1. LOCKTON COMPANIES, LLP COLPs and COFAs The Policeman’s Lot – Happy or Not?

2. WEIGHTMANS LLP Michelle Garlick, Partner Tel: 0161 233 7426 Email: michelle.garlick@weightmans.com

3. 2 Morning all!

4. 3 To be covered  The Authorisation Rules  The COLP and COFA roles, the risks and rewards(?!)  Case study

5. 4 Authorisation Rules Rule 8 General Conditions include:  Compliance with regulatory arrangements  Suitable arrangements to ensure compliance  COLP and COFA  Annual information report

6. 5 Approval of the COLP and COFA  Process for approval – see Part 4 Authorisation Rules. Includes:  Evidence that the nominee is suitable  Co-operation in providing documentation/information etc  Declaration by candidate that information is correct and complete  Prescribed form (but not yet been released!)

7. 6 Suitability Test  All relevant information to be disclosed  CRB disclosure  Behaviour not compatible with roleholder includes:  Dishonesty/violence offences  Financial problems including bankruptcy  Disciplinary findings  Disqualification as a company director/trustee of a charity  An anecdote from an ABS application.

8. 7 Withdrawal of approval  If criteria not met  Conditions not being complied with  Approved person has breached a duty/obligation imposed upon them  Temporary emergency approval for COLPs/COFAs

9. 8 Timescales for Appointment  Existing recognised body (including SPs) and not planning to convert to be an ABS – nomination for approval by 31 March 2012 and authorised from 31 October 2012.  LDPs with non-lawyer managers will become ABSs – need to be licensed by 31 October 2012. COLP/COFA will need to be designated for approval at point of application.  Will dates be put back? – yes!

10. 9 Who CAN take on the role?  Must be:  manager or employee;  sufficient seniority and responsibility;  lawyer of England and Wales (for COLP). No similar requirement for COFA  “Manager” strictly defined  Individual must consent to the designation!  Same person can be COLP and COFA if have necessary experience

11. 10 Who SHOULD take on the role?  Key personnel in the firm  Seniority to liaise both with management and staff  Managing/Risk Partner/Finance Manager?  Will an employee have sufficient seniority and authority?  Do you have access to all management systems and business information?  Are there clear reporting lines?  Will you need a deputy?

12. 11 The Role of the COLP and COFA  Contact point with the SRA  Ensuring compliance  Information requirements  Self-reporting of breaches

13. 12 Ensuring compliance  Take all reasonable steps to  Ensure compliance with the terms and conditions of authorisation  Ensure compliance with statutory obligations  Record any failure so to comply and make such records available to the SRA on request  COLP has responsibility for ensuring compliance with all the rules except the Accounts Rules which are the responsibility of the COFA.

14. 13 Relevant Principles for COLP/COFA (its not just the Authorisation rules!)  Principle 7  comply with your legal and regulatory obligations and deal with your regulators and ombudsmen in an open, timely and co-operative manner.  Principle 8  run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles

15. 14 Chapter 7 (Section 2 Code of Conduct – you and your Business)  Emphasises that everyone has a role to play in the efficient running of the business  Requirements include:  clear and effective governance structure and reporting lines,  Effective systems to deal with compliance with rules and law (including anti- money laundering and data protection),  Identify, monitor and manage risks to compliance…and take steps to address issues identified (O7.3)  systems for monitoring financial stability  staff are trained to maintain an appropriate level of competence,  Systems for supervision and checking of quality of work.  Outsourcing

16. 15  Safekeeping of documents and assets entrusted to the firm  Controlling budgets, expenditure and cashflow  Identifying and monitoring financial, operational and business continuity risks including complaints, credit risks and exposure, claims under legislation relating to matters such as data protection, IT failures and abuses and damage to offices  Making arrangements for the continuation of your firm in the event of absences and emergencies e.g. holiday/sick leave, with the minimum interruption to clients’ business Chapter 7 - Indicative Behaviours

17. 16 The Compliance Plan  See notes to Rule 8 Authorisation Rules  Depends on size and nature of your firm, work carried on and areas of risk  Will the office manual suffice?

18. 17  Cover:  Clearly defined governance arrangements  Appropriate accounting procedures  System for ensuring only appropriate people authorise payments from client account  System for dealing with and monitoring undertakings  Appropriate checks on new staff or contractors  System for ensuring regulatory deadlines met  System for monitoring and reviewing risks  ensuring that issues of conduct are given appropriate weight in decisions the firm takes, whether on client matters or firm-based issues such as funding  File reviews  Staff development  Obtaining necessary approvals of key personnel The Compliance Plan

19. 18 Preparing a Compliance Plan and risk register  Preparing a Compliance Plan and risk register:  Narrative/spreadsheet form?  Draw up list of risks - brainstorm  How will you manage those risks?  Terminate? - turn work away  Treat? – systems and policies to deal  Tolerate? – accept some risks will arise but within acceptable threshold  Gap analysis of systems/procedures and policies to ensure compliance with Handbook/Code/SARs  Beware of “unthinking compliance”  See SRA website “OFR AT A GLANCE” for more guidance  Continued monitoring

20. 19 Specific issues for COFAs  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  Take steps to ensure that breaches of the SRA Account Rules are remedied promptly, and report any breach to the SRA as required  Monitor, review and manage risks to compliance with the SRA account rules © Law Society 2009

21. 20 Questions:  Do you regularly identify and prioritise the business and regulatory risks your firm faces?  Do you document the way that you monitor, manage and mitigate the business and regulatory risks which your firm faces?  Have you trained your staff (not just fee earners) on relevant Code of Conduct provisions?  Do you liaise with complaints partner to identify trends and learn from mistakes?  If no to any/all the above, you will need to!

