Scope of this guidance
Where we have concerns that regulated individuals or firms are not complying with our rules, we investigate. We do this in two ways; either by a desk based investigation, or in some cases by visiting the offices of those we regulate to investigate on-site. Most of our investigations are desk based. In both cases, we will seek evidence and explanations from those we are investigating, and also where necessary from third parties. More information about our powers to require documents and information can be found in our guidance on gathering evidence.
This guidance is about how and when we decide to investigate on-site. We call these investigations 'inspections'. The guidance does not aim to cover every step taken during an inspection.
Inspections may take place parallel to, or in sequence with, other investigatory steps and often form part of a wider investigation.
This guidance should be read in the context of decision making at the SRA and other guidance documents. It is a living document and will be reviewed and updated as appropriate. It reflects our approach to our regulatory role, and any departure must be capable of justification on the individual facts of the case.
What factors might lead us to inspect?
When deciding whether it is necessary to inspect, we will take into account a range of factors which may include the following:
The seriousness of our concerns. We are able to carry out inspections with no notice or within a very short timescale. This allows us to quickly identify whether we need to investigate further, or take any urgent protective action, such as intervening (to seize documents or funds, or close a firm down), or restricting a solicitor's ability to practice.
This might arise where we have received reports of missing or stolen client funds, significant overcharging, failure to make payments when due, or fraudulent activity.
The amount of documents and materials for us to review. If the volumes are significant, an inspection may be the most efficient and proportionate use of our resources. For example, we may want to sample a number of client files to assess the scale of the potential breaches.
This might arise where:
- a solicitor is alleged to have been involved in fraudulent schemes, such as investment scams
- the allegations relate to a pattern of failures, for example, in property transactions, (such as failure to register a charge or a transfer) or immigration cases (such as facilitating unlawful applications).
Whether it is likely that we will need to look at electronic hardware on-site such as computers or other devices. This is more effectively achieved by an inspection than by using other powers available to us and causes less disruption to the firm concerned.
This might arise where we need to review computer records to verify the firm's accounting records.
Whether there is a risk that evidence may be destroyed, or those we are investigating might abscond if notified in advance of our concerns by us writing to them. In these circumstances we are likely to commence an inspection without notice.
This might arise where we suspect a firm is money laundering through their client account or involved in organised crime or financing terrorism.
The sensitivity or complexity of the issues: For example when this means that interviewing individuals will progress the investigation more effectively than seeking lengthy explanations in writing. This also may be because we need to test the credibility of a person's account or there are areas of ambiguity, which need to be carefully and sensitively explored.
This might arise where we need to assess the motivation of someone alleged to have been involved in a complex conflict, or the solicitor is alleged to have taken advantage of vulnerable clients or individuals.
Whether we need to look at the firm's accounting records which are often computer based or large and unmanageable.
This might arise where we have received complaints that the firm has not accounted to clients for money due to them and we want an in depth review of the firm's accounting systems.
One or more of the above factors may apply and we will consider in the round if an inspection is proportionate. In some cases it may be more timely and effective to investigate by corresponding with the firm or the individual concerned. This may be because we already have the evidence in our possession (for example, a client may have provided it to us with a complaint) or it can be easily obtained from the party concerned.
We receive three complaints from different firms of solicitors that another firm, Firm B, has breached undertakings given in the course of conveyancing transactions. The complaining firms supply all of the relevant documentation including the undertakings and their correspondence with Firm B about the failure to comply. Firm B has not replied to the firms despite them having chased several times.
In this case we have been provided with most of the evidence we require. We can ask for the firm’s COLP to explain to us in writing why the breaches arose and whether they have now been complied with. If the firm refuses, we can require the relevant information to be given. In all the circumstances it is therefore not necessary to inspect.
Do we give notice of our intention to inspect?
We usually tell those we regulate that we are due to carry out an inspection. We do this by writing to them before the inspection starts. However, sometimes we do not. This is usually where we think that doing so would:
- significantly increase the risk that those under investigation may destroy evidence, seek to influence witnesses, default, or abscond
- cause us to commit a criminal offence, such as a tipping off offence about possible money laundering
- otherwise prejudice or frustrate an investigation or prosecution by another body, or other regulatory action that we may wish to take.
Do we give reasons for an inspection?
When providing notification of an inspection we normally give a brief statement of the reasons. This helps maximise the transparency and fairness of our processes. It also assists those under investigation to respond constructively and can reduce the stress involved.
However, we may decide that it is not appropriate to give reasons for the inspection for the reasons set out above, or because to do so might:
- breach any duty of confidentiality
- disclose, or risk disclosing, a confidential source of information.
We do not delay our investigations by entering into lengthy discussions about the reasons given or the extent of the reasons given. The decision to investigate on site is ours. When we disclose the reason for the inspection, we do so by giving a brief statement which sets out at a high level our concerns.
When on-site, we are not restricted to investigating only those issues referred to in the reasons given. Not only is it common for additional issues to be identified during the course of an inspection, but there may be other, undisclosed, reasons for an investigation (as above).
Do we have a right of entry?
We do not have a right of entry into a place of business regulated by us. However, a failure to produce certain documents is a breach of Rule 31 of the SRA Accounts Rules 20111 and Principle 7 of the SRA Principles 2011, which requires firms and individuals to cooperate with us. It could lead to us taking regulatory action for a breach of our rules.
Where and how will we carry out an inspection?
We usually visit the main practice address. We may also visit branch addresses. We hold initial meetings with managers, owners or other individuals such as the firm's compliance officers. Usually only one person will conduct the inspection, but sometimes two people will attend. This happens where, for example, the inspection is particularly complex. We normally request information, documents and explanations (usually as part of an interview). Our inspection will continue until we are satisfied that we have gathered all the information we need. We may make an audio recordings of any interviews held. We understand that inspections are stressful for those involved and reasonable adjustments will be made if a person under investigation is unwell. For example, regular breaks may be provided if necessary.
What kind of documents do we look at?
When we inform a firm or individual of our intention to inspect, we ask them to prepare certain standard documents ready for our arrival. These generally relate to the firm's financial records such as books of accounts, bank statements, mandates and documents relating to the running of the firm such as management accounts, insurance documents and the firm's procedures. We usually look at client files where they are relevant to the issue we are investigating.
We do not take original documents away with us, but we must be provided with copies if we ask for them. The firm or individual must produce material kept electronically in the form we require. If necessary, they must obtain written permission for us to seek verification from clients, staff, banks, building societies and any other financial institutions.
In addition to the notice to inspect, we may in parallel require production of specific original documents or information by giving notice under s44B of the Solicitors Act 1974 or the equivalent under s93 of the Legal Services Act 2007.
What happens at the end of the inspection?
After each inspection we produce a report setting out what we have found. This may recommend further investigation steps are taken, or it may conclude that no action is required. Alternatively, it may recommend that we take regulatory action and, if so, it will set out the breaches alleged to have occurred and the supporting facts and evidence. This report will form part of the evidence gathered in support of our case. The firm will be provided with a copy of the report and have the opportunity of commenting on it.
- Rule 31.1 of the SRA Accounts Rules 2011 provides that firms and individuals have to produce documents and provide information to us, to allow us to prepare a report on compliance with the Accounts Rules. Principle 7 SRA Code of Conduct 2011 provides that firms and individuals have to comply with their regulatory obligations in an open, timely and co-operative manner.