Council Member July 2013 Newsletter

At the final meeting of the Council year the funding requirement which effectively fixes the Practicing Certificate fee and compensation fund payments for the following year are set. Overall there is an increase in funding requirement with a breakdown below. This has arisen because reserves have been depleted through the capital spending programme of recent years and there is a need to boost reserves to meet calls from the ARP. That on present early indications will eat into the first slice (£10m) for which the Society is liable under the agreed close down arrangements.

The total funding requirement from PC fees was set at £116.8 million. This will be met by a small increase in the individual PC fee and upward adjustment to the percentage of firm based turnover. Bearing in mind current fee income volatility this may impact larger entities as well as fragile smaller firms alike. The Compensation Fund levy will reduce compared to last year although ironically the SRA have moved a large provision for intervention fees into the Fund and reversed the policy decision taken in 2010 which was that the Fund should not routinely be used to cover the costs of regulation.

Over the last years in the recession Council has been keen to keep the Practicing Certificate fee relatively flat and last year a deficit budget was passed to enable capital spending on the SRA modernisation programme. That three year programme has run its course with mixed results. Although some of the savings hoped for have been achieved other replacement projects and improvements have not. There are now further demands for the funding of projects. The immediate priority is to ensure that the outdated systems for collection of regulatory information are replaced and that suitable modern systems for financial control are in place. These are now controlled through the Corporate Solutions function which reports to the Business Oversight Board. That is populated by SRA and representatives of the Council along with independent members who hold the balance. This remains an unsatisfactory compromise arrangement to the extent that real objective and accountability is lacking; in practice oversight occurs through the intermittent intervention of the Legal Services Board. These compromised arrangements are not entirely satisfactory to meet the wishes of neither the regulatory body nor the representative body and maybe subject to some further comment in the course of dealing with a current government call for evidence for review of the working of the 2007 Act.
Council was not able under governance procedures imposed by the LSB to do other than accept the recommendations of the Business Oversight Board that the current Chair of the SRA should have his term extended by 12 months until the end of December 2014. This was put forward as the wish of the SRA Board ‘to maintain continuity’ during the period of appointment of a replacement Chief Executive Officer for Antony Townsend who is standing down before the end of the year.

The Legal Education and Training Review (LETR) is a long standing project of the SRA with the regulators of the Bar and Legal Executives. It has reviewed training requirements across regulated and non-regulated legal services in England and Wales and published the Review Team’s final recommendations. The site at has useful evidence collected and used during the research phase of the project.

The review team appear to have resisted the many pressures placed upon them; preserved academe for academics and resisted abandoning title based qualifications for activity based authorisation. Interestingly the report explores the shortfall between a system that requires ‘outcomes’ and one that sets quality standards. Overall the need to reinforce the teaching of professional standards and ethics receives support which endorses Council policy and input.

The next stage will be for the SRA to decide upon changes. These are likely to include more flexible routes to qualification without reducing the day one entry requirements and providing more mobility to transfer between the professions. CPD is well behind comparable schemes abroad and the design for the medical profession so planned objectives may be a fist step along the way in reforming the current requirements so as better to support the standard of competency that is well described in the LETR report.

In the shorter term the most urgent activity of the SRA this year is primarily focused in two areas. And both respond to criticism from the Legal Services Board. Firstly a new and simplified process has been introduced for authorisation of alternative business structures. This replaces the two stage process and should not take longer than a maximum of nine months provided that complete information is made with the application. At the same time the new application process aims to simplify the approval of arrangements by traditional firms where they move to ABS structure or simply change composition of partners. There does appear to be a high rate of activity as 832 new firms were formed in May of this year and only 132 are recorded as having closed. The underlying rate of churn in the market is clearly high with many firms merging as an alternative to closure.

The other target for intensive action is in relation to Supervision and Enforcement. The enforcement process fell under the microscope of the Legal Services Board at the end of last year and the SRA reports were considered sub optimal and lacking coherence and clarity. Requests for better performance data is something that my Regulation Board and committees have been pursuing over a long period and more transparency will be welcome in these matters. They cause considerable concern and stress to those who are caught up in any kind of SRA investigation and at present take an interminable period to resolve.

Our focus for concern has however moved on, as with the full application of outcomes focused regulation, the emphasis moves to managing problems rather than enforcing against breach. The Supervision function is multi-layered and covers a particularly wide range of firms and of types of problem. Those believed to be posing a risk so far as the regulator is concerned includes firms who have run into financial difficulties. Whether as a result of extended recessionary market conditions or those whose market has been threatened by changes to costs rules for PI work or changes to contracts for funding family and welfare work. Those in small criminal firms will also be in flux as new structures are adopted to meet the requirements of PCT. We now need more information as quickly as possible. There are no published statistics in relation to SRA successes through Supervision – where financial failure has been forestalled or recovery supported. Such communication would build confidence especially when firms have to balance the demands of the regulator against the practical demands of the banks who monthly support the firm’s operating budget.

Although there is not yet a great deal of information published to firms who are not under supervision as to the kind of situations that need to be addressed and of which they need to be made aware some useful tools have now been published. The emphasis is on good financial housekeeping and the SRA have published a number of lists containing details of the matters that they consider to be regulatory risks and what they would regard as being signs of potential financial failure and these are of interest to COLPs and COFAs.

The perfect storm has now been with us for a considerable period but there is continuing resilience in the profession and at a local constituency level searching out ways to work profitably in the new landscape is one of the challenges under review at our autumn Compliance Forum – 24 October 2013 open to compliance officers and to all members – see details on It is as much about Opportunity as pure regulation and all ideas and contributions are welcome.
Michael Garson

Council member