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FREE BOOK CHAPTER: The Challenge: The SRA And the Compliance Agenda (from 'A Practical Guide to Compliance for Personal Injury Firms Working With Claims Management Companies' by Paul Bennett)

09/10/17. Compliance basics – You may think this is obvious, but every day I advise law firms who have failed to step back and challenge their own way of working. For compliance to be effective you need to take a helicopter view and view it from an external perspective.

In this chapter we will look at the challenges which are known to exist and set some of them out so you can ask yourself when considering the later chapters:

  1. What does this mean for my business?

  2. How would we demonstrate our compliance?

  3. Who is going to take the lead on this compliance project?

  4. Why are they the right person?

Like many regulators, the SRA focuses on regulation by risk management, i.e. if something is high risk they are more likely to look at it. The SRA publish their thinking on risk so personal injury firms can assess the risks and then reflect on how they apply in their own businesses.

It is worth bearing in mind at all times that guidance from regulators can change and the Courts can reinterpret legislation at any time. Nothing is certain in this field. Additionally, this book is not legal advice. My publisher wants me to remind you in each Chapter that you should instruct me to give advice on your specific situation if you want it and the factual circumstances your business faces can be assessed and advised on.

 

SRA OVERVIEW

What do the SRA actually do?

The SRA’s remit under the Legal Services Act 2007 (LSA2007) is to regulate in the interests of consumers. The LSA2007 states in Section 1 eight regulatory objectives. The very first of these is “protecting and promoting the public interest”.1

The SRA state their objectives as:

Our purpose is to protect the public

  • by ensuring that solicitors meet high standards, and

  • By acting when risks are identified.”2

In simple terms their role is protect the general public from solicitors’ conduct (read misconduct) and to set and enforce standards.

This agenda for a legal regulator was a radical change in 2007 and the effects are still revealing their longer term impact. The profession has therefore, since the SRA’s creation, often found itself challenged by the proposals emerging from the gloriously situated offices of the SRA overlooking prime retail and restaurants outlets and high end apartments adjacent to the rejuvenated waterways of the canals in Birmingham. The SRA’s location is relevant to the perspective of those who regulate you: personal injury law firms and those you contract with to market your firm’s services (CMCs). The location is high-end, well-funded and often far removed from the daily practice of law. It is key therefore you develop your understanding of the SRA’s thinking – as this enables you to succeed and be compliant.

The move from the Law Society Regulatory Board to the SRA under the LSA2007 was a fundamental shift and undoubtedly many issues have a higher prominence now than previously. Whilst the LSA2007 has achieved some added consumer protections, perhaps now the SRA and the other regulators under the LSA2007 (there are fourteen (14) in total) should now be abolished and merged to create a single coherent and consistent regulatory body for consumers.

The SRA undertakes the following tasks:

  1. It sets the professional standards which all firms must achieve;

  2. It investigates allegations of wrongdoing;

  3. It brings cases against those suspected of professional misconduct;

  4. It issues guidance to solicitors and law firms to assist them in complying with the SRA Handbook;

  5. It campaigns on issues which it believes protects consumers.

It is remiss of any professional not to be familiar with their guidance, but unfortunately the vast quantity of guidance can be overwhelming. This makes keeping up difficult but here are some basic tips which may help.

Inconsistent Regulation

Inconsistency hinders compliance by introducing change and creating uncertainty. Therefore, inevitably the SRA’s inconsistency has been the source of some frustration within the profession since the SRA was formed and probably undermines their stated intentions. The SRA is a much maligned regulator but as the references to some of their helpful materials in later chapters shows they get many things right. Consistency is not one of them and it is a challenge they must address if they want to grow from a newly born legal regulator to a credible adult one with independence from the Law Society.

In 2007 the existing Solicitors’ Handbook was revised to reflect the changes in the regulator (from the Law Society of England and Wales3 to the SRA).

Just four years later4, in 2011 the SRA introduced Outcomes Focused Regulation (OFR) which was intended to move regulation of law firms from solicitor centric prescriptive rules to consumer focused “Principles”, “Outcomes” and “Indicative Behaviours5 . The respected legal journalist Neil Rose wrote a piece in The Guardian which summed up the objectives and the scale of the challenge for law firms in 2011 (the article remains available online for free by typing in the address within the footnote6).

