Business Management

Tim Cheadle (UK) - Outcome Focussed Regulation - The Compliance Challenge

The Solicitors Regulation Authority’s (SRA) new Code of Conduct and Handbook – based on the principle of outcome-focussed regulation to support the Legal Services Act 2007 (LSA 2007) has finally come into force as of October 2011. This new SRA Handbook heralds the biggest-ever reform the legal industry has yet seen in its bid to move away from tick-box compliance; putting the onus of risk management and compliance squarely on legal services providers.

The motivation behind this outcome-focussed regulation is to ensure that legal services providers – especially the new entrants in the form of Alternative Business Structures – do not put customers in harm’s way. With the LSA 2007, essentially any organisation, regardless of whether it has prior legal market experience, can offer legal services to customers.

Law firms must rise to the challenge and apply their principles and moral codes to ensure that they deliver the best customer service.

In this new regulatory landscape, law firms need to comply with legal sector-specific outcomes-focused regulation, as well as financial and accounting industry legislations. There is a raft of other wider regulations such as Money Laundering Regulations 2007, Statutory Audit and Company Reporting Directives and Data Protection Act that law firms have to adhere to too. These provisions also aim to encourage the adoption of self-regulating practices to facilitate greater transparency in business management and financial reporting.

Further, there is also a growing belief that a multi-disciplinary practice (MDP) is the future business structure of legal professional services organisations – practices will not just consist of solicitors, but also accountants, independent financial advisers, estate agents, surveyors, and any other professional services providers – working together under one roof. Clients will be able to receive advice on conveyancing, tax and financial planning, personal injury and Wills, from a single firm. This means that MDPs will have to comply with regulations pertaining to the various professional services sectors alongside those of the legal industry.

Given the scale and ambiguous nature of the evolving regulatory landscape, legal services providers must undertake meticulous self-assessment, self-certification and self-reporting.  Legal service providers will be expected to show evidence of compliance via reports and audit trails at all levels – right from matter, client, department, fee-earner through to firm level. This encompasses things like number of files opened, number and exhaustiveness of conflict checks undertaken, number of anti-money laundering checks carried out, identification of training needs of staff to ensure best practice, and number of file reviews undertaken – as examples.

There will be a much greater emphasis on data collection and assessment, with access management being critical for security. And legal services providers will need to demonstrate a high standard of client care. This means that robust client feedback processes will need to be created (including a complaints handling procedure), which must be understood by customers.

Against this backdrop, manually undertaking risk and compliance processes will be time consuming, realistically impossible and ridden with a high probability of human error. Legal services providers must underpin their businesses with technology to work towards compliance, and give themselves the flexibility and agility to meet changing business requirements.

Workflow-based technology systems are indispensable. They will provide legal services providers ‘light touch’ workflows to enable organisations to automate compliance processes, develop new processes quickly and easily and improve operational efficiency. This will enable lawyers within legal services providers to concentrate on their core activities, with in-built checks ensuring that they always implement best practice and deliver the best possible service to customers.

The SRA’s outcome-focussed approach to regulation provides an opportunity to existing law firms to reassess their business and leverage their experience and understanding of the legal sector to expand their operation. By strategically using technology, they can do so efficiently and quickly, giving themselves a distinct competitive advantage.

By Tim Cheadle, General Manager, LexisNexis Enterprise Solutions

IDG Connect also host legal briefings on IDG Connect Law: http://www.idgconnectlaw.com/


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