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Supervision: Firm and thematic

 

Last updated 7 May 2012

Introduction

We are transforming our approach to regulation in the public interest and for the benefit of clients, by introducing outcomes-focused approach to regulation (OFR). This is a regulatory regime that focuses on the high level principles and outcomes that should drive the provision of services for clients.

The approach is designed to be

  • proportionate,
  • targeted, and
  • effective.

Supervision is the risk-based oversight of the entire regulated community. We encourage firms to deal with their own risks, thus ensuring they provide the right outcomes for clients in line with the mandatory outcomes in the Handbook. We will achieve this by means of risk-based supervision, including constructive engagement with those firms willing and able to engage constructively with the SRA.

Our supervisory approach to firms will be tailored to take account of

  • the risk a firm poses,
  • its management of risk,
  • its approach to, and history of, compliance.

Engagement with firms may be triggered by events generated within or potentially impacting on a firm that mean that we need to check whether a firm's compliance might be at risk, or as a part of a piece of broader thematic work with a number of firms.

An event includes such things as

  • a report of misconduct against a firm and/or individual,
  • significant change to a firm's composition or structure, and
  • a downturn in a firm's financial indicators.

A theme might be a particular area of work—for example, conveyancing or an issue such as complaints handling—where our interest lies in a number of firms' approaches to that particular activity. For example:

In broad terms, the SRA's Supervision function takes a number of approaches to taking these matters forward.

  • Desk-based supervision involves immediate engagement with firms by telephone to discuss issues and request information. That information is analysed and pertinent questions asked about what has been provided.
  • Visit-based supervision involves visits to firms to address both discrete events and thematic risks. We visit firms when we consider this necessary in order to properly assess the risks or issues identified.

Thematic work undertaken can include both desk- and visit-based supervision with information and 'lessons learnt' available on our website.

For example, taking forward the payment protection insurance (PPI) theme has included posting information on our website and writing to firms we understand are involved in this area of work to remind them of their regulatory obligations in relation to this area of work. We will be contacting firms to gather additional information on the approach they are taking and are likely to be undertaking targeted visits to ensure firms are complying.

Our supervisory approach to particular events and themes has been tested and refined during a pilot which ran from January 2011 to September 2011. The outcomes of that pilot have been collated and the report has been published (see supervision pilot report). 

How will Supervision work?

Supervisors will analyse information we already hold and risk-assess firms to identify what we consider to be any key risks or issues.

We will also ask firms to assess the risks that they face on an ongoing basis, and put in place steps to mitigate any risks. The SRA encourages firms to address reports of misconduct received by the SRA in the most appropriate way and in accordance with proper and effective internal systems and controls.

Supervisors will set out to engage constructively with firms when events occur, and during thematic work involving many firms. Initial contact will be by telephone if appropriate, and the SRA supervisor will explain the approach being taken. This provides the firm with the opportunity to ask questions and to understand next steps.

Information gathered from firms will be evaluated, and we will continue to engage with firms to discuss our evaluation and scrutinise their plans to address any risks, to ensure clients and the general public are protected.

SRA supervisors will continue to engage with firms for as long as we consider it appropriate to do so, given

  • the specific risks and issues we have identified, and
  • the progress the firm is making to address them.

If the SRA receives a report alleging misconduct about a firm, the SRA may, given the risk posed and in its absolute discretion

  • decide not to engage with the firm at that time, but
  • record the matter so that it can be used to inform any future engagement.

This is termed no engagement at present and means we will hold information reported to the SRA about a firm if we decide that the risks do not warrant us using resources to take action at that time. The information will be retained and can be evaluated at part of any future assessment of emerging risks.

Our aim throughout is to assist firms in tackling their own risks and help them to improve their standards, thus ensuring they provide the right outcomes for clients.

How does Supervision work with enforcement?

The provisions of the SRA Handbook came into force on 6 October 2011. The core regulatory requirements in the Handbook are the 10 principles, compliance with which is mandatory

The Handbook contains a revised Code of Conduct which is less prescriptive than its predecessors, focusing on firms achieving mandatory outcomes, but giving freedom to firms as to how those outcomes are achieved.

Supervision adopts a "whole firm" approach to achieve regulatory oversight. This means that we will no longer necessarily investigate every alleged breach of the Code or other regulatory requirements; instead, we will review the overall picture and engage with firms to see if issues can be resolved systemically.

However, we will take enforcement action if

  • there is serious misconduct;
  • we identify a risk to the public that cannot be mitigated by working with the firm;
  • the firm in question does not engage with us so that the matter can be addressed by way of the Supervision approach and formal investigation is required.

Supervision will retain "ownership" of the firm in circumstances where formal investigation or enforcement action is taken, although we may commission colleagues from other areas of the SRA (for example, Forensic Investigation) to undertake some or all of that investigation.

Should we have to move to formal investigation, we would do so pursuant to our powers under Solicitors Act 1974 (as amended). Those powers are exercisable in writing and require individuals to produce documentation to us and provide information and explanations in the form we prescribe (see Outcome O(10.9)). Failure to comply promptly with a written notice from us also constitutes non-compliance with outcome (O(10.8)).

We may in certain cases serve formal notices citing these outcomes and/or section 44B of the Solicitors Act 1974 (as amended) even though we are not formally investigating you or your firm. For example, we may wish to review information that is held in a firm which may be subject to legal professional privilege, and which you should therefore keep confidential; serving notice in these circumstances will enable you to cooperate with us without breaching your obligation to your clients in this regard.

More about investigation and enforcement

Please use www.sra.org.uk/supervision to link to this page.