At the time of introducing OFR the SRA stated their aims to regulate in a manner that was:

proportionate, transparent and consistent"7

In these simple sounding aims the SRA some might say the SRA have failed miserably as is evidenced by the fact the SRA Handbook introduced on the 6th October 2011 has been amended eighteen (18) times through to version in force from the 1st November 2016. The SRA themselves concede the current regime is flawed and plan to rewrite the rules from scratch from the Autumn of 2018 (date to be confirmed).

No Handbook for professionals should need radical change this frequently and in none of the other professions I advise in across financial services, accountancy and taxation or healthcare do their respective regulators redraft the rules with such frequency.

In fairness to the SRA it has also published much material to assist law firms and individual solicitors to comply. The volume and pace of change must, I would argue, reduce dramatically if consumers are to be protected. Throughout this book I will quote from the more useful elements and provide a link to the original source material which is available for free on the SRA website.

The fact is this book intends sometimes to translate from the SRA’s objectives and guidance into understandable form so it can be understood in the context of a legal practice (rather than merely by the regulator). Showing the helicopter pilots view and then perhaps the flight path, to continue the earlier analogy.

In 2016 the SRA announced a further radical rewrite of its Handbook and associated rules to shorten the guidance. These changes were originally planned for 2017 but have been deferred until 2018 whilst amendments are made after a consultation which exposed basic errors and generated a mixed debate on the effects of the proposals. Personal injury law firms already struggling with other changes will be relieved.


TOP TIPs – How to stay up to date with the SRA requirements?

  1. The SRA website has a what’s new section – 10 minutes once a week will help;

  2. If you are the COLP of COFA subscribe to their newsletter for Compliance Officers. It summarises key new materials;

  3. At least every 6 months do a CPD course on compliance – an hour’s webinar, podcast or a short course will give you the chance to think and hear a different perspective;

  4. Read the Law Society’s Professional Update E-Newsletter and if you are in a smaller firm their Small Firms Division E-Newsletters: these are free resources which can be read quickly to give an update and pick up tips.

  5. Write down on the first working day of each month what you think your biggest challenge is that month and what you are doing about it.

Increasing your knowledge and challenging your thinking by spending 30 minutes a month on this will reduce the burden and enable you to have grown your knowledge and confidence to tackle issues. Inaction is never the right option with compliance.


THE WIDER CHALLENGES – LEGISLATION, FINANCIAL AND CHANGE

What are the challenges?

My clients (law firms and solicitors across all sectors) often ask why the personal injury sector has been so badly treated by the Government, through legislation and politician’s media comment and by the SRA.

The answers, like the challenges ahead, are multi-factorial and not consistent.

The Financial Crisis

The financial crisis which occurred in 2008 and led to the deepest recession in living memory affected consumers and law firms, including many personal injury law firms which relied on loans and overdrafts to pay disbursements and fund cases until the end.

The financial crisis led to unprecedented financial pressures inside many personal injury firms. It may be over but the pressures have changed firms and their operating methods.

  

LASPO – Funding

The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (known almost universally as LASPO) change the funding options for personal injury claims radically when it came into force in April 2013.

Damages Based Agreements (DBAs) were introduced for the first time in the personal injury sector and in theory provided an alternative funding method for claimants whereby the law firm could share in the damages (up to a limit of deductions set at 25%). The take up across the sector has been poor because the 25% limit was inadequate for many law firms. Having drafted DBAs for employment law specialists for many years I have drafted a handful of DBAs for personal injury practices but the appetite for them has been limited to specific cases in the personal injury sectors rather than being a mass market. This of course contrasts with say the employment law field whereby such was their success that Employment Tribunal fees to bring a claim were introduced in 2012 to try and reduce the number of claims. Employment law DBAs are capped at 35% deduction of damages for the legal fees.

The changes to Conditional Fee Agreements were equally radical. Success fees were capped at 25% and the change to recover a 100% uplift of the law firm’s costs was abolished. The main source of funding personal injury cases is now less financially attractive.

The aim was to reduce claims and the costs of the claims to the insurance sector. In contrast with the SRA’s stated consumer led approach it seems the insurance industry has persuaded Parliament that the personal injury claims market needed to be curtailed.

The opportunity to reclaim After-The-Event (ATE) insurance was also lost. Many law firms used commission from ATE providers to fund the buying in of more work using referral fees. The loss of the commission coupled with the other changes has given law firms a huge compliance challenge: how to keep the fees up and grow against the reforms? The later chapters set out how this can be achieved compliantly.

