What good practice might look like and how to manage risks

Alexandra Elliott – Supervision Manager

The regulated community

• There are nearly 11,000 firms authorised by the SRA to provide legal services: – – – – – 3,233 sole practitioners 2,767 partnerships 1,587 LLPs 3,172 companies 192 other types of entities, including ABSs • There are new ways of providing legal services • Consumer expectations are changing

Regulatory differences

• Differences in : – – – – Firm entities and structures Business models Consumer expectations How firms deliver legal services • Regulation has to be different and no ‘one size fits all’ approach • How firms achieve compliance will also be different

OFR and compliance

• OFR is a move away from prescriptive and detailed rules, which can create a tick box culture to compliance, towards outcome-focused conduct requirements • Perception of increased compliance burden - a whole new compliance industry has developed • But compliance doesn’t have to be complicated • Not about having the best software • Firms have the flexibility to decide what’s best, taking into account the way that the firm works and the types of clients they deal with

Supervision

• Supervision is about engagement with firms to encourage them : – – – to tackle risks to help improve standards and to provide the right outcome for consumers • Supervision sees the good, the bad and the ugly. Monthly averages: – – – 972 new reports, complaints and intelligence referrals 75 supervision visits 35 accounts inspections • Using our experience we want to help firms to focus on better risk mitigation, better compliance, and better financial management

Better risk mitigation

• Outcome 7.3 requires firms to identify, monitor and manage risks to compliance with all the Principles, rules and outcomes and other requirements of the Handbook, if applicable to you, and to take steps to address issues identified • Take a ‘big picture’ view of risks – – Need for competent and ethical practice What are the key pressures?

• What is a risk register and is one required?

Better risk mitigation

• For firms to decide on their own risk approach but must include: – – – Identification Monitoring Management • What is the difference?

Better risk mitigation

• Risk Outlook – current, emerging and potential risks • Financial, operational and business continuity risks • Complaints and claims • Staff retention and succession planning

Better compliance

• Under the SRA Authorisation Rules 2011, firms are required to have suitable arrangements in place for compliance • Proactive responsibilities requiring the COLP and COFA to work with all staff across the firm to ensure compliance • Consider systems and controls to enable you to comply with your regulatory and legal requirements: – – Chapter 7 outcomes Guidance to Rule 8 of the SRA Authorisation Rules 2011

Better compliance

• Chapter 7 – management of your business – – – – – – – – O(7.1) governance structure O(7.2) systems and controls for compliance with the Principles and Handbook O(7.3) identify, monitor and manage risks to compliance O(7.4) systems and controls for monitoring financial stability O(7.5) you comply with legislation O(7.6) you train individuals to a level of appropriate competence O(7.7) you comply with requirements for supervision of work O(7.8) regular checking of the quality of work

Better compliance

• What does that mean in practice?

• Emphasis on systems, procedures and controls • But not a ‘tick box’ approach

Better financial management

• Essential that firms have appropriate systems in place for financial management: – – – Principle 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 O(7.4) you maintain systems and controls for monitoring the financial stability of your firm and risks to money and assets entrusted to you by clients and others, and you take steps to address issues identified IB(7.2) controlling budgets, expenditure and cash flow • Worst mistake - "I leave the accounts to the accountants"

Better financial management

• Governance, responsibilities and access • Compliance arrangements to include: – – – – – – Appropriate accounting procedures and regular checks on the accounting systems File and ledger reviews Proper systems and authorities for dealing with client monies Appropriate liaison with the reporting accountant Ensuring that breaches are remedied promptly Financial oversight of the firm including creditors, borrowings, drawings, cash flow etc

Recording and reporting

• Compliance Officers must keep appropriate records of failures in compliance to: – – – monitor overall compliance with obligations assess the effectiveness of the firm's systems be able to decide when the need has arisen to report breaches which are material because they form a pattern • What needs to be reported to the SRA and how?

Information and guidance

• Principle 8 and the Handbook: – – Chapter 7 – outcomes and indicative behaviours Authorisation Rules - guidance • Contact with individual Supervisor / Regulatory Manager • Professional Ethics Helpline : 0870 606 2577 • www.sra.org.uk

– New ‘one stop shop’ on website with updated guidance, advice and FAQs • Compliance news

Questions?