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8/3/2019 Final the Firm Winter 2011.12
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WINTER 2011/12
A legal sector publication brought to you by Moore and Smalley Chartered Accountants and Business Advisors
Getting started with outcomes-focused regulation (OFR)On October 6, 2011 the Solicitors RegulationAuthority (SRA) released its new Handbook
which sets out the outcomes focus standards
and requirements that it expects the regulated
legal sector to follow. These regulations will
be relevant to solicitors and employees in all
legal firms regulated by the SRA but also to
new entrants such as non-lawyer managers
in alternative business structures, who too will
be governed by the Handbook.
Outcomes focused regulation (OFR) will be
a move away from the rigid rules which we
are used to operating under. It will allow yourfirm to create a more flexible approach to
achieving the right outcomes for your clients
by implementing more relevant systems and
procedures. OFR also aims to create a more
open relationship between the SRA and
your firm.
There are ten mandatory Principles in the
Handbook which are the basis for all the
detailed regulation. The Handbook defines
outcomes as the result that you are expected
to achieve in order to comply with these
Principles and they are mandatory.
In practice, there will be differences seen
in many firms’ approaches to compliance.
Two of the key issues will be:
1. Risk Management
The SRA will expect you to identify all the
risks which may impact on your firm. You
should manage those risks and mitigate
against significant ones. The SRA suggest you
look at the types of work you carry out for
your clients and whether any of this workmay pose a risk under the requirements of
the new Handbook. You should review your
current systems and procedures to evaluate
their effectiveness and relevance to your
clients, and implement changes if they do
not meet the new requirements.
2. Reporting Requirements
A Compliance Office for Legal Practice
(COLP) and a Compliance Officer for
Finance and Administration (COFA) should
be appointed by March 31, 2012 to monitor
your firm’s compliance with the new
Handbook and any relevant legal
requirements. The COLP will be responsible
for ensuring your firm complies with its
statutory obligations while the COFA willbe responsible for ensuring the firm, its
employees and managers comply with the
SRA Accounts Rules. All failings in compliance
should be documented and if necessary
reported to the SRA. Although the same
person can fulfil both the role of the COLP
Contact
Louise McDuff
Corporate manager
01772 821021
Terminate
Tolerate Transfer
Treat
The SRA will expect you to identify allthe risks which may impact your firm
and the COFA your firm should consider the
seniority of the individuals being appointed
for these roles as risk management is key.
If you would like further details about OFR
and how it will affect your firm please
contact me.
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What is Lexcel?
Lexcel is the Law Society’s practice
management standard. It has been
designed and written specifically for the
legal profession. It is a quality accreditation
awarded to practices that meet the highest
management and customer care standards.
Lexcel is an opportunity for any size of firm,
from sole practitioner to large national firms,
to review and possibly improve their internal
systems and procedures.
Practices wanting to obtain accreditation have
to make sure that their procedures and client
care are in line with the Lexcel criteria. Firms
are examined thoroughly by external Lexcel-
approved audit consultants before they get
the quality mark and once attained it is valid
for three years. Each subsequent year the
practice will undergo an independent
assessment to ensure that it continues to meet
the high standards.
Lexcel is a driver of competitive advantage for
any legal practice.
What are the benefits?
Improved client care
One of the Lexcel requirements is to havea client care policy in place which must deal
with how enquiries from potential clients
will be dealt with before taking on a client.
A potential new client should be assessed,
before engagement, to make sure that the
practice has sufficient resources and
competencies to fulfil its role.
Clients should be confident that they are
receiving the best level of service if they use
a Lexcel-accredited firm due to the
mandatory requirements which must be
maintained at all times.
Consistency of service
It is essential that legal practices are
providing services with a unified approach
to all clients across all departments and
branches. Consistency of services leads to
client satisfaction and possibly client loyalty
in the future.
Risk management
Effective risk management is essential for all
legal practices. But in the current economic
climate, the impact from a potential risk may
be magnified. There are more risks stemming
from competition in the market place and
clients are more fee conscious than ever
before.
Lexcel covers specific procedures for
assessing and managing risk within the
practice.
Regulatory compliance
The Lexcel standard requires firms to considerregulatory risk as part of the firm’s overall
risk management policy.
The implementation of this policy helps
to improve internal controls and ensure
compliance with the Solicitors Regulation
Authority Accounts Rules by using the
structured framework.
