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How to maintain regulatory standards in challenging times

Financial, Executive and Professional Risks (FINEX)
COVID 19 Coronavirus

By John Hosie | April 6, 2020

As the world changes significantly during the Coronavirus (COVID-19) pandemic in the UK, law firms need to start thinking about the regulatory and compliance implications.

Few could have expected us to be in the current situation, and few really know where we will be in the coming weeks or months.

Some firms will have coped comfortably with the current situation with business continuity plans and working from home arrangements kicking in seamlessly. For others it will have been less smooth, but as we move forward firms would do well to start considering their regulatory responsibilities and plan for any complications that might arise.

SRA Standards and Regulations (StaRs) have eased the pressure on strict compliance with timescales

Fortunately, the current SRA Standards and Regulations (StaRs) have eased the pressure on strict compliance with timescales and moved towards a less prescriptive approach. There are however, still some issues that will need consideration.

The theme throughout this article is to document specific issues that impact on you meeting either your own compliance procedures, or the regulators requirements, why they occurred and what steps and decisions were made.

Client account reconciliations

Beyond the day to day challenge of making payments, the month end reconciliations will still be required, and need to be signed off by the Compliance Officer for Finance and Administration1 (COFA), and for some work will be needed on the year end accountant’s report during this period in accordance with the SRA Accounts Rules 2019 (the Accounts Rules)2 .

Hopefully reconciliations will still be able to be completed and can be signed off electronically. However you decide to ensure this work continues, the important point is that you keep clear, documented notes, and record the rationale for actions taken.

If you diverged from typical timescales or approaches, then keep a record of what the extenuating circumstances were. This might include connectivity problems at a specific time, illness of key employees etc.

Accountants Report

Similarly, with commissioning your accountant’s report. If the work on the report has not been able to commence, has had to be paused or experienced any other problems or challenges, then document what they were and maintain an audit trail of the communications on these points.

Even when we do return to some normality your accountant may have a backlog of work and not be able to meet the deadlines, so again, document decisions made in this regard.

Finally if you are not going to be able to meet the requirements in the Accounts Rules, then it is a requirement to advise promptly the SRA of any ‘facts or matter that you reasonably believe should be brought to its attention in order that it may investigate whether a serious breach of its regulatory arrangements has occurred’3.

It is important therefore that you maintain records of any breaches that may have occurred and whether you should report them to the SRA, and if not, why you chose not to.

Both the SRA and the Law Society have guidance on their websites about how to ensure compliance in the current environment and we would suggest that firms should keep these under review.

Footnotes

1 Solicitors Regulation Authority, (2019), Rule 8.3 Client Accounting Systems and Controls. Retrieved from the Solicitors Regulation Authority’s website:
https://www.sra.org.uk/solicitors/standards-regulations/accounts-rules/#rule-8

2 Solicitors Regulation Authority, (2019). Retrieved from the Solicitors Regulation Authority’s website:
https://www.sra.org.uk/solicitors/standards-regulations/accounts-rules/

3 SRA Code of Conduct for Firms, 3.10. Retrieved from the Solicitors Regulation Authority’s website:
https://www.sra.org.uk/solicitors/standards-regulations/code-conduct-firms/#rule-3

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Lead Associate - Finex PI UK Legal Services

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