WINTER 2011/1 2 A legal sector publication brought to you by Moore and Smalley Chartered Accountants and Business Advisors Getting started with outcomes- focused regulation (OFR) On October 6, 2011 the Solicitors Regulation Authority (SRA) released its new Handbook which sets out the outcomes focus standards and requirements that it expects the regulated legal sector to follow. These regulations will be relevant to solicitors and employees in all legal firms regulated by the SRA but also to new entrants such as non-lawyer managers in alternative business structures, who too will be governed by the Handbook. Outcomes focused regulation (OFR) will be a move away from the rigid rules which we are used to operating under. It will allow your firm to create a more flexible approach to achieving the right outcomes for your clients by implementing more relevant systems and procedures. OFR also aims to create a more open relationship between the SRA and your firm. There are ten mandatory Principles in the Handbook which are the basis for all the detailed regulation. The Handbook defines outcomes as the result that you are expected to achieve in order to comply with these Principles and they are mandatory. In practice, there will be differences seen in many firms’ approaches to compliance. Two of the key issues will be: 1. Risk Management The SRA will expect you to identify all the risks which may impact on your firm. You should manage those risks and mitigate against significant ones. The SRA suggest you look at the types of work you carry out for your clients and whether any of this work may pose a risk under the requirements of the new Handbook. You should review your current systems and procedures to evaluate their effectiveness and relevance to your clients, and implement changes if they do not meet the new requirements. 2. Reporting Requirements A Compliance Office for Legal Practice (COLP) and a Compliance Officer for Finance and Administration (COFA) should be appointed by March 31, 2012 to monitor your firm’s compliance with the new Handbook and any relevant legal requirements. The COLP will be responsible for ensuring your firm complies with its statutory obligations while the COFA will be responsible for ensuring the firm, its employees and managers comply with the SRA Accounts Rules. All failings in compliance should be documented and if necessaryreported to the SRA. Although the same person can fulfil both the role of the COLP Contact Louise McDuff Corporate manager 01772 821021 [email protected]TerminateTolerateTransfer TreatThe SRA will expect you to identify all the risks which may impact your firm and the COFA your firm should consider the seniority of the individuals being appointed for these roles as risk management is key. If you would like further details about OFRand how it will affect your firm please contact me.
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Alternative Business Structures (ABSs) are a
new concept to legal practitioners. They will
allow, for the first time, external ‘non-lawyers’
to invest in businesses offering reserved legal
services and allow them also to share the
management and control of the business
with lawyers.
The SRA announced on December 8, 2011
that they will become a licensing body to
regulate ABSs from December 23, 2011.
A firm wishing to take a non-lawyer owner
will then have to go through the application
process with the SRA, and they will begin
accepting applications to set up ABSs from
January 3, 2012. The non-lawyer owner will
also have to pass a “suitability test” if they will
own more than 10 per cent of the business or
if they will be a day to day manager in the
business, with the SRA not simply accepting
anyone who applies. They have promised
criminal records bureau checks, financial
credit checks, professional regulatory checks
and the like, to ensure that integrity in the
professional firm is maintained.
If you are considering an ABS structure,
here are some practical issues to consider:
1. Firm structure
Although an ABS can be operated as a
partnership, an LLP or a limited company,
when considering external investment,
a review of the firm’s existing structure should
be carried out to ensure that it is appropriate
for an ABS model. The firm should consider
the perspective of an external investor
throughout this process to ensure it appearsattractive to them. The structure and
proposed owners of the ABS will
need to be disclosed on
application to the SRA.
2. Business plan
Any firm planning to apply to be
licensed as an ABS is also required to
disclose the firm’s business plan. This is
a great opportunity for smaller firms as
it will help them focus on their strategic
objectives. A good business plan evidences
strong management controls which are also
attractive to external investors.
3. Compliance
An external investor is also going to be
looking for a firm with good internal systems
and controls. When applying for a license as
an ABS a firm needs to ensure these systems
and controls are in place to support the
Compliance Officers within their roles. TheCompliance Officer for Legal Practice and
the Compliance Officer for Finance and
Administration will need to apply for the
position and be confirmed by the SRA by
March 31, 2012. They are required to
review the firm’s application to be licensed
as an ABS.
Those considering applying to become an
ABS should be using the next few months
wisely in order to protect themselves from the
anticipated increase in competition stemming
from an open legal market place.For further information about ABSs,