www.cpm21.co.uk

Spring 2012

Welcome to the fifthedition of the Brief

LEXCEL 5 – Can youafford to put it offany longer?

How to play the blame game – the role of the COLp

COFA and Changes to SrA Accounts rules Uncovered

What is so difficult about Law Firm Compliance?

The BriEFessenTial news for legal professionals

in tHiS iSSUE:

02 03 04 05 06

Are you ready to spin the OFr wheel?

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The BriEF - spring 2012

october 2011 saw the arrival of outcomes focused regulation and the new sra handbook.

2012 will see those regulations bite. The theme of this edition is therefore compliance and risk management.

paul Jones takes a look at the role of the Colp and how the incumbent can avoid common pitfalls and perform the role effectively.

in order to meet the challenges of the new regulations, firms will find LEXCEL 5 and its risk management requirements a significant aid in ensuring SRA compliance and the ever rising bar of pre-requisites for indemnity insurance and Mortgagee Panel Membership. My article on LEXCEL 5 explains why it is a superior standard to the lsC’s sQM and why, i believe, it may soon effectively become a mandatory requirement for all solicitors firms and organisations offering legal services.

our guest columnist, huw Jones of peapod LegalOffice, tells us how an integrated

practice and Case Management system can assist with compliance.

finally, huw palin of BpU Chartered accountants provides some useful thoughts on the role of the Cofa.

i take this opportunity of welcoming enireth powell Davies, as a new associate adviser, to cpm21.

We hope you find this edition helpful in this time of significant legal sector regulatory change!

Welcome to the fifth edition of the Brief.

02 The BriEF - spring 2012

october 2011 saw the arrival of outcomes focused regulation and the new sra handbook. 2012 will see those regulations bite

Enireth powell-Davies – Associate Adviser & interim project Manager

enireth has over 20 years’ experience of managing small and large projects in private, public and voluntary sector organisations Including Solicitors’ offices and other professional services organisations.

legal@cpm21.co.uk

running the practice is more like walking the compliance tightrope than ever.

Meet the team:Wayne Williams LLB MBA – principal Adviser Was Managing Partner of a 3 Office Solicitors Practice. Over 10 years experience at Senior Management level with the legal services Commission. 4 years as head of legal services for multi national Business Consultancy. Member of wales law society Committee 2004 -2010

paul Jones – Senior Associate Adviser Over 12 years experience at Senior Management level for multi national corporations. 10 years experience as Business Performance Improvement Consultant across diverse industries and professions. 4 years as senior Management advisor in legal services Team for multi national Business Consultancy. frequent author of articles for legal news, new law Journal etc.

gary Barker - Associate AdviserGary Barker qualified as a solicitor in 1982 and has been in practice continuously since that date, save for a period of three years when he was head of practice Development at the law society in Chancery lane. gary has been Business Development partner in two high street general practices and both grew by more than 4000% during his time.

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LEXCEL 5 – Can you afford to put it off any longer? – How long before it’s mandatory?

SrA Mandatory Outcomes – Management of your Business7.1 you have a clear and effective governance structure and reporting lines;

7.2 you have effective systems and controls in place to achieve and comply with all the principles, rules and outcomes and other requirements of the handbook,

7.3 you identify, monitor and manage risks to compliance with all the principles, rules and outcomes and other requirements of the handbook, and take steps to address issues identified;

7.4 you maintain systems and controls for monitoring the financial stability of your firm and risks to money and assets entrusted to you by clients and others, and you take steps to address issues identified;

7.5 you comply with legislation applicable to your business, including anti-money laundering and data protection legislation;

7.6 you train individuals working in the firm to maintain a level of competence appropriate to their work and level of responsibility;

7.8 you have a system for supervising clients’ matters, to include the regular checking of the quality of work by suitably competent and experienced people;

Extract and summary of Chapter 7, SRA Handbook – October 2011 (Law Society Publishing)

The Legal Services Commission’s 2009 sQM is, other than in relation to the new equality & Diversity training requirements, a minor update of the 2003 edition.

its main defect, in 2012, is that, unlike LEXCEL, it contains few Risk Management provisions and thus, for example, would not particularly impress a professional indemnity insurer or sra relationship manager.

also, many of the requirements of the law society’s Conveyancing Quality Scheme (CQS) are more easily satisfied if you have LEXCEL accreditation, with the relevant quality systems and procedures in place.

finally and perhaps most importantly, LEXCEL 5 closely mirrors many of the requirements of the sra outcomes focused regulations.

