In-house risk

Over recent years, the Solicitors Regulation Authority (SRA) has been playing catch-up in its understanding of in-house practice and has made strides in developing regulatory requirements that are suitable for this style of practice. This sector of the solicitor’s profession currently comprises 34,500 individuals employed in around 6,000 different businesses. It cannot be ignored, and the SRA must be seen to be regulating it effectively.

The challenges

In-house practice has distinct regulatory challenges. For example:

• What happens to independent judgement when your client is also your employer?
• What stops an in-house solicitor being able to put professional ethics first?
• How do they demonstrate to the SRA that they exercise professionalism in this type of workplace?
• What happens if they provide legal services to an employer with an exciting risk appetite?
• What is the impact on mental health when advising in this context?

These talking points have become louder in recent months. The SRA published a thematic review in March 2023 (In-House Solicitors Thematic Review) which has proved to be somewhat controversial. The SRA has drawn positive conclusions about in-house practice through its interpretation of research findings, and this rosy picture has been challenged by some in-house practitioners.

Critics are concerned that the regulator has failed to understand the extent of the pressures which exist in the in-house environment which can make ethical objectives more difficult to achieve. There is a call for more support from the regulator, both in terms of guidance for solicitors and to help employers understand who they are employing and what they can or cannot ask of them.

While this debate continues, the spotlight is on this section of the profession. This is an appropriate moment for in-house solicitors to evaluate their relationship with the SRA. It is essential that all in-house solicitors understand regulatory expectations and are able to show that their professionalism is not compromised by their employment. For this reason, an employed solicitor must be a self-interested employee in a way that other non-solicitor colleagues in their business need not be; their starting point must be an assessment of the consequences of their actions in terms of their own regulated status.

The relationship with the regulator

The top priority is to have a clear understanding about the relationship with the SRA, and to recognise that, for a variety of reasons, this is different to the relationship with the Law Society. The SRA must have confidence in the individual to whom it has granted the right to practise. The SRA is entitled to be satisfied that the individual is acting in accordance with professional standards, not only in terms of how they deliver legal services and act in the workplace, but also to have confidence that these behaviours are displayed in the individual’s private life too. The SRA can take supervisory and, if necessary, enforcement action against the solicitor regardless of their type of employment and regardless of the context in which unprincipled or unprofessional behaviours have played out.

Principled behaviour is not left to chance. Instead, it is assessed with reference to the SRA Standards and Regulations (the STaRs) which is the collection of rules, regulations and similar by which all solicitors are assessed. The SRA expects all solicitors to understand which parts of this online resource is relevant to them, knowing the content of those sections, and being able to demonstrate compliance in practice.

What regulations apply to in-house?

Some parts of the SRA Standards and Regulations are disapplied from in-house practice. For example, the SRA Code of Conduct for Firms is applied to entities which are authorised and regulated by the SRA: private law firms and any in-house legal teams which have chosen to be authorised as alternative business structures. The SRA’s financial services regulatory framework is expressed elsewhere in the SRA Standards and Regulations but it is important to know that in-house solicitors cannot use these sections to provide financial services. The SRA Accounts Rules are largely irrelevant too as only a small number of employed solicitors can hold client money and operate solicitor’s client accounts.

The sections which are relevant to all types of practitioners, regardless of where they practice, include those which deal with professional conduct. These are the SRA Principles (mentioned above) and the SRA Code of Conduct for Solicitors, Registered European Lawyers and Registered Foreign Lawyers.

The SRA Principles

To address the SRA Principles again, the label may be unfamiliar, but the concept ought not be a surprise. These are the core values, or basic behaviours, which have always underpinned regulation. In SRA terminology, these have become Principles and the SRA describes them as “the fundamental tenets of ethical behaviour.” The good news is that we have only seven basic behaviours to consider. The significant news is that they apply to our professional and personal behaviours.

The tension for employed solicitors is ensuring that these are used properly to support the making of decisions both professionally and personally. Independence of action (Principle 3) must not be compromised by duties to act in accordance with the employer’s wishes where those wishes might, for example, trigger illegality or unethical behaviour. Duties to comply with principled behaviours that apply to equality, diversity and inclusivity (Principle 6) must not be diluted by lesser standards that may exist in the organisation in which the solicitor is employed.

