Annual report 2012: Moving forward

Chair's Foreword

Much has been achieved, more to be done

I am pleased to have this opportunity to present the SRA's Annual Report for 2012. As can be seen from what follows, much has been achieved. We also recognise that in some areas more needs to be done.

It must be appreciated that our resources are not infinite. Whilst our costs have reduced in 2012, we recognise that the financial burden on those we regulate is considerable. As a risk-based and outcomes-focused regulator we have to decide where our priorities should lie, which might not always accord with those whose agenda has a narrower focus. Appropriate measures to protect the public will always have priority in the application of our available resources.

Consumers of legal services in England and Wales are better protected than in comparable jurisdictions abroad. This certainly enhances the reputation and offering of solicitors, who will generally see it as a price worth paying. This protection is particularly relevant in the current economic climate where, unfortunately, hundreds of practices are experiencing some financial stress. We seek to identify and actively engage with those in that condition. There are those who question whether we should be applying resources to form a view on the appropriate business strategy for the practices we monitor. My answer is that whilst we cannot aspire to be business experts, the current compensation and intervention arrangements and the existence of client accounts make it appropriate for us to be informed of and address financial weaknesses in firms, both to reduce risks to consumers and to reduce the costs which firm

collapses impose upon all those we regulate. We understand why well-run firms – particularly those in the commercial sector who pay a disproportionate amount for regulation – question the need for us to apply our resources to those who are struggling. The long-term answer is that there needs to be a rationalisation: not only of compensation arrangements but also of client accounts going forward.

It is the SRA which each year asks law firms and the profession for practising fee and compensation fund payments. It is important to recognise that the SRA itself receives about 50% of the sum so levied for its own purposes. The balance funds the Legal Ombudsman, the Legal Services Board, the Solicitors Disciplinary Tribunal and Law Society permitted purposes. As I have said, the public is well protected and those who challenge the cost must identify which protections could be diluted.

But some savings certainly can be made. Under the Legal Services Act 2007 a regulatory regime has been introduced of quite Byzantine proportions, with multiple front-line and oversight regulators. Rationalisation is badly needed and we are pleased that the Ministry of Justice is calling for evidence on this issue. We will actively engage in the debate. The public, the profession, and the whole sector will benefit from a simplified process – and the cost savings would be considerable.

The progress made by the SRA in 2012 could not be achieved without strong contributions from the Board, the Senior Management Team and the entire staff of the SRA. I wish to thank Susan Bews, Mark Humphries, Lorrette Law, Ian Menzies - Conacher, Sir Ron Watson and Lucy Winskell, who retired from the Board in December 2012. In turn we welcome Bill Galvin, Paul Marsh, Peter Phippen and Enid Rowlands. The burden carried by

Antony Townsend and his Senior Management Team is great; they are immensely dedicated to the achievement of our objectives. Our other colleagues have embraced our change programme and the move to our new headquarters building in central Birmingham. On behalf of the Board and the wider community I thank them all.

Charles Plant

Chair

Message from the Chief Executive

Consolidation, learning, and engagement

In periods of intense strategic change - and the legal sector has seen more of such change in the past five years than at any time in living memory - it is easy to be distracted from the day-to-day work without which grand reforms are doomed to failure. It is for that reason that our Annual Report begins with a section entitled "Business as usual".

daily mechanics of renewing firms' and individuals' registration, answering telephone calls from the public and the profession, undertaking painstaking investigations into possible misdoings, pursuing the unethical to the Solicitors Disciplinary Tribunal and sometimes through the courts - our work to protect the public and improve regulation would founder. The statistics in this section show the considerable volume of work involved - work which we accomplished while reducing our operating costs.

In the midst of all this, we undertook intensive engagement with those who are concerned with our work: with consumers, to gain their views on what matters to them in obtaining legal services, and how we could empower them further; and with the profession, not only in developing our policies and the reduction of red tape but also to find out how we could make their work easier, particularly in respect of our online services which had caused serious problems in 2011. As a result of this engagement, we have significantly improved our delivery: the information we provide to consumers has been developed, and the delivery of our online services went much more smoothly in 2012. Unnecessary regulations are being removed.

In 2012 we had our first full year of operating the new, principles-based and outcomes-focused Code of Conduct, and we required all firms to nominate compliance officers to help them, and us, manage risks better. The publication of our Risk Framework was a further step in building a wider understanding of our approach, and to encourage co-operative work with law firms. The full fruit of this work has yet to mature - it will take several years - but there are encouraging early signs that those we regulate now have a fuller understanding of the new regulatory approach, and that our activity is beginning to move away from an emphasis on formal disciplinary measures to proactive measures to improve services and manage risk.