This is illustrated by the following recent developments:

� The LSC will now accept LEXCEL in place of its own sQM quality standard � CQs has become a pre-requisite of joining the panel of some lenders � public sector tenders now often require LEXCEL as a Pre-Qualification to tendering � some networked high street brands are requiring their

members to become LEXCEL accredited � professional indemnity insurance companies are insisting on better risk management at renewal and it seems the arp will disappear in 2012

If none of these external forces persuades a firm that it would be wise not to delay LEXCEL anymore, then I am sure that as the responsibilities of the Colp and the Cofa begin to weigh upon them, those individuals will, no doubt, be pushing for the robust management disciplines that LEXCEL brings

Wayne Williams,principal Adviser, cpm21

LEXCEL 5 came into force on 1st January and becomes mandatory for new applications, from 1st July 2012.

it seems likely that LEXCEL will gradually become the norm and perhaps a pre-requisite of legal practice.

Meet the team:

www.cpm21.co.uk

The BriEF - spring 2012

The thing for any potential Colp to realise is that the sra monitors practices in terms of risk

04

How to win the “Blame game”in this article paul Jones, Senior Associate advisor at cpm21 talks about the new role of the Compliance Officer for Legal Practice (COLP) and how to avoid some common pitfalls.

Did you know the italian word “Colpa” means blame?

it may just be coincidence that the solicitors regulation authority decided on the acronym, but a lot of potential candidates for the profession will be nodding their heads nervously at such a “coincidence.”

The Colp must apply for authorisation from the sra by March 31st 2012, so that they can begin their duties starting the end of october 2012 in line with the requirements of the 2011 outcomes focused regulation (ofr).

so in the intervening months, there is time to put in place – if it hasn’t already been done – systems for the governance and running of the firm that will help the practice and the Colp comply with their regulatory requirements.

The thing for any potential Colp to realise is that the sra monitors practices in terms of risk, and that being the case, then the Colp should apply the same measures to their own practice, and there is a methodology that can help, known as DMAiC.

DMAiC stands for;

� Define the Risk � Measure the risk � Analyse the measures of risk � improve the systems to prevent risk � Control the systems to prevent risk

so, given the DMaiC methodology, how do we go about reducing risk?

DefineThe Define stage is all about understanding what risks exist in a legal firm and these can be subdivided into 3 main types;

� strategic � operational � regulatory

for the purposes of illustration, this article will deal with operational and regulatory risk, as they are very closely aligned.

What types of risk fall under these headings?well, let’s start with the basics, right at first interview with the client. Typical risks in these categories would be;

� not taking full instructions � not establishing whether the instructions are of a type the firm does not wish to be associated with � not determining whether the fee earner in question has the capacity or skills to take the instructions � not establishing whether the client is not a client the firm wishes to accept, e.g. one who has transferred from another solicitor where the solicitor has declined to act due to bad debt or aggressiveness � Not conducting a conflict check � not establishing whether the client would cause an “own interest conflict” under chapter 3 of the sra handbook 2011

MeasureConsidering the types of risk above, the Colp should establish how they can be measured or reported on. There are various means at the disposal of the firm, the most obvious being file reviews. file reviews need not necessarily be conducted by the Colp, but they should be available as reports along with the outcomes of supervisory meetings so that the Colp can decide what action may need to be taken if corrective actions are required at file review.

AnalyseUp until now, the legal profession has not had to understand how to translate “data” into information, but this is now a MUsT for the Colp. Translating data into information will help the Colp understand whether any correlating relationships exist between two measures, e.g . if the firm is finding multiple non-compliances at file review for a given fee earner, how many complaints are they likely to receive, and from that, how many notifications will they need to give their indemnity insurers?

improveThis stage involves understanding how to put measures in place to “mistake proof” the systems and procedures in the practice to prevent risks occurring and escalating. Examples of “mistake proofing” ideas are when filling out a web based application, certain information fields are mandatory and the user cannot progress to the next stage before they are filled in. Consider this with conflict checks.

ControlThe final stage is about controlling all the inputs to the legal service so that risk is eliminated and the Colp is able to use the information available to have some statistical reassurance that the likelihood of any non-compliance is minimised, and the requirement to report breaches by the practice to the sra will therefore never need to take place.

and that is how the Colp can avoid the “Colpa” and win “Blame game.”

paul Jones, Senior Associate Advisor, cpm21

What is so difficult about Law Firm Compliance?

to do so. Using LEGALOffice LA a simple COI routine on file opening provides an electronic note of the check that can be sent to an electronic file history. If a file has to be opened with no Coi check then the facility to capture ‘the reason why’ in a central database can then generate monthly reports that can be reviewed by the Colp and partners.

Diligently and systematically risk assessing files is paramount in a firm meeting its Risk assessment outcome. it is another routine that lends itself well to a central system. Again using LEGALOffice LA a simple low, medium or high option can be selected on file opening and a reason given as to the decision. This information can then be produced in a report and covered in file review meetings demonstrating indicative Behaviour towards meeting the outcome.