LASPO – The Referral Fes Ban

The effects of Section 56 of LASPO are collectively known as the referral fee ban, the term is misleading. The ban only applies to personal injury and death related matters so solicitors in any other practice area can continue to pay referral fees. This highlights this is not about consumer protection but about the targeting of personal injury firms for objectively political reasons to tackle “excessive” “fraudulent” claims and the “compensation culture”.

Section 56 is short but far from clear. The subsequent chapter on Section 56 highlights the defects in the drafting but your firm will need to review its approach when the soft tissue reform occurs in 2017/8.

In summary: specific things are banned i.e. the passing of a client’s details for money. However the legislation leaves ample room for marketing your firm effectively in conjunction with a CMC or directly. Many personal injury practices acknowledge they have neither the marketing budget nor skills to compete head on with CMCs.

The number of authorised CMCs in the personal injury sector is believed to be less than 1000, down from a high of 3200 before LASPO8.

Prison and Courts Bill 2016-2017 and the Courts Bill 2017

In February 2017 we finally saw the legislative provisions of the “whiplash” reform. Part 5 of the draft legislation deals with the proposals. However, the draft Bill reserves key decisions to the Lord Chancellor and therefore secondary legislation is going to affect how firms interpret the Prisons and Courts Bill when it becomes an Act of Parliament.

The surprise General Election called in June 2017 saw the Prison and Courts Bill 2017 abandoned by Parliament before the election. After the election elements of the proposals were included in the new Queens Speech under a new proposed act called the Courts Bill 2017. The details are awaited so cannot be dealt with here.

Change

The pace of change is the challenge for many personal injury firms. How can you take investment decisions when the rules around what CMCs can do on your behalf have changed and are still bedding in? Why would you invest in your personal injury legal business when the Government is reforming the small claims limit for personal injury reforms and whiplash (soft tissue) claims?

Uncertainty combined with change makes taking decisions difficult. The aim of some of the later chapters is to set out options for you so you can operate compliantly more easily and hence focus on the commercial effect first knowing the compliance impact is robust.

So, what is the answer?

Firms that have established a robust compliance approach and a flexible operating model which copes with change will continue to do better than most. The following chapters can help with the basics of the compliance challenge but you should also focus on the change management aspect to improve your personal injury firm’s response to the challenges. Change management is about making and communicating the right decisions. Whilst that is outside the scope of this book, where they apply, points linked to change management will be mentioned.

The answer is to be flexible, be compliant and to streamline your firm’s systems. The following tips should help:

  1. Involve your staff – ideas, energy and implementation all rest with your staff. This means with any change involving them gives it a higher chance of success. It is counter intuitive for some managers to explain things rather than tell them but involving them is far more effective;

  2. Create a project team – if for each change and challenge you create a project team the solutions (and your response) will evolve from the initial idea and will be more robust. In light of the current changes a team for the Courts Bill 2017, for the SRA’s new Handbook in 2018 and for assessing and monitoring CMCs and their compliance might be 3 different project teams to make sure your firm can achieve its aim and the workload of responding is shared;

  3. Delegate – Do not try and do everything, you will lose focus and you will drive yourself mad. Decide what can be delegated and delegate it to the project team collectively for that task or for an individual;

  4. Follow Through – All the research shows law firms leaders are inconsistent. You need to be consistent to succeed. Write down your goal and follow through by following the steps identified. For example, Goal: Due Diligence on ABC Ltd a potential CMC. Steps: 1. Online review 2. Companies House review 3. Visit CMC and review their working methods and scripts. These steps will be developed in later chapters

  5. Stay Focused – You need to be focused on two things: does this work commercially? Can I prove to the SRA that it is compliant?

MORE INFORMATION / BUY THE BOOK ONLINE NOW

1See the Legal Services Act 2007 Section 1 (a)

3Subsequently referred to as the Law Society for brevity. It is worth observing that many local Law Society’s exist across England and Wales and other countries have adopted the term “Law Society of …” to indicate a jurisdictional organisation.

4On the 6th October 2011

5Each of these terms is defined in later chapters as we examine how to understand what the regulator is seeking from personal injury law firms.

7The SRA assertion was made in speeches, to conferences and remains in place within their decision making guidance see https://www.sra.org.uk/sra/decision-making/guidance/investigations-decisions-investigate-concerns.page

Image: public domain