2012 was also the first year in which we licensed the new kinds of law firms, Alternative Business Structures (ABSs), with 72 licensed by the end of the year. There was criticism that our processes were too slow and bureaucratic, while others worried that we were not being sufficiently rigorous in dealing with the risks posed by ABSs. As a result of our learning in the first few months of licensing, we have developed new procedures to help us speed up routine applications so we can concentrate upon the more complex ones.

We achieved the move of our staff from two offices in Leamington Spa and Redditch to a single office in central Birmingham. This was achieved on time, and to budget, with minimal problems. The benefits of a single office in terms of communication and efficiency, and the improved pool of people from whom to recruit, are already paying dividends.

There is still some way to go, both in maturing our regulatory approach and in improving our operational effectiveness in certain areas. Better IT and performance indicators are in development to continue our improvements. But the SRA is well positioned in having developed its regulatory arrangements further than any other organisation in the sector. This will help us, working with those we regulate, to manage the risks in a volatile environment, and so to serve the public.

As I prepare to leave the SRA after seven years, I record my thanks to all my colleagues, to Board members, and to the many people in consumer groups, the profession and others who have worked with us to achieve these changes.

Antony Townsend

Chief Executive

Business as usual: performance tables

Regulating in the public interest is the SRA's key priority. The day-to-day business of regulation spans a wide-ranging spectrum of activities, together they ensure that we are able to protect the public and oversee the operation of competent and ethical legal services in England and Wales.

The following tables provide an overview of the SRA's regulatory performance in 2012.

Regular updates on SRA performance can be found in the quarterly regulatory outcomes report.

The Profession

  2012 2011
Number of Practising Certificate holders at 31 Dec 2012 128,419 125,718
Number of solicitors on the roll at 31 Dec 2012 164,181 163,259
Number of Registered Foreign Lawyers (RFLs) at 31 Dec 2012 1,978 1742
Number of Registered European Lawyers (RELs) at 31 Dec 2012 393 317
Total number of solicitors' firms as at 31 Dec 2012    
Sole practitioners 3,351 3,534
Partnerships 2,943 3,233
LLPs 1,539 1,495
Incorporated company 2,901 2,636
Other 158 155
Number of new firms 869  
Number of firms that closed 397  

Alternative Business Structure (ABS) applications summary

The SRA became a licensing authority for ABSs on 23 December 2011 and began receiving applications on 3 January 2012.

Figures for 2012  
Number granted 72
– of which granted with conditions 5
– of which granted without conditions 67

Number of calls received by the Ethics Guidance helpline

The Ethics Guidance team answers calls concerning professional ethics issues.

In 2012 they received a total of 48,399 calls.

The most popular topics were:

  1. Practice Framework
  2. Accounts Rules and
  3. Practising Certificates

Number of calls received by the Contact Centre

The Contact Centre is the first point of contact for general queries. In 2012 it received 370,586 calls.

During the 2012 PC renewals period, when call numbers were high, call-handling company Respondez was contracted to support the Contact Centre. From January – December 2012, it received 149,667 calls. These calls are in addition to Contact Centre totals.

Risk assessments

In 2012 the Riak Centre Assessment Team carried out 10,496 risk assessments.

Priority is assessed by a 'traffic light' system:

  • Reports rated no risk 1,525 (15%)
  • Green, low risk 4,952 (47%)
  • Amber, medium risk 2,402 (23%)
  • Red, high risk 1,615 (15%)

Casework investigations

On 30 June 2012, the Continuity Unit ceased to exist. After this date, all matters were dealt with within the Supervision directorate. The table below provides a summary of outcomes for investigations that were closed in 2012.

Outcome category 12 months to Dec 12
Allegation upheld 489
*Letter of advice 315
*Findings and warnings 38
*Rebuke/reprimands 32
*Fine 3
**SDT referral 119
Added to existing disciplinary proceedings 32
Ongoing other action 1254
No regulatory action required 4395
Total 6289

* The four categories listed are some of the more common courses of regulatory action that may be taken in an investigation. It is also possible for multiple actions to be taken on one file. The total of these three categories therefore, do not necessarily add up to the number of investigations upheld.

** The number of matters with the outcome of 'SDT referral' will exceed the number of actual tribunal cases, as an individual may be investigated under several conduct regulatory file references.

Forensic investigations

The Forensic Investigations Unit carries out targeted investigations of firms after being commissioned by Supervision. The table below compares the number of accounts inspections conducted by the Intelligence and Investigations Unit in 2011 and 2012.

  12 months to Dec 12 12 months to Dec 11
New investigations authorised 530 490
Investigations concluded 521 442
Rescinded/other 9 48

Interventions

We will only intervene to close down a firm as a last resort, if it is in the public interest to do so. The majority of interventions are into practices run by a sole practitioner. In cases where the intervention is not into a sole practice then typically all partners within the firm will be subject to the intervention.