The capture and storage of documents when performing Money laundering checks is another routine that fits well in to a central system. In LEGALOffice LA, it starts with a mandatory tick box to make sure the check has been carried out, by whom and on what date. scanned documents can be saved to a file retaining all information relating to a file in one database. A simple report detailing date of check, ownership of check and what documents were checked can be produced.

ofr requires you to focus on the principles and achieving the right outcomes for your clients and gives you flexibility in how you meet these outcomes. having a central database of client care letters and documents sorted in to a workflow per worktype will allow all

documentation to be generated in the same format and ensure that standards are on a par throughout the firm. providing clear information at the outset and as the matter progresses is not only of benefit to the client but also to your firm. LEGALOffice LA will give you the ability to set these workflows, monitor them and above all enable changes to be made simply, firm wide helping to meet the client care outcomes. some of most common causes of complaints are lack of clear information about costs, failure to follow instructions, delay and failure to keep clients informed. running a centralised client care approach will undoubtedly help in reducing these causes.

only time will tell how the profession will adapt to the new ofr. however what is clear is that if as a firm you are pro-active in your iT and systems provision then this will go a long way to help demonstrate indicative behaviour to meeting the core principles

If you are interested in finding out more about Peapod’s Case and Practice Management systems then please speak to Wayne or Paul at CPM21 who will refer you on.

Huw Jones, regional Director -Peapod LEGALOffice Ltd

www.legaloffice.com

The everyday challenge of continuously trying to set your firm apart from the competition means that we can take our eye off the ball with Compliance. The sra’s latest raft of regulations or should i say ‘ofr’s’ along with the new handbook could cause some issues to law firms today. with the advent of the new COLP and COFA roles within firms by the 31st March 2012, it is clear that these roles are going to be to manage the internal systems and procedures to ensure compliance with the 10 mandatory conduct principles.

Client Care and risk Management seem to be the hot topics as firms seek to differentiate themselves. staff training to reflect the 2011 SRA changes in Conflict of interest (Coi), Money laundering, Client Care etc must happen to update office procedures and show that indicative Behaviour will lead to outcomes being achieved.

Peapod LEGALOffice Ltd specialise in providing effective, affordable software solutions to small and medium sized high street firms. Product portfolio includes the market leading prinTaform online (based on the Ms azzure Cloud platform), MyCase Communication portal and LEGALOffice LA, the comprehensive software suite. LEGALOffice LA provides an integrated accounts and Case/practice Management solution which covers all worktypes including lsC. Developed in Ms Visual Studio, LEGALOffice LA can reduce the costs of running your practice, enable you to spend more time under-taking billable work, increase accuracy and improve client care.

so can a central integrated practice and Case Management system really help to alleviate the compliance challenges?

Take Conflict of Interest (COI) for example, under the old 2007 sra approach, there were detailed rules for Coi particularly in respect of conveyancing. Under the new code, there is greater emphasis on identifying and dealing with conflicts in all types of matters and most importantly having systems and controls to enable you

How can a central integrated practice and Case Management system help alleviate these challenges?

www.cpm21.co.uk

The BriEF - spring 2012

in considering whether a failure is “material” and therefore reportable, the Cofa will need to take account of various factors

06

COFA and Changes to SrA Accounts Rules Uncovered. The 31 March 2012 deadline for nominating a COFA to the SRA for approval is almost upon us! So who can be appointed as a COFA and what duties will they need to take up?

� take steps to ensure that breaches of the sra accounts rules are remedied promptly, and report any breach, which is material either on its own or as part of a pattern, to the sra; and � monitor, review and manage risks of non compliance with the sra accounts rules.

so what is a Material Breach? in considering whether a failure is “material” and therefore reportable, the Cofa will need to take account of various factors, such as:

� the loss, or risk of loss, to clients; � the extent of any risk of loss of confidence in the firm or in the provision of legal services; � the scale of the issue ; and � the overall impact on the firm, its clients and third parties.

SrA Accounts rules: the Changes as the main duty of the Cofa is to ensure compliance with the sra accounts rules, it is important for the Cofa to keep abreast of any changes in those rules. Detailed below is a summary of recent changes, effective from 6 october 2011:

Rule 12 – Client v Office (Old Rule 13)All interest is now treated as office money. previously only interest on general account was treated as office money, interest on separate designated deposit account (DDa) used to be treated as client money. firms can now either arrange for the bank to pay DDa interest straight into the office account, or continue paying it into the DDa. any interest the firm decides not to pass on to the client must then be transferred to office account within 14 days of making the decision.

Rule 15 (3) and (4) – residual balances (Old Rule 14(3) and (4))There is now a specific ongoing obligation to inform clients at least once every 12 months that money is still held (where

there has been no movement in the 12 months). firms need to identify balances and the best way to communicate to clients and put a system in place to do this every 12 months on a rolling basis.