Lower insurance premiums
Lexcel requires firms to have a risk
management policy. This should minimise
the possibility of receiving complaints and
claims. Insurers view this favourably and in
most cases reduce professional indemnity
insurance premiums.
Increased profitability
Lexcel provides a framework to ensure the
business is run effectively and efficiently
which should result in increased profitability.
Practices are assessed on their financial
management techniques by a review of
annual budgets with monitoring and variance
analysis, annual profit and loss accounts,
annual balance sheet and annual cash flows.
Other areas which are monitored and play
a vital role in profitability are time recording
and billing. By monitoring all these areas,
good controls are maintained to improve
efficiencies.
Focusing on profitability allows a firm to
review its financial information critically,
leading to increased quality, reduction in
overheads and improved productivity.
Franchising
One of the new legal business models is
the national franchising of firms under a
common banner, such as Quality Solicitors.
Firms may be required to complete Lexcel
accreditation as part of the joining criteria
in a plan to achieve some standardisation
across the membership.
At Moore and Smalley, we believe in the
value that Lexcel gives practices and as such
our Professional Practices partner, Karen
Hain, has completed the Law Society trainingscheme to become a Lexcel consultant. Karen
has passed on her knowledge to the team,
who work closely with clients in pursuing
accreditation. If you would like more details
then please get in touch.
Lexcel Accreditation – the benefits
Practices are assessed on their financial management
techniques by a review of annual budgets
Contact
Rebekah Holt
Corporate manager
01772 [email protected]
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On October 6, 2011, the Solicitors Accounts
Rules 1998 were replaced by the SolicitorsRegulation Authority (SRA) Accounts Rules.
Here are some of the main changes:
Status of Rules and Guidance Notes
The new Accounts Rules form part of the
SRA Handbook, which also includes the
new Code of Conduct. The Guidance Notes
do not form part of the rules but are an
aid to compliance. The notes will clearly
distinguish when they are binding. Breaches
are reportable on failure to adhere to the
rules and not to the Guidance Notes.Rule 6: Duty to report – COFA
(Compliance Officer for Finance and
Administration)
• The SRA Authorisation Rules require all
firms to have a COFA. The responsibility
of the COFA is to ensure compliance
with the Accounts Rules by the Principals
themselves and by everyone employed
in the firm.
• The COFA must report any material
breaches of the Accounts Rules to the
SRA as soon as reasonably practical.
Rule 17: Receipt and transfer of costs
• Guidance note (viii) - Money is ‘earmarked’
for costs when the solicitor decides to use
funds already held in the client account to
settle the bill. If the solicitor needs to get client
approval of the bill before taking payment,
then they must agree the amount to be taken
with the client before actually issuing the bill.
This will ensure that there is no delay caused
while waiting for client acceptance, in
transferring funds out of the client account,
in order to meet the 14 day rule.
Rule 21: Authority to make withdrawals
from client account
• The prescriptive list of persons who may
sign for authority to withdraw funds from the
client account has been removed. Instead
it is a requirement that such authority is
provided by ‘an appropriate person in
accordance with the firm’s procedures for
signing on client account’. This means that
a person other than a qualified solicitor may
make withdrawals.
• Firms must put in place appropriate systems
and procedures for withdrawals out of a client
account, especially if they are expandingauthority to non-lawyers in the firm.
Rules 22 & 23: When interest must
be paid
• Interest must now be accounted to the client
when it is ‘fair and reasonable’ to do so.
The Rules however, do not state the
definition of ‘fair and reasonable’ and it
is therefore for the solicitor to interpret.
• The solicitor must have a written policy for
when interest is paid and it must be made
clear to the client at the engagement.
• The interest due to the client is calculatedover the whole period for which the money
is held.
• The £20 de minimis is no longer referred
to in the rules, the Guidance Notes state
that some firms may wish to apply a
de minimis amount, providing the amount
is reasonable and is reviewed regularly
in light of current interest rates.
Rule 29: Accounting records
• Any cash or cheques received on behalf
of a client which does not pass througha client account must still be included in
the accounting records as a receipt and
payment on behalf of the client. This
ensures that a full audit trail of transactions
is maintained.
• If client monies are held in a currency other
than sterling it must be held in a separate
account for the appropriate currency with
separate accounting records, and therefore
separate reconciliations.
