practice) Regulations 2000 (SI 2000/1119);

and is an authorised person in relation to one or more of the reserved legal activities which the body is authorised to carry on; and

(iii)

in the case of a COFA, is not disqualified from acting as a HOFA.

8.6

Management and control

(a)

An authorised body must ensure that:

(i)

any manager or owner of the authorised body; or

(ii)

any manager of a body corporate which is a manager or owner of the authorised body;

has been approved by the SRA under Part 4.

(b)

No manager of a licensed body may be a person who is disqualified from being a manager.

(c)

An authorised body (or manager or employee of such a body) must not employ or remunerate a person:

(i)

who is subject to an order under Section 43 of the SA, without the SRA's written permission;

(ii)

whose name has been struck off the roll, who is suspended from practising as a solicitor, or whose practising certificate has been suspended whilst he/she is an undischarged bankrupt, without the SRA's written permission;

(iii)

if there is a direction in force in respect of that person under section 47(2)(g) of the SA (Prohibition on restoration to the roll), without the SRA's written permission; or

(iv)

who is disqualified from being an employee.

(d)

No licensed body (or manager or employee of such a body) may, except in accordance with the SRA's written permission, permit an individual to be a manager or owner of the body if:

(i)

that person's name has been struck off the roll;

(ii)

he/she is suspended from practising as a solicitor;

(iii)

his/her practising certificate has been suspended whilst he/she is an undischarged bankrupt;

(iv)

there is a direction in force in respect of that person under section 47(2)(g) of the SA (Prohibition on restoration to the roll); or

(v)

there is an order in force in respect of that individual under section 43 of the SA (Control of solicitors' employees and consultants).

(e)

No recognised body (or manager or employee of such a body) may, except in accordance with the SRA's written permission, permit an individual to be a manager or interest holder of the body if:

(i)

that person's name has been struck off the roll;

(ii)

he/she is suspended from practising as a solicitor;

(iii)

his/her practising certificate has been suspended whilst he/she is an undischarged bankrupt;

(iv)

there is a direction in force in respect of that person under section 47(2)(g) of the SA (Prohibition on restoration to the roll); or

(v)

there is an order in force in respect of that person under section 43 of the SA (Control of solicitors' employees and consultants).

8.7

Information requirements

(a)

An authorised body must properly complete and provide to the SRA an information report on an annual basis or such other period as specified by the SRA in the prescribed form and by the prescribed date.

(b)

An authorised body must provide any necessary permissions for information to be given to the SRA so as to enable it to:

(i)

use and prepare a report on the documents produced under (a) above; and

(ii)

seek verification from clients, employees, managers or any other body including banks, building societies or other financial institutions.

(c)

An authorised body must notify the SRA as soon as it becomes aware of any changes to relevant information about itself, its employees, managers, or interest holders including any non-compliance with these rules and the conditions on the body's authorisation.

(d)

If an authorised body becomes aware or has information that reasonably suggests that it has or may have provided the SRA with information which was or may have been false, misleading, incomplete or inaccurate, or has or may have changed in a materially significant way, it must notify the SRA immediately.

8.8

Additional conditions for partnerships

(a)

If a partner in a partnership which is an authorised body:

(i)

is committed to prison in civil or criminal proceedings;

(ii)

becomes and continues to be unable to attend to the practice of the body because of incapacity caused by illness, accident or age;

(iii)

becomes and continues to be a person who lacks capacity under Part 1 of the Mental Capacity Act 2005;

(iv)

abandons the practice of the body; or

(v)

is made subject to a condition on his or her practising certificate, registration or equivalent authorisation by an approved regulator other than the SRA which would be breached by continuing as a partner;

and this results in there being only one active partner, that partner must inform the SRA within seven days of the relevant event.

8.9

Additional conditions for recognised bodies

(a)

An interest holder of a recognised body must not create any charge or other third party interest over his or her interest in the recognised body except a member or shareowner of a company may hold a share as nominee for a non-member shareowner who is able to hold an interest in the body in compliance with Rule 8.6.

(b)

If the only, or last remaining, solicitor or REL whose role in a recognised body ensures that the body remains a legal services body:

(i)

is committed to prison in civil or criminal proceedings;

(ii)

becomes and continues to be unable to attend to the practice of the body because of incapacity caused by illness, accident or age;

(iii)

becomes and continues to be a person who lacks capacity under Part 1 of the Mental Capacity Act 2005;

(iv)

abandons the practice of the body; or

(v)

is made subject to a condition on his or her practising certificate or registration which would be breached by continuing to be a manager of the body;

the body must inform the SRA within seven days of the relevant event and must within 28 days of the relevant event either ensure that the body becomes a legal services body again without reference to that person, or cease to practise.