Rule 21 – Authority for withdrawal (Old Rule 23)firms can now decide who signs authority – this must be someone appropriate and practice Managers/Cashiers can now sign. an electronic signature is now allowed, subject to appropriate safeguards e.g. passwords/codes. firms also need to have clear written systems and procedures in place for authorising withdrawals electronically. emails are not permitted, as no appropriate safeguard can be applied.

Rule 29 (16) – Billing details (Old Rule 32(8))Must still keep a central record or file of copies of all bills, but no longer need to distinguish between ‘fees’ and; ‘disbursements paid’ and ‘disbursements unpaid’ at the bill date.

rule 22 – interest (Old Rule 24)There is no longer any distinction between designated and general deposit account interest, neither is there a interest table or de minimis limit. Instead firms need to put a written policy in place on how much interest to pay, which must be fair and reasonable for the client. This policy must also be sent to all new clients. no guidance has been given on fair and reasonable. Some firms may go with old rules and pay interest over £20, others may increase this figure by inflation since the old rule was set in 1998, or may just increase this to £50 and see how it goes.

BPU Chartered Accountants is presenting an informative CPD seminar on all of the above to book your place visit: www.cpm21.co.uk

Huw palin, BpU Chartered Accountants 029 20734100 huwp@bpuaccountants.co.uk www.bpuaccountants.co.uk

the COFA A COFA (Compliance Officer for Finance and administration) can be a manager or employee of the firm, who has sufficient seniority and responsibility to fulfil the role and who has been approved by the sra to act a Cofa. Those designated as Cofa will need to take up their duties from 31 october 2012.

The Cofa must:

� Ensure that the firm and its employees comply with the sra accounts rules; � record any failure to comply with the sra accounts rules - these records must be available to the sra on request; � report to the sra any material failure (as defined below) to comply as soon as reasonably practicable; and � provide an annual information report to the sra in the prescribed form and by the prescribed date, listing all non-material failures to comply with the sra accounts rules.

Before consenting to take up the post the Cofa needs to consider whether they are in a position to, for example:

� ensure that they have access to all accounting records; � carry out regular checks on the accounting systems ; � carry out file and ledger reviews; � ensure that the reporting accountant has prompt access to all the information needed to complete the accountant’s report;

Do you NeeD expert tax & FiNaNcial aDvice?

- Audit and Annual Accounts - Management Accounts- Tax Planning and Tax Compliance- Business Structure- Goodwill Valuations- Corporate Finance - Payroll- Business Advice specific to legal sector - SRA Accounts Rules

call Huw palin: 02920 734100email: huwp@bpuaccountants.co.uk www.bpuaccountants.co.uk

Bpu chartered accountants offers a Free financial review to all legal firms & professionals and can offer the following:

bpu-ad-a5.indd 1 22/02/2012 12:09

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21st Century professional Management

The material in this edition of The Brief is intended as a guide only and does not necessarily stand on its own nor is it intended to be relied upon for giving specific advice. Whilst every effort has been made to ensure the accuracy of the material, no liability can be accepted for any error or omission. Readers are advised to refer to the source material quoted in the material for full information. To the fullest extent permitted by law cpm21 will not be liable by reason of breach of contract, negligence or otherwise for any loss or damage (whether direct, indirect or consequential) occasioned to any person acting or omitting to act or refraining from acting upon the material. Nothing in this paragraph shall be deemed to exclude or limit cpm21’s liability for death or personal injury caused by negligence or for fraud or fraudulent misrepresentation. Loss and damage as referred to above shall be deemed to include, but is not limited to, any loss of profits or anticipated profits, damage to reputation or goodwill, loss of business or anticipated business, damages, costs, expenses incurred or payable to any third party (in all cases whether direct, indirect or consequential) or any other direct, indirect or consequential loss or damage. No part of the handout material may be reproduced in any form or for any purpose without the prior permission of cpm21. www.cpm21.co.uk

published by: Cpm21, the gti Suite, Valleys innovation Centre, navigation park CF45 4Sn

© February 2012

cpm21 The GTi Suite

Venture House Navigation Park

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CpM21 2012 training CoursesCPM21 have a range of courses for everyone in 2012 at local venues in Wales and delivered by specialists in their fields;

Booking No. Course Title CPD Hours Stg1 Management Course Stage 1 7

COLP1 The Definitive COLP Part 1 6

COLP2 The Definitive COLP Part 2 6

COFA1 The Role of the COFA 3

MLO1 Money Laundering for the Legal Profession 3

FAM1 Divorce & Finances – A beginners guide 3

SM1 Social Media and Client Confidentiality 3

SQM1 Specialist Quality Mark 3

LXL 5 Lexcel V5 and Risk Management 3

For further information, including venues, dates, prices and how to book, see our website www.cpm21.co.uk