Senior Vice President
The Solicitors Regulation Authority's (SRA's) Standards and Regulations (StaRs) were designed to offer solicitors greater flexibility when they came into force on 25 November 2019. However, this flexibility may come at a cost, which has arguably been underestimated.
According to a recent study commissioned by Marsh, 44% of firms expect internal costs to only increase by £250,000 or less because of the changes. Just over a third (36%) of firms do not expect the regulatory changes to increase their annual internal costs at all.
These results are surprising. Although firms have greater latitude in how they meet the regulator's requirements, the changes bring increased accountability and a lower threshold for regulatory involvement. Firms may be underestimating the long-term cost impact that arises from the combination of record keeping, the exposure, and managing overall risk within the new framework.
Aside from the significant additional costs of basic training and re-writing policies/procedures introduced by StaRs, firms face increased risk of regulatory interaction and consequential cost implications:
In light of these changes, firms should review their insurance cover and how it may or may not respond. They should also carefully assess whether they are budgeting sufficient resources to properly implement the new regulations, and whether their contingency funds are adequate to cover the costs of potential investigations and fines.
This article was written before COVID-19's impact developed. In light of increased homeworking, it is important to highlight that “supervision” is multi-faceted. Significant elements of supervision include setting standards and demonstrating compliance, i.e., by audit, with questioning, and normally by working in close physical proximity and giving feedback.
To deliver supervision in light of current extensive remote-working, firms could consider increasing the utilisation of capabilities in case management software to monitor how frequently advisory notes and records are created. Systems that enable creation of such management information can help demonstrate robust supervisory review.
Firms without such capabilities in their case management system could consider auditing more matters post 25 November 2019 as a priority, in order to ensure requirements are understood and embedded. Demonstrating that audit templates have been modified for the new rules and are in use is, of course, a clear step towards demonstrating a compliant culture.
Senior Vice President