  12 months to Dec 12 12 months to Dec 11
Number of interventions 37 62
– of which: Suspected dishonesty 9 12
Non-dishonesty 28 50
– of which: Firm only N/A 1
Individual(s) 0 0
Sole practice 31 52
2-5 partner firm 5 10
Most common grounds for intervention
(many interventions take place for several different reasons so may have multiple grounds)
2012 2011
No % No %
Protect the interests of client/ beneficiary 26 100% 45 73%
Accounts Rule breaches 17 46% 31 50%
Code breaches 16 43% 30 48%
Reason to suspect dishonesty 9 24% 12 19%
Bankrupt/insolvency of LLP 8 22% 11 18%

Claims management

The Claims Management Unit handles applications for grants from the Compensation Fund from people who have suffered financial loss due to a solicitor's dishonesty or failure to account for monies received.

  2012
Number of new claims 1321
Total amount claimed £31.56m
£ paid out £18.54m
New claims received by reason  
General client money 576
Counsel fees 43
Mortgage fraud 131
Experts' fees 70
Probate 137
Stamp Duty Land Tax 171
Retention 39
Unredeemed mortgage 21
Gross overcharging 3
Other*/unspecified 130

A large proportion of claims categorised as 'other' would be those relating to non-barrister professional fees.

Solicitors Disciplinary Tribunal Orders

The SDT has the power to strike a solicitor from the roll, suspend a solicitor from practice and to apply fines and reprimands. The table below compares SDT orders made in 2012 with those made in 2011.

  12 months to Dec 2012 12 months to Dec 2011
Fined 94 108
Struck off 77 60
Suspended 56 54
No order 7 11
Reprimand 23 16
Other 32 37
Total 289 286

Staff numbers

As at 31 December 2012, the SRA had 491 full time equivalent (FTE) permanent employees. In addition, there were 41 FTE fixed term temporary employees and 81 FTE agency and contractor staff.

Staff turnover for the 12 months to December 2012 stood at 9.24%. The staff turnover calculation is based on the number of staff leaving voluntarily in the previous 12 months as a proportion of average headcount during the same period.

Staff turnover – rolling 12 months

Staff turnover – rolling 12 months  

Financial Review 2012

Overview

SRA net expenditure in 2012 was £56.8 million. This represents a drop of £11.4 million on last year's total, of £68.2 million.

This fall is largely accounted for by the reduction in the SRA's contribution towards the Law Society Group's Organisation Services, which provides support services to both the SRA and The Law Society.

Results explained

In the year ending 31 December 2012, direct expenditure was £45.7m, compared to £44.2m in 2011.

The SRA shares a range of services – IT, finance, HR and facilities – with the Law Society, which results in an Organisation Services charge. In 2012, the SRA's charge fell to £24.9m, compared to £44.9m in 2011.

This significant reduction is mainly due to costs incurred last year for the SRA's Enabling Programme, which delivered an improved IT system to make it possible for us to begin delivery of online application processes. There was also a reduction in this charge as a result of a change in the company pension scheme and VAT costs no longer being reported centrally.

Adding direct expenditure to our organisation services costs, total expenditure was £70.6m compared with £89.1m the preceding year.

Money recovered

The Solicitors Act 1974 allows the SRA to recover from the Compensation Fund payment of all costs, charges and expenses for managing and administering the fund. £4.5m was, therefore, re-charged to the Compensation Fund in 2012.

The SRA has the authority to recover the costs of its legal fees for Solicitors Disciplinary Tribunal (SDT) hearings, interventions and other costs orders. In 2012 we recovered £3.1m.

Adding this to recoveries from the Compensation Fund, the total recovered was £7.6m. This is less than last year due to a change in Compensation Fund recoveries policy.

Regulatory income for 2012 was £6.2m, compared to £6.3m in 2011.

The total cost of regulation explained

The total cost of regulation of £56.8m is arrived at by deducting total recoveries £7.6m and total regulatory income £6.2m from direct expenditure £45.7m and adding back the cost of Organisational Services, £24.9m.

Expenditure £m 2011 2012 Variance B / (W)
Staff costs 26.1 25.4 0.7
Staff travel & subsistence 1.1 1.0 0.1
Board, adjudicator & other expenses 1.1 1.0 0.1
Professional & legal fees 15.1 14.0 1.1
Other admin costs 0.8 1.3 (0.5)
VAT 0.0 3.0 (3.0)
Expenditure 44.2 45.7 (1.5)
Expenditure £m 2011 2012 Variance B / (W)
Exam & legal practice course fees 1.5 1.5 0.0
Admission & enrolment fees 1.4 1.9 0.5
Registration & transfer of articles 0.4 0.5 0.1
Other income 3.0 2.2 (0.8)
Total income 6.3 6.2 (0.1)
Net position excl recoveries 37.9 39.5 (1.6)
Legal fee recoveries 3.8 3.1 (0.7)
Compensation fund recoveries 10.8 4.5 (6.3)
Total recoveries 14.6 7.6 (7.0)
Total SRA net position 23.3 31.9 (8.6)
Organisation services costs 44.9 24.9 20.0
Total SRA 68.2 56.8 11.4

Reaching milestones

Developing risk-based regulation

As a risk-based and outcomes-focused regulator, we must identify the greatest risks to our ability to perform our role effectively – and to be working actively to mitigate these risks.

