OFR, Risk and Stayin’ Alive
This is the first part of Tony Guise’s recent article. The second part also appears on our website.
The Legal Press is full of talk about Outcomes Focused Regulation and the challenges it poses for the profession in adjusting to a new regulatory regime. The SRA says OFR will be lighter touch but in fact the new approach requires a great deal more thought and effort than the present regime.
What does OFR mean in practice? This article tries to illustrate the risks and the benefits that can come from preparing your firm for the new landscape in regulation that will arrive after 6 October.
OFR or OMG?
The first thing is to understand the new terminology. The table below provides a quick guide:
| A guide to the new terminology | |
| ABS | Alternative Business Structure |
| OFR | Outcomes-focused regulation – a new principles based approach, and, says the SRA, an end to “box-ticking” |
| Principles | The 10 precepts behind OFR, replacing the “rules” in the Solicitors’ Code of Conduct 2007 |
| Outcomes | Sitting beneath the principles, these are what each principle is designed to achieve |
| IBs | Indicative behaviours – sitting under the outcomes, these are ways of behaviour that “may tend to show that you have achieved these outcomes and therefore complied with the principles”. They can also be used to show you have NOT achieved the necessary outcomes and may not have complied with the Principles. |
| RBR | Risk-based regulation – the concept that lies behind OFR |
| LSB | Legal Services Board |
| Transition planning | The key to a smooth transition of your systems to the new approach. The SRA expects firms to plan ahead to enable them to remain compliant. |
| LDPs | Legal Disciplinary Partnerships – a firm which includes both solicitors and one or more other lawyers and / or up to 25% non-lawyers. These have been permitted since March 2009. All LDPS will have to convert to ABS status by March 2012. However, there will be passporting for existing LDPs. |
| Relationship management (RM) | Part of the new supervisory experience – out with the box-tickers and in with a touchy-feely collaboration with your regulator. |
There are three main differences between OFR and the Code of Conduct 2007:
- It is not prescriptive.
- The handbook contains only principles, indicative behaviours (IBs) and outcomes.
- There is no supplementary guidance.
The theory behind the new outcomes-driven approach can be seen in what are now simply known as the SRA principles. The table below includes a comparison of the 2007 Code of Conduct’s Core principles and the SRA principles in the new Code of Conduct.
| 2007 Code of Conduct Core Duties | SRA Principles – You must: |
| 1.01Justice and the Rule of Law You must uphold the rule of law and the proper administration of justice | 1. uphold the rule of law and the proper administration of justice |
| 1.02Integrity You must act with integrity | 2. act with integrity |
| 1.03Independence You must not allow your independence to be compromised | 3. not allow your independence to be compromised |
| 1.04Best interests of clients You must act in the best interests of each client | 4. act in the best interests of each client |
| 1.05Standard of ServiceYou must provide a good standard of service to your clients. | 5. provide a proper standard of service to your clients |
| 1.06Public confidenceYou must not behave in a way that is likely to diminish the trust the public places in you or the legal profession | 6. behave in a way that maintains the trust the public places in you and in the provision of legal services |
| 7. comply with your legal and regulatory obligations and deal with your regulators and ombudsmen in an open, timely and co-operative manner | |
| 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 | |
| 9. run your business/or carry out your role in the business in a way that encourages equality of opportunity and respect for diversity | |
| 10. protect client money and assets |
The first six of these top-level principles are identical to rule 1 of the Core Duties in the Code of Conduct 2007. The procedures and practices which you currently maintain in order to remain compliant with the current rules will certainly be sufficient to achieve compliance under the new principles. However, principles 7-10 inclusive introduce an additional focus into the core framework.
Engaging with the SRA and the Legal Services Ombudsman (LeO)
The current obligation to engage with the regulator (rule 20.05 2007 Code of Conduct) is elevated by Principle 7 which puts the way in which efficient regulation is achieved at the forefront of the new regime. This Principle gives the SRA licence for a more robust approach when it comes to policing the way the regulated community engage with them. Of course, the current approach could not be said to be lax.
The key to compliance with this Principle is effective business management of your regulatory obligations. Keeping pace with the SRA is as important, and sometimes as difficult, as keeping pace with a client or opponent and therefore sufficient resources and procedures need to be put in place to ensure your firm is prepared. The roles of the Compliance Officer for Legal Practice (COLP) and Compliance Officer for Finance and Administration (COFA), which all firms must appoint under the new handbook, will assist in devoting adequate attention to regulatory compliance.
Business Management
Principles 8 and 10 introduce an emphasis on business planning and the sanctity of client funds that has never been present in previous sets of professional rules for solicitors. This approach will enable the regulator to concentrate its resources on business models that rely too heavily on, for example, large introducers of work, or on models that have a slim profit margin, thereby endangering the business viability of the regulated entity. This approach widens the scope of the Regulator’s view beyond what is at present in rule 5 of the 2007 code, which covers business management.
To ensure compliance with these Principles it is again necessary to have an effective business plan. This entails identifying your client base, making sure you have effective marketing strategies in place to reach those clients and ensuring your practice is set up in a way so that it can fulfil those clients’ goals while being a profitable and viable business. This will also involve the regulated entity gaining an understanding about itself, its business risks and how it functions, by undertaking and analysing client surveys and trends in complaints, and acting upon the outcomes of those analyses.
This is what the SRA refer to as Transition Planning. The introduction of ABSs and the new Handbook together requires firms to be more aware than ever of their place in the market and how they will compete in the future.
In our experience these challenges can be most coherently addressed by seeking accreditation with the Law Society of England and Wales’ risk and quality management standard, LEXCEL. A skilled LEXCEL Consultant will be able to guide you through the process of adjusting systems in the knowledge that LEXCEL (unlike ISO 9001 or similar standards) is specifically designed to match the requirements of the professional rules. Version 5 of LEXCEL is due out in Autumn 2011 and addresses the requirements of OFR. It is a one-stop solution to remaining compliant after 6 October.
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