On the regulatory radar – 3 hot topics

The Solicitors Regulation Authority (SRA) has outlined their priorities for the coming year and the holiday season is the perfect time to start planning your work to ensure you’re ahead of what are likely to be the regulatory ‘hot topics’ in 2024.

Of course, these three risk areas are not the only focus for the SRA, but they will be at the forefront of what compliance professionals should be considering. You should think about actioning the following.

1 Demonstrating the effective use of technology

Technology has been in the regulatory dictionary for some time but has recently come to the fore with the of the use of artificial intelligence (AI). The SRA is open-minded about this topic, and keen to see how it works in practice. They recently published a Risk Outlook report, ‘The use of AI in the legal market,’ 20 November 2023‘, which is essential reading for law firm managers and those involved in such matters within the firm.

The question to consider is that if clients look to us to act as trusted advisers, what skills must we demonstrate and what professional values must we bear in mind when using substitutes for human input into client matters?

Consider the following:

• At entry level, most firms are using technology to assist with client communications, undertake screening exercises, and to perform essential compliance functions and conflict screening. This requires competence, due diligence of data sources, consideration of confidentiality, data protection duties and so on.

• At a higher level, some firms are adopting generative AI to perform tasks associated with the delivery of legal services up to and including the production of legal documents. What/who is checking the accuracy of this data? Is the inputted data secure? What are we telling our clients? Does the use of technology have a (downward) impact on the cost of services if tasks are performed more quickly and are we sharing this benefit with our clients?

These are not questions we may be asked directly by our clients, but ones they will assume we have considered. They expect us to be trustworthy, honest, and to act in their best interests, regardless of how we deliver our services.

Action points

• Read the SRA’s Risk Outlook
• Undertake an audit and risk assessment of technology that is currently used – are staff competent and is due diligence adequate? Is training needed?
• Ensure decision-makers are aware of the regulatory considerations which must be incorporated into decisions about proposed new technology.

2 Understanding SRA enforcement

The SRA has been granted increased fining powers over the last 18 months, so we are now seeing fines of up to £25,000 being imposed on traditional law firms, their managers and their employees. In addition, the SRA is now running its fixed penalty scheme for lesser breaches, and issuing fines which are calculated by reference to an individual’s salary or a firm’s turnover. Also, the SRA has been given unlimited fining powers in the Economic Crime and Corporate Transparency Act 2023, and a regulatory objective to deal with economic crime in the Legal Services Act 2007.

The regulator has also made changes to the Assessment of Character and Suitability Rules and the SRA Authorisation of Individuals Regulations to ensure that firms are transparent about health issues and able to take these matters into account in their regulatory work.

These are significant changes which are likely to streamline the enforcement process. The revised fining regime means that the SRA can deal with many matters without needing to clog up the path to the Solicitors Disciplinary Tribunal (SDT). The tribunal will be able to continue to deal with more serious matters where a fine is not an appropriate enforcement tool. The ability to make regulatory decisions based on health issues might mean we are at risk of criticism if we do not bring such matters to the SRA’s attention in a timely fashion.

Action points

• Read the SRA Regulatory and Disciplinary Procedure Rules for changes to rule 11 and the fixed penalty regime
• Read the SRA Guidance ‘The SRA’s Approach to Financial Penalties’ and ‘Issuing SDT Proceedings’
• Read the SRA Standards and Regulations changes about health issues and the SRA Guidance ‘SRA Investigations: health issues and medical evidence’
• Ensure that all relevant managers and staff are aware of the changes

3 Taking staff wellbeing seriously

The SRA has also made changes to the SRA Codes of Conduct which make it clear that regulatory expectations about solicitor and employee behaviours, how we treat colleagues, the role of managers, and how the law firm is managed, have changed. These changes enable the regulator not only to address the consequences of so-called toxic firm cultures on an individual’s ethical decision-making and professionalism, but also address unchallenged bullying, harassment and discrimination in the workplace.

With reference to how a firm is run, these changes are the latest in a series of regulatory developments looking at compliance and business systems. The SRA expects to see effective supervision and management. Alongside the Code changes, revisions to the SRA Enforcement Strategy show that they are developing a robust attitude towards inaction or inappropriate action on the part of senior members of the firm. These changes cannot be ignored at either an individual or firm level.

The changes trigger some reflective questions:

• What culture do we say we want to promote?
• Are all managers and staff aware of this?
• Will our managers challenge inappropriate behaviour?
• Will supervisors offer support to enable professionalism?
• Do we have the right policies, procedures and systems to deal with behavioural complaints?

Action points

• Read the SRA Codes of Conduct for changes – do the firm’s policies need to be updated to reflect these additional requirements?
• Read the SRA Guidance ‘Workplace environment: risks of failing to protect and support colleagues’
• Consider whether managers, supervisors and HR colleagues need additional support or training

Other SRA hot topics

None of us can accurately forecast the future and there will inevitably be unexpected, unplanned for events. However, in terms of identifying and managing risk effectively in the year ahead, if it’s important to the SRA, it will be important to all firms and individuals it regulates as well.

Other SRA considerations, which are always important and on their agenda include:

• anti-money laundering and sanctions compliance
• consumer protections (particularly compliance with the SRA Transparency Rules and in respect of client care duties)
• aggressive litigation through strategic lawsuits against public participation (SLAPPs)
• solicitor competency and ethical behaviours
• SRA Accounts Rules and the banking prohibition

All of this adds up to a very busy year for compliance professionals in 2024!