The public, rightly, expects us to focus our resources on the individuals and firms we regulate that are most likely to harm the interests of consumers of legal services, and to act promptly and effectively when risks are identified.

Those we regulate also expect us to operate proportionately, concentrating upon the issues that matter most and not wasting our time – and theirs – on those issues likely to have little impact.

Implementing risk-based regulation is being achieved incrementally and we have been working towards this since we announced plans to launch OFR in 2010.

The Risk Assessment Team, which sits within the Risk Centre, is the primary gateway for the receipt of regulatory information other than confidential intelligence. In 2012 the team carried out nearly 10,500 risk assessments resulting from information received.

In December, the launch of the Regulatory Risk Framework and Index, which explains our approach to risk management and is central to the way in which we operate risk-based regulation, marked another milestone towards becoming a fully risk-based regulator.

This approach combines risk identification, management and governance. The Regulatory Risk Index sets out the risks that we manage under the Risk Framework. The Index is a living document which provides a common language and structure for risk information that will flex to incorporate new risks as they are identified. All our regulatory activities are aligned to this central index.

Crucial to successful implementation of the approach is embedding an organisational culture in which adopting a risk-based approach to all our activity is 'business as usual'.

Work is well under way and a major change management programme, R-view, is managing the organisation's continued development. Ensuring appropriate regulatory and behavioural skills will be a key part of R-view, as will further investment in new IT systems to streamline working processes and significantly improve information management across the SRA.

Some of the most significant milestones we reached in 2012, using the new approach, follow.

Licensing alternative business structures (ABSs)

One of the most far-reaching changes brought about by the Legal Services Act 2007 was to make it possible for the first time for non-lawyers to own and manage businesses providing reserved legal activities, and to combine legal and other services in one business.

The SRA was designated a licensing authority by Parliament in December 2011, after nearly two years of intensive preparation. Shortly after, on 3 January 2012, we started accepting the first applications and, on 28 March, we announced the licensing of the first three ABSs. These were: Co-op Legal Services, part of the Co-operative Group; Oxfordshire-based solicitors practice John Welch and Stammers; and Lawbridge Solicitors in Kent, which has just one solicitor/fee earner. The then Justice Minister, Jonathan Djanogly, described it as "a huge milestone for UK legal services".

By the end of the year, 72 ABSs had been licensed, ranging in size and scope from complex multi-licence entities to husband and wife ventures, demonstrating the enormous scope for innovation within the new parameters for legal services businesses.

They included:

  • Irwin Mitchell was the largest law firm to become an ABS, and the first multi-licence application to be endorsed, with five different entities approved within the Irwin Mitchell Group.
  • Parabis Law became the first ABS with private equity investment.
  • NewLaw Legal was the first Legal Disciplinary Practice (LDP) to be licensed and the first ABS in Wales.
  • Brand extension company Quindell was one of the first companies to take advantage of ABS licensing to expand its business, using its new status to enable it to set up an end-to-end outsourced claims business.

Chief Executive Antony Townsend said: "ABS applicants have proved to be highly innovative and forward thinking, whether they are existing legal bodies taking external investment to grow successful business models, proposing to grow by acquisition or creating joint ventures, or entirely new entrants to the legal services market wanting to take market share in areas of law traditionally serviced purely by all-lawyer firms."

As a regulator, the SRA has to strike the right balance between appropriate rigour and not constricting the market, but through the year the pace of processing applications speeded up as we gained vital experience of administering the licensing process and revised the guidance to applicants. The system for authorising applicants has subsequently been streamlined considerably as we refined our approach to risk management, significantly reducing the time taken to process applications.

The implications of opening up the legal services market in this way are immense and our work is already enabling change and innovation in the legal services market and the way in which legal services are provided to the public. The Authority will continue to play a fundamental role in licensing new entrants and ensuring that protecting the public remains our key priority, while encouraging innovative new business models which can provide consumers with high-quality legal services at competitive prices.

Introducing COLPs and COFAs

A crucial step towards embedding effective risk-based regulation has been the introduction of compliance officers. In 2012 each firm or entity regulated by the SRA was required to nominate individuals for these roles by 31 July, for approval by 31 December.