22. 21 The information requirements  Information collection key to SRA’s development of an evidence based risk assessment of firms  Annual report in prescribed form (yet to be seen!)

23. 22 What information will be required?  SRA wants to assess firms’:  Financial stability  Regulatory compliance  Service standards and client care  Similar to info required by insurers on renewal  Annual reports will be in addition to ad hoc reports of non-compliance

24. 23 Reporting Obligations  What do I have to report?  “as soon as reasonably practicable, report to the SRA any failure to comply provided that:  In the case of non-material failures, these shall be taken to have been reported as soon as reasonably practicable if they are reported to the SRA in the annual information report  A failure may be material either taken on its own or as part of a pattern of failures to comply”.

25. 24 What is “material”  See notes to rule 8  Detriment or risk to clients?  Extent of any loss of confidence in the firm?  Scale of the issue?  Overall impact on the firm, its clients and third parties?  Record failures to comply to monitor overall compliance, assess effectiveness of systems and to be able to comply with duty to report breaches which are material because they form a pattern.

26. 25 HELP! I’M A COMPLIANCE OFFICER – GET ME OUT OF HERE! A Case study  You discover a fee earner is intercepting post to hide a problem on one of his files. You discover the problem before any real damage is done/no loss suffered.  Do you report to SRA or not?  What else will you do?  What if claim had in fact been struck out and client had not been told?

27. 26 HELP! I’M A COMPLIANCE OFFICER – GET ME OUT OF HERE! Case study 2 Your firm deals with a high volume of domestic conveyancing transactions. Your COLP has been in post for six months and has been standardising procedures. She immediately developed a policy on acting for seller and buyer which has been agreed. One partner has persistently failed to implement it in his team or to conduct agreed file reviews. A complaint has now been received from a buyer client that the firm also acted for the seller/developer and that completion was pushed through despite the buyer’s concerns about work not being completed to the required specifications. What should the COLP do? Is this a material breach and reportable?

28. 27 OFR Approach  Conduct a full investigation into why the firm acted for seller and buyer in this situation.  Is this an isolated incident?  Is it material?  Is it reportable immediately or as part of the annual compliance report?  What about the partner? How would you deal with him/her?  What about the client?

29. 28 Case Study on Reporting - COFA  You are the COFA  Employee, not a manager  You discover unable to pay firm’s invoices because exceeded its overdraft.  Further investigation reveals overdraft facility has been extended on a number of occasions but bank is refusing to extend it further.  You speak to Managing Partner because of concern that firm is in financial difficulties – told it’s a temporary cash-flow problem and there is no need to report it to the SRA.  What do you do?

30. 29 OFR approach to problem (see SRA’s“At a Glance”):  COFA has specific reporting responsibilities  Issues to consider:  How prolonged is the issue?  How severe is the problem?  Are client’s interests at risk?  Is there a risk to client money?  Can you say you are being open with the SRA if you keep this information to yourself?  Is the firm trying to prevent you from reporting, or is this a difference of opinion that can be resolved?  Question - Is it the COFA’s responsibility?!

31. 30  Be transparent with SRA –report and explain how rectified  No firm is perfect!  Experiences so far of self reporting?

32. 31 How do I report?!  See SRA website – Enforcement section http://www.sra.org.uk/solicitors/enforcement/solicitor-report/other-solicitor- results.page http://www.sra.org.uk/solicitors/enforcement/solicitor-report/other-solicitor- results.page  Report form  Email  Phone

33. 32 Chapter 10 - You and Your Regulator Requires;  Co-operation with regulators and Legal Ombudsman.  Compliance with all reporting and notification requirements in the handbook, reporting to the SRA of “serious financial difficulty”, serious failure to comply with the Principles, outcomes, rules  Prompt reporting of serious misconduct by any person/firm/employee of firm

34. 33 Indicative Behaviours  IB (10.10) – Having a whistle blowing policy  Actively monitoring your achievement of the outcomes in order to improve standards and identify non-achievement  Active monitoring of financial stability and notifying SRA if becomes unviable  Notifying of serious issues as result of monitoring and producing a plan for remedying issues identified

35. 34 A Few Questions on Reporting  How will you monitor and record breaches? Have you set up a system /templates for doing so?  Do you have a whistleblowing policy? What training have you given/will you give to fee earners re whistleblowing?  How will disputes about whether a breach is reportable or not be resolved?  Will SRA check those firms who report nothing?  How will the reports be perceived by insurers? Will they want to see your list of breaches/annual information report?

36. 35 Risks?  Internal communications and relationships  Personal v. firm responsibility?  Firm will not be absolved of responsibility – duty of firm to ensure suitable arrangements in place to ensure that COLP/COFA are able to discharge their duties in accordance with the rules  Case of David McGrath (FSA compliance officer)

37. 36  Disagreements?:  Risk management issues/recommendations  Reporting obligations  Document any disagreements between the firm and COLP/COFA?  Will you document your role and authority?  Will you want an indemnity/insurance cover?

38. 37 Cost of Compliance?  Increased management time  Lost fee earning time for COLP/COFA  Additional compliance staff/risk managers?  IT – new systems/procedures  Staff training on new Handbook/CPD  Increased compliance burden mergers/acquisitions/interventions?

39. 38 Rewards?!  Improved risk management  Improved client care  Avoidance of claims/complaints/investigations and disciplinary proceedings  Reputation of firm and individual  Opportunity to raise profile (and salary?!) and importance of your role?  Opportunity to force difficult partners to become compliant!  may need Managing Partner (if not the COLP/COFA) to get involved

40. 39 The Policeman’s Lot  Happy or Not?!  Any Questions?

41. 40 Thank you (and Good Luck!) Michelle Garlick Partner Weightmans LLP Michelle.garlick@weightmans.com 0161 233 7426

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