Protecting consumers in the legal sector

Clearly a good thing, right?

Have you read the discussion document from the SRA? If not, go take a look now as it could have a big impact on the sector.

If you have, what are your thoughts?

Today, in today’s Compliance for Law Firms session, we looked at the discussion document and the impact of the proposals. The session started with a panel so we could look at the problem from three key perspectives - insurance (with Samantha Pye LLB (Hons) Cert CII from Miller Insurance Services LLP ), accounting ( Robert Blech from MHA ) and fraud (Gavin Ball from HiveRisk) .

It was a lively discussion talking about the key thrust of the discussion document - more about how can we demonstrate that client funds are kept safe rather than consumer protection per se.

A few key points:

Are the SRA seriously thinking about stopping law firms from managing a client account? For many aspects of legal work, this would make life difficult/unworkable. Just how could you make an undertaking without the control?

Discussion document looks to be driven as a response to the failings in the Axiom Ince case. Does not seem to reflect the reality that most firms and individuals in the sector want to do the right thing. Some don’t manage to do what is needed because they get overwhelmed and get out of their depth. Others deliberately do the wrong thing. But the fraudsters are very much the minority.

The focus in the discussion document looks to be on how to solve the minority (but serious) problem of fraud. A reaction to missing ￡64m perhaps? But what about the other 99% of work done?

We need to be looking for ‘Regulatory Asymmetry’ - it should be easy for good practice to comply but difficult for bad practice. Ideally the SRA should be putting most of its effort on managing the risky firms with a light touch for others. In the session there was little confidence that this was happening.

We discussed how the SRA monitor what is happening day to day which centred on just how little they are likely to see before something blows up. For instance, even if you accept that annual reporting on client accounts is frequent enough, the obligation to only disclose qualified accounts leaves a massive hole. If you don’t get the accounts looked at, you don’t say anything to the SRA and they are none the wiser. Nothing said is taken as all is ok.

So I see we need:

• Better controls for firms with frequent information fed into the SRA. This needs to be easy for firms who have things under control. The artefacts needed should be low effort and reflect key risk opportunities.
• Clear segregation of duties
• An understanding that a client account is a real thing and not just changing the nickname on one of the accounts held by the firm
• Robust assessment of fitness to be in a position covering experience, competence and ethics
• New firm and firm takeovers need scrutiny
• More transparency from the SRA so we see what is really going on. Share the data not just the analysis to fit the narrative
• A robust review of SRA resourcing
• Firms fully own the responsibility for the cash even where authority is outsourced

• Use artefacts from obligations driven from failure to prevent fraud legislation to evaluate firms
• Different approaches for different classes of customers and possibly different types of work. A corporate can make informed choices with a sophistication not often seen with consumers.

What is clear is that the actions following this review are likely to have a massive impact. At worst, firms lose the ability to manage client accounts signalling that the sector’s regulator does not believe that firms can be trusted. At best we make a shift in the way firms interact with the SRA to a ‘proof of work’ model contributing to the assessment of the level of risk the firm presents to consumers and the market.

What do you think?