Something for everyone

Lord Hunt's review concluded with the publication of his final report last month setting out 88 recommendations explained over 115 pages. In addition, Lord Hunt relied on two other reports: Nick Smedley's 'Review of the Regulation of Corporate Legal Work' published in March 2009 and running to 114 or so pages with 34 recommendations; and the Economides and Rogers report on preparatory ethics training for future solicitors also published in March 2009 comprising almost 90 pages and 24 recommendations.

The wide sweep of Lord Hunt's report contains something for everyone, but how are its recommendations likely to affect practitioners and when will they make an impact?

Recommendation 2 urges the Legal Services Board and the Law Society to combine with other regulators and professional bodies to create a debate about what legal professionalism means in the modern world. Blue sky aspiration perhaps but one with great significance as the market for legal services opens up. In some cases the regulation of solicitors is much more onerous than of non-solicitors permitted to undertake reserved legal activity; for example, licensed conveyancers. A debate such as this will inform how far it is appropriate for the Council of Licensed Conveyancers' approach to prevail or that adopted by the SRA; an issue which is likely to gain increasing importance as the market liberalises in coming years.

Recommendation 9 proposes that each firm create a comprehensive calculation of the risks associated with its business practices which it should share with the SRA. To some extent this has started already as many practitioners will have found in the new forms required to renew one's firm's registration as a regulated body. Nor will such an approach be new to those accredited with Lexcel (and its equivalents). Lexcel will become a mandatory requirement for law firm managers before too long. Indeed, with Lexcel firms are more likely to be able to comply with the requirements about business management which are already in rule 5 of the code.

Perhaps most important for the practitioner is recommendation 13 '“ a big push for the SRA to really embrace principles-based regulation by elevating the importance of rule 1's core duties such that if a practitioner can show compliance with those duties any regulatory response to alleged breaches should take a less strict approach. This may serve the purpose of injecting the much-needed sense of proportionality which almost every practitioner who has dealt with the SRA says is long overdue.

Authorised Internal Regulation (AIR)

Mr Smedley's report advocated a Corporate Regulation Group should be formed at the SRA, specifically tasked to monitor the work of the large commercial law firms. Keen to retain a sense of unity within the profession, Lord Hunt did not accept that approach but recommends (numbers 41 and 42) the introduction of a new system of Authorised Internal Regulation (AIR) to begin with larger corporate firms but eventually rolling out to all firms.

The Smedley report identifies complaints made by corporate law firms of the SRA, but these are identical to those made by non-corporate law firms of the SRA. Hence there are concerns that the SRA (see paragraphs 3.6-310 Smedley report):

• does not understand life in practice;
• automatically seeks a prosecutorial outcome rather than trying to solve problems;
• staff lack confidence and knowledge to handle complex queries with slow response times; and
• does not pay enough attention to views of firms in response to consultations.

In view of the poor experience of the SRA shared by larger and smaller firms alike, it is good that Lord Hunt has sought not to divide the regulation of the profession. Instead, he has introduced the AIR concept which is perhaps the most important of all his recommendations for practitioners. It is dealt with in detail on pages 70-76 of his report. If implemented, AIR would introduce responsibility for compliance to all firms that accepted the regime and with it obligations (at a cost no doubt) to ensure they provided robust governance and risk processes such that the SRA considered they could sub-contract compliance monitoring to those firms.

Whether this regime comes into being or not is hard to say, but one might consider the following issues:

• How does this obligation differ from the obligation to ensure we comply with the code which is already imposed upon us?
• Would sub-contracting lead to a reduction in the PC and entity fees so as to reflect the additional costs which firms would have to incur to meet the obligations of such a sub-contract and, presumably, a reduced cost to the regulator?
• Lexcel (or its equivalents) could no doubt assist enormously in ensuring compliance risks are effectively addressed. AIR may yet form another driver toward wider take up of the Lexcel standard.

Employed solicitors

A brief word about Lord Hunt's lukewarm support for the long-running campaign for employed solicitors to pay a reduced or no practising certificate fee commensurate with the non-existent burden they impose on the regulator. Page 69 confirms that Lord Hunt recommends employed solicitors should only pay the individual element to the PC fee but does not endorse the view held by some that no fee should be payable.

How many of Lord Hunt's recommendations will be implemented may be moot, but what is not in doubt is the level of debate to which his report will give rise.

Next month: Beresford: where contract and conduct collide