Rule 29: Reconciliations and bank
statements
• The new rules state that every five weeks
all bank and building society passbook
accounts must be reconciled.
• A firm may use online accounting records.
However, they must be saved in a format
which cannot be altered. There are no
obligations to keep a hard copy but the
firm must be able to reproduce the
information reasonably quickly and in
printed form for at least six years.
• If online bank accounts are used then
the online statement must follow theprevious closing balance, with no gaps
in transactions.
If you have any questions about the changes
to the Solicitors Accounts Rules then please
do get in touch.
The £20de minimisis no longerreferred toin the rules
Contact
Sylvan Tait
Solicitors accounts rules specialist
01772 [email protected]
Solicitors AccountsRules changes from6 October 2011
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Alternative Business Structures
Your specialist team
Karen HainPartner
Rachel MarsdinTax partner
Sylvan TaitSolicitors accounts rules specialist
Rebekah HoltCorporate manager
Louise McDuffCorporate manager
Preston (head office): Richard House, 9 Winckley Square, Preston, Lancashire PR1 3HP Tel: 01772 821021
Blackpool: Tel: 01253 404404 Kendal: Tel: 01539 729727 Kirkby Lonsdale: Tel: 015242 71402
Lancaster: Tel: 01524 62801 Nottingham: Tel: 0115 972 1050 Central Fax: 01772 259441
www.mooreandsmalley.co.uk
Moore and Smalley LLP is a limited liability partnership registered in England and Wales: No. OC313896.
Registered office: Richard House, 9 Winckley Square, Preston, Lancashire PR1 3HP.
The term “partner” indicates a member of Moore and Smalley LLP who is not in partnership for the purposes of the Partnership Act 1890.
A list of members is available from our registered office.
Moore and Smalley LLP are registered to carry on audit work in the UK by the Institute of Chartered Accountants in England and Wales. Authorised and regulated by the Financial Services Authority.
An independent member of MHA, a national association of UK accountancy firms. UK member of Morison International with independent member firms worldwide.
Alternative Business Structures (ABSs) are a
new concept to legal practitioners. They will
allow, for the first time, external ‘non-lawyers’
to invest in businesses offering reserved legal
services and allow them also to share the
management and control of the business
with lawyers.
The SRA announced on December 8, 2011
that they will become a licensing body to
regulate ABSs from December 23, 2011.
A firm wishing to take a non-lawyer owner
will then have to go through the application
process with the SRA, and they will begin
accepting applications to set up ABSs from
January 3, 2012. The non-lawyer owner will
also have to pass a “suitability test” if they will
own more than 10 per cent of the business or
if they will be a day to day manager in the
business, with the SRA not simply accepting
anyone who applies. They have promised
criminal records bureau checks, financial
credit checks, professional regulatory checks
and the like, to ensure that integrity in the
professional firm is maintained.
If you are considering an ABS structure,
here are some practical issues to consider:
1. Firm structure
Although an ABS can be operated as a
partnership, an LLP or a limited company,
when considering external investment,
a review of the firm’s existing structure should
be carried out to ensure that it is appropriate
for an ABS model. The firm should consider
the perspective of an external investor
throughout this process to ensure it appearsattractive to them. The structure and
proposed owners of the ABS will
need to be disclosed on
application to the SRA.
2. Business plan
Any firm planning to apply to be
licensed as an ABS is also required to
disclose the firm’s business plan. This is
a great opportunity for smaller firms as
it will help them focus on their strategic
objectives. A good business plan evidences
strong management controls which are also
attractive to external investors.
3. Compliance
An external investor is also going to be
looking for a firm with good internal systems
and controls. When applying for a license as
an ABS a firm needs to ensure these systems
and controls are in place to support the
Compliance Officers within their roles. TheCompliance Officer for Legal Practice and
the Compliance Officer for Finance and
Administration will need to apply for the
position and be confirmed by the SRA by
March 31, 2012. They are required to
review the firm’s application to be licensed
as an ABS.
Those considering applying to become an
ABS should be using the next few months
wisely in order to protect themselves from the
anticipated increase in competition stemming
from an open legal market place.For further information about ABSs,
please do not hesitate to contact me.
Contact
Karen Hain
Partner
01772 821021
Any firm planning toapply to be licensed asan ABS is also requiredto disclose the firm’sbusiness plan