Compliance Officers for Legal Practice (COLPs) and Finance and Administration (COFAs) act as guardians of risk within their individual firms, ensuring that each firm takes responsibility for adopting a professional and ethical approach to the delivery of legal services, while also meeting regulatory obligations. Executive Director Samantha Barrass described them as "a critical foundation for outcomes-focused regulation".

Encouragingly, more than 90% of the 11,000 or so firms required to nominate for these roles, did so before the deadline. Despite repeated reminders, a small percentage failed to co-operate, putting them at risk of breaching their licence conditions or practising regulations and subsequent enforcement action. As the 31 December deadline approached, the SRA expanded the authorisation team significantly and launched a concerted campaign to ensure as many firms as possible had their compliance officers in place. On 1 January 2013, the day COLPs and COFAs officially took up their roles, 8,800 firms had met the criteria.

Samantha Barrass reflected: "The importance of having the right people in place in these key compliance roles cannot be overestimated and we are pleased at the high levels of co-operation we received from the great majority of firms."

The approvals process continued into 2013. Where there were no officers in place, due to a firm's lack of co-operation, the SRA made it clear it would consider revoking their authorisation.

A new approach to engaging with firms

Developing a mutually respectful relationship with the firms we regulate, and being confident that they will deliver legal services in the way which best suits their clients, while meeting their regulatory requirements, is fundamental to effective outcomes-focused regulation.

In 2012 significant progress was made in refining the way in which the SRA performs its supervisory role. This is characterised by more active engagement with firms, while tailoring resources to provide the most intensive oversight where it is most needed.

As a risk-based regulator, the SRA must ensure that we have the closest contact with those firms which present the highest risk. This is essential to ensure we protect the public and promote public confidence in the profession.

In 2012, the Regulatory Management team (formerly the Relationship Management Team) was expanded. More than 200 firms now have a dedicated regulatory management team, providing oversight and guidance when it is required. These firms have been carefully selected for closer supervision not because we believe that there is a high likelihood of risks arising in these firms, but in recognition that if risks did crystallise, the impact on the regulatory objectives would be considerable. Firms are selected for regulatory management based on a combination of their size, whether they hold client money, and the types of client they work for.

SRA Regulatory Managers have a wide blend of skills and experience. Their backgrounds include the legal, financial and regulatory sectors, among others. Feedback from those firms which have dedicated Regulatory Managers is that the arrangement has proved invaluable in providing an informed source of reference and guidance.

In addition to regulatory management, just under 3,000 firms have a named supervisor, who provides advice and guidance on forthcoming regulatory requirements and best practice, through a combination of desk-based supervision and visits. A pilot study, carried out between January and September on medium to low impact firms, revealed overwhelmingly positive feedback from the profession. Firms clearly believed that constructive engagement helped them to identify and tackle risks, leading to a positive impact on their overall risk levels. Phillip Horn of Plainlaw said of his experience in dealing with the SRA: "I would describe the SRA in its new role… as FFF (Firm, Fair and Friendly)."

Maintaining high standards across the profession

Legal Education and Training Review

The Warwick University-based research team, led by Professor Julian Webb, continued work on the Legal Education and Training Review throughout 2012. The review represents the most fundamental consideration of legal education and training for a generation. It was commissioned by the SRA, Bar Standards Board (BSB) and ILEX Professional Standards (IPS).

A two-day symposium, organised in July 2012 by the SRA on behalf of the three regulators, attracted a wide range of attendees and contributions.

The research report has now been published, and the SRA is taking forward proposals to ensure legal education and training of tomorrow's solicitors equips them to practise within the new – and rapidly changing – legal services market. It expects to publish a policy statement in the autumn.

QASA

More than 10,000 solicitors across England and Wales completed the SRA's notification process, as the first step to becoming registered to be a criminal advocate in the new Quality Assurance Scheme for Advocates (QASA). The scheme will provide a route by which all advocates, regardless of their prior education and training and professional qualifications, will be assessed against a common set of standards. It is being introduced jointly by the SRA, BSB and IPS. The first phase of the scheme will be launched in the Midlands and South-West circuits in September.

Minimum salary for trainees

Following a consultation and considerable consideration and discussion, the Board agreed to remove the minimum salary for trainees at its meeting in July.

The minimum salary was first introduced in 1982. At that time there was no national minimum wage. Executive Director Samantha Barrass said: "There is no clear evidence that setting a minimum standard fulfils any of the Legal Services Act's regulatory objectives. We do not regulate prices or rates of pay in any other area of work." The changes will come into effect in August 2014.