8.10

Additional conditions for licensed bodies

(a)

If the only, or last remaining, authorised individual in relation to a reserved legal activity, whose role in a licensed body ensures that the body remains a licensable body:

(i)

is committed to prison in civil or criminal proceedings;

(ii)

becomes and continues to be unable to attend to the practice of the body because of incapacity caused by illness, accident or age;

(iii)

becomes and continues to be a person who lacks capacity under Part 1 of the Mental Capacity Act 2005;

(iv)

abandons the practice of the body; or

(v)

is made subject to a condition on his/her practising certificate, registration or equivalent authorisation by an approved regulator other than the SRA which would be breached by continuing to be a manager of the body;

the body must inform the SRA within seven days of the relevant event and must within 28 days of the relevant event either ensure that the body becomes a licensable body again without reference to that person, or cease to practise.

Guidance notes

(i)

Rule 8.1 is to be read in conjunction with the obligations under sections 90 and 176 of the LSA. These require individuals and bodies regulated by the SRA to comply with its regulatory arrangements (reflected in Rule 19.1 of the SRA Practice Framework Rules), and for non-authorised employees, managers and interest holders of licensed bodies not to do anything which causes or substantially contributes to a breach of that requirement. In addition, Rule 8.2 requires the body to have suitable arrangements in place to ensure compliance with these provisions.

(ii)

The SRA's outcomes focused approach to regulation means that the SRA will take into account all of the circumstances relevant to any issue of compliance, whether in relation to the regulatory arrangements or in respect of statutory obligations on firms and those in them. This will include taking into account the evidence that firms and individuals can produce to demonstrate their efforts to ensure compliance (by themselves or others).

(iii)

Rule 8.2 deals with the need for firms to have suitable arrangements for compliance (see also Chapter 7 of the SRA Code of Conduct (Management of your business)). What needs to be covered by a firm's compliance plan will depend on factors such as the size and nature of the firm, its work and its areas of risk. Firms will need to analyse the effectiveness of their compliance arrangements before applying for authorisation and monitor effectiveness on an on-going basis once authorised. Common areas for consideration will include:

(a)

clearly defined governance arrangements providing a transparent framework for responsibilities within the firm

(b)

appropriate accounting procedures

(c)

a system for ensuring that only the appropriate people authorise payments from client account

(d)

a system for ensuring that undertakings are given only when intended, and compliance with them is monitored and enforced

(e)

appropriate checks on new staff or contractors

(f)

a system for ensuring that basic regulatory deadlines are not missed e.g. submission of the firm's accountant's report, arranging indemnity cover, renewal of practising certificates and registrations, renewal of all lawyers' licences to practise and provision of regulatory information

(g)

a system for monitoring, reviewing and managing risks

(h)

ensuring that issues of conduct are given appropriate weight in decisions the firm takes, whether on client matters or firm-based issues such as funding

(i)

file reviews

(j)

appropriate systems for supporting the development and training of staff

(k)

obtaining the necessary approvals of managers, owners and COLP/COFA

(l)

arrangements to ensure that any duties to clients and others are fully met even when staff are absent.

(iv)

Rule 8.4 confirms the legal position that for a firm to provide services to clients, the services/activities must be covered by the terms of its authorisation and, where it is a reserved legal activity such as litigation, the firm must have a manager or an employee who is authorised to do that work. For example, a firm cannot provide litigation services, even if its licence permits it to, if its only lawyer is a licensed conveyancer. In situations where a firm loses a lawyer who is responsible for supervising the work of non-lawyers, the firm will need to consider whether the reserved legal work can still be carried out until the situation is remedied.

(v)

Rule 8.5 requires all authorised bodies to have a COLP and a COFA. For COLPs and COFAs of licensed bodies, compliance with their obligations under Rule 8.5 will assist in complying with their duties as Head of Legal Practice and Head of Finance and Administration under sections 91 and 92 respectively of the LSA.

(vi)

The roles of COLP and COFA are a fundamental part of a firm's compliance and governance arrangements. COLPs' and COFAs' ability to take the steps they need to ensure compliance is dependent on the firm having suitable arrangements in place under Rule 8.2. The firm must therefore ensure that any person designated as its COLP or COFA is of sufficient seniority, in a position of sufficient power and responsibility and has clear reporting lines to enable them to have access to all management systems and arrangements and all other relevant information including client files and business information. The existence of compliance officers in a firm and the requirements on them to ensure that the firm, as well as its managers and employees, are complying with the regulatory arrangements (COLP) and the SRA Accounts Rules (COFA) is not a substitute for the firm's and managers' responsibilities and their obligations to comply with Rule 8.1 (Regulatory compliance). Firms and managers need to take care not to obstruct, whether intentionally or unwittingly, a COLP or COFA in fulfilling their role.

