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With the introduction of the SRA handbook in October 2011 many practices looked forward to the greater freedom that the SRA Road-shows informed them that they could look forward to.
Is this really the case? There has been lots of debate on OFR, COLPs and COFAs which is well documented, but basically boils down to the fact that you have less freedom and have to spend more time self-regulating and self-reporting.
Let’s start with the Mandatory Principles, specifically the three below that refer to Outsourcing:
Principle 5 requires that you: “provide a proper standard of service to your client“
Principle 7 requires that you: “comply with your legal and regulatory obligations and deal with your regulators and ombudsmen in an open, timely and co-operative manner“
Principle 8 requires that you: “run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles“
So what can you Outsource and not Outsource?
Quite rightly Outcome 7.9 prohibits you from Outsourcing reserved legal activities to a person who is not authorised to conduct such activities. I am sure that we all agree that this is only fair and proper and what members of the general public will expect.
So what can you Outsource? (Or are already Outsourcing or thinking of Outsourcing.)
There are quite a number from legal secretarial services including dictation for processing, initial drafting of documents, proof-reading and document review to due diligence e.g. on company purchases.
Outcome 7.10 refers to: ‘legal activities or any operational functions that are critical to the delivery of any legal activities’
Specific reference is made to IT functions. In small to medium firms it is quite general that IT functions are outsourced to an IT consultancy; only larger firms being able to support an in-house IT person or team.
The consultant will often have external access to your system and indeed undertake your external back-up. Of course this may also include your case management and accounts systems where remote access can be a benefit to the smooth running of your business in the event of an IT failure.
The Outcome outlines what you Outsource:
a) does not adversely affect your ability to comply with, or the SRA’s ability to monitor your compliance with, your obligations in the Handbook;
b) is subject to contractual arrangements that enable the SRA or its agent to obtain information from, inspect the records (including electronic records) of, or enter the premises of, the third party, in relation to the outsourced activities or functions;
c) does not alter your obligations towards your clients; and
d) does not cause you to breach the conditions with which you must comply in order to be authorised and to remain so.
a), c) and d) are fair to the client, which is what the new SRA Handbook is all about; but how about b)?
Most of the statement seems fair until you ascertain that you will have to have an agreement or contract with the Outsourced function.
Will an IT consultancy with, most likely, many clients with a high requirement for confidentiality really want the SRA marching in to inspect your records on their premises? How about the secretarial service, possibly working in a room at home?
So let’s have a look at the agreement or contract that you will need to have in place with your Outsourced function.
Outcome 4.1 requires that you: ‘keep the affairs of clients confidential unless disclosure is required or permitted by law or the client consents’
Indicative Behavior 4.3 requires that:
‘you only outsource services when you are satisfied that the provider has taken all appropriate steps to ensure that your clients’ confidential information will be protected’
So you have done all that, but the SRA could still require to walk in to your suppliers’ premises to check up on you. Will they agree to that?
By now I trust that you will be thinking about how you broach this with your Outsourced function suppliers. If you know that you are decent and honourable and comply with the 10 Mandatory Principles of the Handbook then the SRA marching in to your Outsourced supplier is highly unlikely. But how will you convince them of that and get them to agree to sign an agreement or contract with a clause in giving:
‘the SRA or its agent to obtain information from, inspect the records (including electronic records) of, or enter the premises of, the third party, in relation to the outsourced activities or function’
Is this yet another attempt by the Law Society to hasten the demise of sole practitioners and small to medium firms with only larger ones able to afford the in-house function that this would appear to be leading to?
Client Relationship Manager
T: 0113 385 4483
M: 07432 695 289
The Law Society has issued a practice note about the risks to solicitors posed by this new legislation, which came into force on 30 September.
The SRA has urged all practices to check HM Treasury’s consolidated list of asset freeze targets, which lists designated persons subject to financial sanction under EU or UK legislation.
The practising certificate renewal period opened on Monday 2 October.
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