Protecting the public and public confidence

When solicitors and firms do not comply with the regulatory requirements it not only affects their clients, it can also undermine the confidence the public has in the legal system, and lead to payments out of the Compensation Fund, which the profession and firms pay for. The SRA must, therefore, strike the right balance in the way in which it enforces compliance with regulatory requirements.

Operating an outcomes-focused approach to regulation means identifying and focusing on the big issues and not wasting valuable resources on things which will have little impact. Our approach to managing compliance with regulatory requirements is characterised by proportionate action. We expect those we regulate to understand what is expected of them and to act responsibly. Where breaches of the regulations appear to be substantial we will take appropriate enforcement action. We will not spend time acting upon trivial failures to follow the rules. In Chief Executive Antony Townsend's words: "We are focused on helping firms to take responsibility for delivery of competent and ethical legal services, we are not interested in beating them with a stick unnecessarily."

The move to central Birmingham provided the opportunity to recruit additional, experienced legal professionals. This has enabled us to strengthen our in-house team and cut our operating costs by reducing our reliance on external providers.

View the SRA Enforcement Strategy in full.

Key investigations

Solicitor suspended over copyright infringement threats

Solicitor Andrew Crossley was suspended from practising for two years and ordered to pay more than £76,000 in costs, in a Solicitors Disciplinary Tribunal (SDT) hearing arising from threats of court action against people accused of infringing copyright.

The founder and sole principal at London firm ACS:Law was referred to the SDT by the SRA over his action on behalf of his client, Media CAT, in sending thousands of letters to people, accusing them of unlawfully downloading media on 'peer to peer' web networks. The letters threatened court action if the recipients did not make payments of around £500 to settle claims of alleged copyright infringement.

Executive Director David Middleton commented: "This decision followed a lengthy and complex investigation by SRA staff. Some of those affected were vulnerable members of the public and this matter caused them significant distress."

SDT fines firm £50,000

London-based firm Fuglers was fined £50,000 by the SDT, after it was found it had made its client account available as a banking facility for Portsmouth FC, following the serving of a winding-up petition.

The firm became involved when the football club had its banking facilities withdrawn because the winding-up petition made payments out of the club's bank account potentially void. Though Portsmouth's bank was not willing to provide facilities in such circumstances, Fuglers had decided to act as a bank.

The use of Fuglers' client account as Portsmouth's bank account was discovered during a routine inspection in November 2010.

SRA welcomes Court of Appeal's confirmation

The SRA welcomed a Court of Appeal judgement that confirms proven dishonesty by a solicitor almost invariably results in striking off.

It appealed a decision by the SDT to fine solicitor Anthony Dennison £20,000, rather than striking him off, even though it had found him to have acted dishonestly. The High Court agreed with the SRA and ordered that Mr Dennison be struck off.

Mr Dennison had an interest in a company called Legal Reports Services Limited, which acted as an intermediary for obtaining expert evidence for claims handled by solicitors on the panel of the Accident Group, which included his own firm. The Group collapsed in 2003 and Mr Dennison sold his shares in February 2004, but did not disclose to his former partners or the SRA that he had held an interest in LRS until July 2007. The Tribunal found he had acted dishonestly.

Interventions

The SRA can intervene into (in effect, take control of and close) a practice, but it will only do so when it is necessary to protect the public interest and client money. While it will act swiftly where there is evidence of dishonesty, it is always a last resort where firms are encountering financial difficulties.

ABC Ltd

In one of the largest interventions of the year, the SRA intervened into the Bristol firm ABC Limited on the grounds it had entered into administration and that there were breaches of the Solicitors Accounts Rules. The firm admitted a cash shortage on the client account of just under £200,000. When the books were reviewed by the SRA, the cash shortage was shown to be over £230,000, resulting partly from transfers from client to office account to pay staff wages. The SRA took possession of the practice, which had four separate offices. While the firm had taken steps to wind down before and after administration, it remained a sizeable practice with over 800 live files, and 1,700 wills and deeds. There was still £4 million client money held and extensive archived files to be taken possession of.

M & Co

The SRA intervened into London-based M & Co for failure to comply with the SRA Practice Framework Rules 2011. The partners had purportedly resigned but high volumes of mainly immigration work continued from the firm's office. Initially the SRA was unable to gain access to the premises, so had to apply for a court order. During follow-up enquiries, the SRA subsequently received anonymous deliveries of files which had been removed from the offices prior to intervention. The SRA took possession of over 1,800 live client files.

Bogus firms

Setting up a bogus firm has become increasingly easy with the expansion of the internet and its use in everyday life. For the public, using a fake firm can present real risks as these firms are not regulated by the SRA – and therefore we cannot pay compensation if there are failings in the service they provide.

Since September 2012 we have issued alerts immediately if we become aware that a firm is fraudulently advertising its services. Guidance and a video are also available on the consumer pages of our website, to help the public ensure the law firm they choose is genuine.

