Co-operative regulation or opportunistic ethics?

The Solicitors Journal has an interesting story about the SRAs change of approach to regulating solicitors. The SRA is keen to see itself as promoting a more intelligent approach to the new, simpler code which it is consulting on. The CeO, Antony Townsend is quoted as follows:

“It will be a big challenge for the SRA to make sure we apply these principles intelligently and don’t get hung up on detail which doesn’t really cause any risk to clients. That will require a change of mindset for the regulator but that’s what we’re aiming for,” Townsend acknowledged.

The approach is to trust firms to operate on broader principles but to step in where things are going wrong. The tenor of the story is very much aimed at reassuring the anxieties of the profession. That’s fair enough, up to a point, but there remains a large question-mark over the capacity and willingness of the SRA to step in and deal quickly and robustly with problems particularly where they must do against a framework of broad principles only. The interesting question this raises is: will the SRA be able to act decisively to deal with perceived wrongdoing within such a framework? If the profession accepts the SRA has discretion to interpret the principles and works cooperatively with the SRA, they might. If they take the view that a lot of money is riding on the outcome of SRA interventions, that the firms (as well as the SRA) have discretion in how they interpret the principles, then they might not. I was particularly interested to see this quote from Mr Townsend:

“Where the firm is cooperating, knows it got it wrong – it may even have compensated clients – if it has put things right and we’re satisfied with the steps taken we don’t need to go to the SDT.”

On one level this is a sensible, pragmatic approach and yet it opens the door to an opportunistic approach to professional ethics. It says to firms you have discretion to interpret the code in accordance with your view of sensible business and professional practices. Your interpretations may be challenged by us. You have significant opportunities to persuade us we’re wrong and you have the chance to put things right without being punished. For genuine misjudgements by firms this is likely to be a reasonable approach, but for firms deliberately stretching the envelope of what is permitted under the rules it is more questionable. It is an invitation for the goats to try it on, await detection, apologise and retreat (possibly having made substantial profits from their unethical practices and damaged the reputation of the profession in the mean time).

The key questions will be how the SRA separates the sheep from the goats and how does it ensure that it is strong enough act. Principle-based regulation is a sensible development when dealing with the angels, but will principle-based regulation be sufficiently litigation proof to deal with the devils? One can see these tensions being played out in the recent SRA decision on Thompsons (see for example the Gazette and the Lawyer and the comments on those stories). The case related to several million pounds of deductions made from clients’ damages in personal injury claims and ended with a serious reprimand and costs being paid by the firm. The Gazette reports admissions by the Firm’s Chief Executive of failure to act in the best interests of clients; various failures to advise clients appropriately in relation to choice of solicitors and costs; and acting or continuing to act in conflict of their interests. Part of Thompson’s mitigation involved, “believing at the time that our approach was consistent with professional standards.” The key question is whether principle-based regulation will make this kind of claim more or less likely and how swiftly the SRA can rebut it. In the Thompsons case it appears to have taken five years. Will a principled approach speed that process up or leave even more room for argument?

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