The regulator does not tolerate any employment-related reasons as to why a Principle is not met and expects an employer’s misunderstandings to be challenged by the regulated person. Duties to uphold the rule of law (Principle 1), to act in a trustworthy way (Principle 2), with honesty (Principle 4) and integrity (Principle 5) must not be compromised by employment relationships. These are core values which support the profession’s brand image and reputation. Critics of the SRA’s Thematic Review findings have suggested that establishing ground rules with non-solicitor employers which allows for consideration of these Principles is sometimes more difficult than the SRA may acknowledge. Nevertheless, the SRA would expect the in-house solicitor to ensure that the employer’s instructions do not undermine their adherence to these Principles.

SRA Codes of Conduct

The SRA Code of Conduct for Solicitors, Registered European Lawyers and Registered Foreign Lawyers contain standards which are designed to show that regulated solicitors put the law and ethics first. The fact that the Code is applied to all types of practice shows that the SRA expects the same standards of conduct regardless of circumstances. This application point also demonstrates that private and in-house practitioners often have more in common than either party might imagine. It is worth looking at two topics to explore the similarities and show what is expected of in-house solicitors.

Client care and taking instructions

The SRA Code requires all solicitors to adhere to service and competence standards as described in Chapter 3. In private practice this usually triggers the delivery of a client care letter (with hopefully a well-constructed description of the scope of the retainer) and terms of engagement. This is unlikely to happen when an in-house solicitor is acting on the instructions of their employer. Nevertheless, Chapter 3 compliance must be in evidence. Sense-testing questions are triggered by these standards. We have duties to act on properly authorised instructions which begs the question of who is properly authorised to provide instructions to the in-house solicitor? Also:

• How are those instructions recorded?
• Is there an adequate record of what service will be provided?
• Are timescales managed?
• Does the solicitor have the time and the skills (such as the competence) to deliver a proper standard of service?
• Can the solicitor ensure that any other member of the team that they are supervising is also delivering a proper standard of service with competence?

Conflict of interest duties

Often an in-house solicitor will mistakenly assume that this issue is not relevant to their type of practice – an unwise assumption to make. Making judgement calls about whether a conflict of interest between the solicitor and the client (an own interest conflict as described in standard 6.1 of the SRA Code) or between the interests of two or more clients (a conflict of interest in standard 6.2) must happen every time a new instruction is received. Again, sense-testing questions will help with the analysis:

• Is there anything that stops the solicitor from acting in the employer client’s best interests?
• Is there anything about service delivery, perhaps the fact that negligent advice has been given, which creates a conflict?
• Is there a significant risk that a conflict may arise?
• Can in-house solicitor act for more than one party (as if often the request when acting for related companies, or in local government shared service or joint venture scenarios) and demonstrate that they are able to act in the best interests of all?

This type of analysis is not hypothetical and poor decision-making, or no decision-making at all, can result in regulatory scrutiny for the solicitor concerned. These are just two common examples of the additional considerations that need to be reflected on.

Other regulatory obligations

There are several other requirements which must be managed including the following:

1. The SRA does not require an employed solicitor to have professional indemnity insurance, but the wise in-house solicitor will want to consider whether they have adequate protection.
2. An in-house solicitor will be bound by any undertaking they give, and a breach may result in legal action and disciplinary action. Should the solicitor refrain from offering this?
3. An in-house solicitor is unlikely to have the competence (the skill sets) to provide answers to all the employer’s legal services needs, and acting without competence is a regulatory matter. Does the employer understand this and is the employer happy for these services to be outsourced? Will the in-house solicitor to involved in outsourcing decisions?
4. Solicitors must follow the law relevant to them. Have these topics been identified?
5. There are very few exceptions to the legal and regulatory requirement for an individual on the roll of solicitors to hold a current practising certificate and this is a personal responsibility.
6. The SRA requires all solicitors to maintain their competency and make a declaration each year that they are competent. Does the employer support the solicitor employee in fulfilling this duty?

It is likely that the SRA and the in-house community will continue to examine regulatory conundrums in the coming months. This is significant and in-house solicitors are urged to follow developments. In the meantime, taking stock of the SRA’s expectations is worthwhile.