Developing policies which support our regulatory approach

The SRA is regulating within the most rapidly changing legal services environment in living memory. We must continually review and monitor existing policies, as well as look ahead at emerging issues and trends, to ensure we can continue to regulate effectively.

Sometimes new policies or changes to existing policies are brought about by legislative changes, over which the SRA has no control. The most striking example of this was the Government's announcement in 2012 that it planned to ban the payment of referral fees in personal injury cases from April 2013.

Referral fees

Aware of the Government's intention to ask regulators to 'police' the ban on referral fees in personal injury cases, rather than make it a criminal offence, the SRA adopted a proactive and consultative approach to agreeing how it could be operated effectively. In January 2012, we held a round table at which regulators, claims management firms and other interested parties discussed the implications. The enormous interest in the issue was apparent from the high attendance and enthusiastic debate. This was followed by publication of a discussion paper and consultation on the issues. A resulting decision to amend the mandatory outcomes within the existing code of conduct resulted in the necessity to amend the Handbook. The ban and the Handbook changes came into force in April 2013.

Financial protection

Clients need to be certain that the solicitors they choose to work for them are covered by insurance, in the unlikely event that things should go wrong. Since 2000, firms unable to obtain professional indemnity insurance elsewhere have been able to enter the Assigned Risks Pool (ARP). This was financed by insurers offering PII policies to firms and meant that costs were inevitably passed on to the profession. This became increasingly unsustainable, so the SRA launched a Financial Protection Policy heralding a three-year wind-down of the ARP from 2011. In 2012, this entered the second phase and will mean the closure of the ARP in October 2013. The measures have been put in place to further protect clients and to increase the competitiveness of the market for firms wishing to obtain PII.

In October 2012 only 28 firms applied for entry to the pool – almost half that of the previous year, when 53 firms applied. This marks a significant improvement in the position of the ARP since the SRA announced its far-reaching reform of the system for compulsory PII. In 2010, the number of firms had risen ten-fold in three years, to 298, with the annual cost of claims reaching £50 million.

Will-writing and other reserved activities

The SRA made public its view that all legal activities should be reserved, in order to provide the best protection for both consumers of legal services and the public, in response to the Legal Services Board's consultation on will-writing and estate administration, published in 2011. In April 2012 it provided an opportunity for vigorous debate on the issue, when it staged a one-day symposium to discuss the future scope of regulation. The event featured 15 panellists, including Lord Falconer, the minister responsible for the Legal Services Bill, who presented a lively range of views.

In the same month the Legal Services Board announced its intention to recommend expanding the scope of regulation by making will-writing a reserved legal activity. The SRA supported the proposal and planned to apply for authorisation to regulate will-writing if the recommendation was adopted by the Government. However, in May 2013, the Government announced that it was turning down the recommendation as it was not convinced that making will-writing a reserved activity would better protect consumers.

Compensation Fund review

In September 2012 the SRA launched a two-year review of compulsory compensation arrangements. This aims to consider whether existing arrangements provided effective protection for consumers of legal services, and are proportionate and well-targeted.

At present the SRA delivers safeguards for client money through a single compensation fund. The review will consider whether this continues to be the most appropriate approach in light of the provisions of the LSA 2007, and the rapidly evolving legal services market. The review will be published in the second half of 2014.

Protecting consumers

Two key priorities for Consumer Affairs during 2012 were consumer education and engagement. Much of this work is ongoing but there were some notable achievements as a start to this process.

The SRA published a landmark report into the experiences of people who are deaf or hard of hearing accessing legal services, in conjunction with the Legal Services Consumer Panel and the national charity Action on Hearing Loss. As a result, working with the Law Society, a Practice Note was published in 2012 to help solicitors access practical information about the needs of deaf people and those who are hard of hearing; and the LSCP produced a factsheet setting out some practical tips for advice providers.

We also took the lead in developing proposals for the Legal Choices website to provide a more user-friendly guide for the public on how to access and use legal services. This will be launched in the autumn of 2013.

Ensuring fairness

In May, the SRA announced a raft of measures, including a review of individual cases, as part of its commitment to being fair, proportionate and transparent in the way in which it makes its regulatory decisions.

Following further discussion with stakeholders, including the External Implementation Group (EIG), which advises the SRA on diversity issues, it was agreed to expand the review's remit to enable it to look at a wide range of cases and compare outcomes for BME and white solicitors.

Professor Gus John, an academic and expert in equality and race relations issues, was commissioned to conduct the review. His report will be published in the autumn.

International regulation

The legal services market is increasingly transcending national boundaries to expand into other jurisdictions. In 2011 the SRA recognised that, in order to ensure it remains able to regulate effectively in the public interest, it needed to look in detail at the international dimension of its activities. A consultation paper on the international challenges we face and the actions proposed to respond to these, closed in February 2012 and provided the basis for further exploratory work on how the SRA should apply its Handbook to international practice.