(vii)

COLPs and COFAs are responsible for ensuring that the firm has systems and controls in place to enable the firm, as well as its managers and employees, to comply with the requirements on them. The firm and its managers are not absolved from any of their own obligations and remain fully responsible for compliance (see Rule 8.1).

(viii)

Those designated as COLP will need to be in a position to be able to discharge the role. They will need to consider whether they are in a position to, for example:

(a)

take all reasonable steps to ensure compliance with the terms of the firm's authorisation; compliance with the SRA's regulatory arrangements by the firm, its employees and managers; and with relevant statutory obligations e.g.

(A)

that non-authorised persons comply with the duty imposed by section 90 of the LSA (duty not to do anything which causes or substantially contributes to a breach of the SRA's regulatory arrangements by an authorised body or its employee or manager)

(B)

that authorised persons and other managers and employees comply with the duty imposed by section 176 of the LSA (duty to comply with the SRA's regulatory arrangements)

(C)

under the LSA, AJA and the SA in respect of practice matters

(b)

as soon as reasonably practicable, report to the SRA any failure to comply where such failure is material either on its own or as part of a pattern.

(ix)

Those designated as COFA will need to be in a position to be able to discharge the role. They will need to consider whether they are in a position to, for example:

(a)

ensure that they have access to all accounting records

(b)

carry out regular checks on the accounting systems

(c)

carry out file and ledger reviews

(d)

ensure that the reporting accountant has prompt access to all the information needed to complete the accountant's report

(e)

take steps to ensure that breaches of the SRA Accounts Rules are remedied promptly, and report any breach, which is material either on its own or as part of a pattern, to the SRA

(f)

monitor, review and manage risks to compliance with the SRA Accounts Rules.

(x)

In considering whether a failure is "material" and therefore reportable, the COLP or COFA, as appropriate, will need to take account of various factors, such as:

(a)

the detriment, or risk of detriment, to clients

(b)

the extent of any risk of loss of confidence in the firm or in the provision of legal services

(c)

the scale of the issue

(d)

the overall impact on the firm, its clients and third parties.

In addition, the COLP/COFA will need to keep appropriate records of failures in compliance to:

(e)

monitor overall compliance with obligations

(f)

assess the effectiveness of the firm's systems

(g)

be able to comply with the duty to report breaches which are material because they form a pattern.

(xi)

In developing their governance and administrative arrangements firms will need to consider how they approach unexpected risks such as the absence of key staff, including COLP and COFA, and whether the nature of the absence will trigger the need to notify the SRA (see Rule 8.7) and to obtain approval for a replacement.

(xii)

The statutory obligations of a recognised body are contained in the AJA and the SA and for licensed bodies are contained in sections 90 and 176 of the LSA. An important aspect of the roles of COLP and COFA is the need to report breaches to the SRA. Although it will commonly be appropriate for the firm to take steps to remedy breaches immediately, this does not obviate the need for compliance officers to make a report in compliance with Rule 8.5 where appropriate.

(xiii)

Approval (see Rules 8.5 and 8.6) relates only to the role for which it is granted. Any change from one role that requires approval to another, will require a further approval. Firms need to ensure that they notify the SRA of any changes and, where necessary, apply for appropriate approval, for example where an employee develops into the role of manager, or an owner's participation amounts to being a manager.

(xiv)

The scope of the duty in Rule 8.6(c) is beyond the strict employer-servant relationship (contract of service) and includes a relationship founded on a contract for services or indirect arrangements which are intended to have the effect of frustrating this rule.

(xv)

Rule 8.7 imposes information requirements on authorised bodies. As well as the annual information report, firms must update the SRA by giving details of general changes that occur in respect of the firm. For example, if any of the circumstances referred to in Rule 8.8 occur in relation to any manager or person who has a significant role or responsibility in the firm, the SRA should be notified. Reporting and information requirements that apply to individuals or firms include:

(a)

SRA requirements

(A)

Rules 3, 8.7, 8.8, 8.9 and 8.10 and 18, 23, 24 and 25 of these rules

(B)

Rule 18 of the SRA Practice Framework Rules

(C)

Rule 32 of the SRA Accounts Rules

(D)

Regulations 4.3, 4.5 and 15 of the SRA Practising Regulations

(E)

Chapter 10 of the Code of Conduct.

(b)

Statutory requirements

(A)

Section 84 of the SA (notification of a solicitor's place of business)

(B)

Paragraph 21 of Schedule 13 to the LSA (non-authorised persons proposing to acquire an interest in a licensed body have continuing notification requirements. Note, it is an offence to fail to comply with the section 21 notification requirements).