On 31 March 2009 provisions in the Legal Services Act 2007 were introduced which require all legal practices to be regulated as firms. Before 31 March 2009 regulation of the solicitors profession focused on individual lawyers. The introduction of firm-based regulation means that both individual lawyers and their firms must be properly authorised in order to practise.
Solicitors will still require practising certificates but the regulatory burden has shifted towards the firm. The changes also include new enforcement powers. For minor breaches the SRA will be able to fine firms up to £2k and apply conditions to their authorisation. For the more serious cases the Solicitors Disciplinary Tribunal will have the power to place unlimited fines on firms, their managers and employees.
Firm-based regulation will allow the SRA to exert greater influence over the profession through the additional information it now requires firms to provide, such as ownership, turnover and work types. The SRA has indicated that it may increase these requirements over time to include equality and diversity, internal complaints handling and training.
Perhaps understandably, concerns have been raised as to how the SRA will use the information gathered. The SRA’s response is that information will be used merely to monitor changes in the profession and anticipate risk to clients.
Firm-based regulation gives the SRA the power to regulate every individual in a law firm from the support staff to the managing partner. This is of particular relevance because the 2007 Act also introduces Legal Disciplinary Practices which permit firms to employ non-solicitor managers. The introduction of regulation to all members of a firm will have ramifications for employee training: every employee will now require training to ensure they are aware of their regulatory responsibilities under the revised Solicitors’ Code of Conduct (amended on 31 March also).
Internal management systems should be in place to ensure, as far as possible, compliance with the rules: so, for example, a computer-based conflict search system will assist in ensuring that a firm as a whole is complying with its obligations in relation to conflicts of interest.
Firm-based regulation can be seen as a response by the SRA to a legal world increasingly dominated by very large firms. The work conducted for clients tends to be carried out through a team-based structure. Larger firms increasingly find it necessary to put in place firm-wide policies for handling recurring situations, for example conflicts of interest. Firmbased regulation allows the SRA to scrutinise the efficiency of those policies, and enforce improvements where necessary, rather than focus on individual transgressions of the rules.
The SRA says it needs this expansion of regulation to fulfil its role as an “effective riskaware” regulator. However, it must be recognised that firm-based regulation brings with it the prospect of innocent managers being disciplined for the professional misconduct of their colleagues: the SRA has proposed that a disciplinary finding against a firm should form part of the disciplinary records of the managers of the firm at the time of the breach. Its view is that “not to have such a record would allow those included in firms with a poor disciplinary history to set up ‘phoenix’ firms.”
The introduction of firm-based regulation illustrates that the face of regulation is steadily changing. There appears to be recognition that the structure of modern law firms has adapted to serve their clients. Firms are now made up of professional teams which provide solutions on a large scale. These firms require the flexibility to employ business-minded and experienced non-lawyers who can provide invaluable expertise. Firm-based regulation allows the SRA to keep pace with these developments.