In September the SRA organised a two-day event in London to debate the challenges of regulating legal services across international boundaries. More than 100 people, representing 28 different regulators from 25 jurisdictions and four continents, attended the International Conference of Legal Regulators – the first event of its kind to provide an opportunity to share thoughts and ideas with colleagues internationally. Attendees enthusiastically welcomed the opportunity to share ideas and best practice.

The inspiration for the event came from initial discussions with the SRA and other regulators from Australia, Canada, the US and others. As a result, the forum has now become a regular event, being held in San Francisco in 2013.

In December, we launched a further consultation to canvass views on proposals to introduce a new Handbook chapter. This will deal specifically with international regulation and a new outcome in Chapter 7 of the Code to apply to firms in England and Wales undertaking business overseas through their own offices, or connected practices with which they have managerial and financial interdependencies. The approach and subsequent Handbook amendments will be finalised in 2013.

Improving our working environment and systems

Moving to a single site

In October 2012, the SRA was able to complete its long-awaited move to a single site in the centre of Birmingham. Our headquarters are now based in The Cube, in the city's Mailbox, although we still retain our small City offices in London.

The move, in addition to generating cost benefits, will be instrumental in cementing a 'one-team' approach to our regulatory activities, ensuring staff can work closely together in the most effective way possible. Staff were previously based at sites in Redditch and Leamington Spa, which made achieving integrated working relationships across the organisation challenging.

Our new offices were officially opened in November, by the Lord Chief Justice, at a reception attended by more than 100 guests. Chair Charles Plant described it as a "truly definitive step in the transformation of the SRA".

The new site, in Britain's second city, also means we are more accessible to the public and all those we regulate, as transport links are excellent.

Behind the scenes

During 2012, considerable progress was made in improving governance arrangements and management of the vital support services we share with The Law Society (TLS).

Business and Oversight Board

In February, the newly-formed Business and Oversight Board (BOB) met for the first time.

BOB's role is to oversee the delivery of shared services to both organisations and to advise The Law Society Council on oversight of the SRA.

Chief Executive Antony Townsend welcomed the new board, describing it as: "strengthening working relationships between the SRA and TLS, while ensuring we retain the independence that is crucial to us performing our role as an independent regulator".

The new board comprises 11 members; four each from both the SRA and TLS, plus three independent members.

Organisation Services

As part of the changes to governance arrangements which saw the introduction of BOB, the way in which shared services are provided to the SRA and the Law Society was restructured to improve efficiency. Organisation Services (now called Corporate Solutions) provides IT, HR, finance, procurement and facilities services across The Law Society Group. It is led by Alan Vallance, as Group Chief Operating Officer, who reports to the BOB.

PC renewals and other online application processes

The 2012 round of practising certificate renewals was launched on 1 November, after extensive work was carried out to improve and streamline the process. Engaging with the profession to find out what enhancements would make the process easier for them was key to our approach, following the difficulties experienced during the first round of online renewals earlier in the year.

Throughout the summer and autumn we organised engagement events, sought views on the wording of questions and demonstrated the revised online system to a wide range of individuals. We also held sessions to ensure applications were more user-friendly, and provided detailed information in advance to those responsible for completing applications.

Considerable work was also done to streamline and stabilise the online portal mySRA, to ensure it would support completion and submission of applications effectively once it went live.

As a result, the process ran much more smoothly. A total of 26,764 bulk and single applications were submitted by the 14 December deadline, out of an estimated 32,611. Of the 6,000 or so applications not submitted, around 1,500 were underway.

Alan Vallance, who had overall responsibility for the project, concluded the organisation was "extremely" pleased with the way the second online renewals process had gone.

"While there were some minor issues, these were identified and resolved quickly. The relatively trouble free process this time around demonstrates that the extensive engagement work that we did with the profession earlier in the year paid dividends."

Those submitting applications consistently reported the system was easier to use and more stable, thanks to work undertaken by the project team to mitigate the slow running and other glitches reported during the original process.

A range of additional online applications have been rolled out during 2013, including the annual keeping of the roll exercise.

SRA Board Members at July 2013

SRA Board Members at July 2013

Reading from l – r: Martin Coleman, (Solicitor Member); Cindy Leslie, (Solicitor Member); Peter Duffy, (Lay Member); Moni Mannings, (Solicitor Member); Charles Plant, Chair, (Solicitor Member); Malcolm Nicholson, (Solicitor Member); Sara Natham OBE, (Lay member); Paul Marsh, (Solicitor Member); Professor Shamit Saggar (Lay Member)

Missing from the Board photo