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Leading by example

A guiding light


As regulated individuals and businesses, the most obvious place to turn first is the rules governing our conduct.  The introduction of the SRA’s Standards and Regulations (StaRs), which pared down the length, detail and, therefore, prescriptiveness of the rules governing the profession, was done with the intention of encouraging ethical decision-making.  The revised number and nature of the Principles are designed to provide an ethical framework for all those regulated by the SRA.  In the introduction to the Principles the SRA reminds us that should they come into conflict, “those which safeguard the wider public interest… take precedence over an individual client's interests.”  With the fluid situation created by COVID-19, each of us will need to keep considering what that means in practice and businesses will want to be mindful of their broader role in society.

An obvious example of firms getting the balance right would be to enable staff to work from home whilst a health crisis remains a live issue rather than endangering the health of staff and others and potentially putting avoidable strain on the NHS, by insisting work is carried out from the office.  An equally obvious example of getting the balance wrong would be to put the interest of the business above those of the client either by using “client” funds to keep the business afloat or, perhaps less obviously, unduly delaying payments to creditors to keep the firm’s cash flow going.  Firms will be encountering ethical questions such as whether or when it is appropriate to furlough employees; what other alternative employment arrangements they should agree with staff, for example, freezing pay or reducing hours; or how they or their staff can make a contribution elsewhere that is in the public interest, like giving time or money to the NHS, community groups, not-for-profits including law centres or charities.  How such decisions are resolved will depend on the approach of those responsible for making them.
 

Finding focus


The introduction to the Code for Individuals (solicitors and Registered European and Foreign Lawyers) explains that the standards comprise “a framework for ethical and competent practice which applies irrespective of your role or the environment or organisation in which you work”.  In the same vein, the introduction to the Code for Firms explains that the StaRs “aim to create and maintain the right culture and environment for the delivery of competent and ethical legal services to clients.”  Both introductions explain that the SRA’s requirements are underpinned by its Enforcement Strategy, which “explains in more detail our views about the issues we consider to be serious, and our approach to taking regulatory action in the public interest.”

As part of its Coronavirus update,  the SRA announced on its website that it still expects those it regulates “to meet the high standards the public expect…This includes serving the best interests of their clients and upholding the rule of law.”  The update adds: 

“We must all remain pragmatic. We will take a proportionate approach: this includes our approach to enforcement. If we do receive complaints, we would take into account mitigating circumstances, as set out in our enforcement strategy. This includes focusing on serious misconduct, and clearly distinguishing between people who are trying to do the right thing, and those who are not.”

What should be clear is that the SRA’s Enforcement Strategy needs to be on the reading and reference list of anyone regulated by the SRA who is serious about understanding the SRA’s approach to regulation and enforcement.
 

Ethics from the top


It will hopefully come as no surprise that those responsible for managing firms play an integral role in setting the culture in their practice. In case there were any doubt, the responsibility is set out in paragraph 8.1 of the Code for Firms, which states that: “If you are a manager, you are responsible for compliance by your firm with this Code. This responsibility is joint and several if you share management responsibility with other managers of the firm.”  The SRA glossary reminds us that “manager” means “the sole principal in a recognised sole practice; a member of a LLP; a director of a company; a partner in a partnership; or, in relation to any other body, a member of its governing body.”


Sharing the load


However, the burden does not and cannot fall solely on managers where other regulated individuals form part of the business.  Paragraph 7.2 of the Code for Individuals stipulates that as individuals you must be able “to justify your decisions and actions in order to demonstrate compliance with your obligations under the SRA's regulatory arrangements.”  In recent articles in this series, we have also highlighted how the StaRs have enhanced the reporting obligations on individuals. Additionally, it should be remembered that the fact of reporting a matter to the firm’s COLP or COFA will not satisfy an individual’s reporting obligation; the individual must also be satisfied that a report will be made by the COLP or COFA to the SRA.
 

Power implies responsibility


That said, individuals do not operate in a vacuum and what their firm’s culture looks like will not be in their sole control; it will be those with managerial responsibility who are accountable for setting the tone.

The culture of a firm will be directed in part by the systems the managers puts in place. There is then the matter of how staff are taught to engage with the firm’s systems and what communication there is to ensure they are adhered to or improved where necessary.  Firms that fail to invest time and thought into building an ethical environment for their employees to work in, do so at their peril.  In its Enforcement Strategy the SRA indicates it “will usually take action against a firm alone, or in addition to taking action against an individual, where there is a breach of the Code of Conduct for firms or of our other requirements.”  The SRA says: “This ensures that the firm as a whole is responsible for future compliance and the management of risk.”
 

Addressing risks


For those wondering which risks to focus their attention on, the SRA tells us in its Enforcement Strategy that it sees certain types of alleged misconduct as more serious than others, such as “abuse of trust, taking unfair advantage of clients or others, and the misuse of client money; as we will sexual and violent misconduct, dishonesty and criminal behaviour.”  The SRA continues: “Information security is also of high importance to the public and protection of confidential information is a core professional principle in the Legal Services Act 2007.”  Some of those issues will undoubtedly be more prevalent than others during this time and we will each want to reflect on which risks to prioritise and how to address them. 

In its Coronavirus update, the SRA sets out its expectations for firms during the COVID-19 chapter and notes that “If there is a breach of confidentiality and a complaint is made, all the relevant circumstances would be taken into consideration in line with our enforcement strategy.”  It suggests firms document the arrangements they put in place to keep client information confidential.

With an increase in reports of fraud and cybercrime during the COVID-19 situation, firms will want to review, update and document the systems they have in place to manage their client and business data.  The Enforcement Strategy tells us that where a firm or individual is a victim of cybercrime, the SRA is likely to look at “whether their systems and procedures were robust enough and reasonable protective measures were in place.”  It also indicates that those firms that report promptly and engage with it provide “us with evidence of that insight and gives us confidence that the firm has an ethical culture and the ability to manage risk.” 

Whilst a global pandemic presents a novel and challenging set of issues for us all, it simultaneously provides us an opportunity to review, adapt and optimise how we work.  Though much seems out of our hands, we remain the authors of many of the relevant circumstances that form our new realities.  If there was ever a time to engage an ethical approach and lead by example, it is now.

A version of this article was first published in the May 2020 edition of the Solicitor’s Journal (Volume 163 No.5)

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