The severity of the recession poses challenges not only to solicitors’ firms but also the SRA. We expect many firms, in their efforts to remain viable, to adopt a much more aggressive outlook, particularly in relation to marketing and the containment of costs. If not managed carefully and ethically, this could create serious risks to clients and to firms.

Although it doesn’t make enjoyable reading, it might help if I identify the main potential risks anticipated by the SRA, so you can strive to avoid them.

Costs over complianceThe SRA’s Practice Standards Unit (PSU), which visits around 1,200 firms a year, is concerned that, as firms make staff redundant, there will be fewer people left to carry out the necessary compliance tasks within the office. The principal focus will be getting costs in. This is liable to mean that compliance will take a back seat.

In a tougher commercial environment, some firms will expect fewer people to produce more work and there is liable to be less supervision of staff because fee-earners will be under more pressure for billable hours. Over-worked people are a regulatory risk. They are liable to take shortcuts and may be tempted to mislead clients about the progress of their matters. I am certain it will avoid a lot of problems if fee-earners make a deliberate effort to maintain proper levels of supervision and ensure that the demands placed on staff are realistic.

We are also concerned that, as firms merge to weather the financial storm, or are taken over (as successor practices), we may find more difficulties in ‘nominal account’ with monies from the old practice that is then difficult to return to clients, usually because of inadequate record-keeping.

The PSU is concerned that financial pressures may make firms more likely to retain undisclosed commissions and to make secret profits. By secret profits I mean, for instance, marking up the cost of something paid on behalf of the client, but still describing it as a disbursement. This is sometimes done with telegraphic transfer fees and conveyancing searches. The taking of secret profits is an offence under the Fraud Act 2006, as well as contravening the Code of Conduct.

Some firms, understandably anxious to acquire work, may be willing to accept it from introducers they would not normally want to do business with. My last column was devoted to referral arrangements and I won’t repeat myself here; I would simply emphasise that firms that repeatedly flout the rules should expect a robust response from the SRA.

We are aware that some solicitors, especially in the conveyancing sector, have sought to provide services in other specialisms. Provided that they do so having ensured that they have the appropriate level of expertise and competence, that is a sensible thing to do.

However, rule 2.01 makes it clear that you should refuse to act, or cease acting for a client if you lack the competence to deal with the matter.

Bankruptcy adviceThere has been an increase in calls to the Professional Ethics Helpline from solicitors who are concerned about bankruptcy and its effect on practising certificates. Bankruptcy automatically suspends the practising certificate and, in the case of a sole practitioner, will mean the closure of the firm, if necessary by means of intervention. However, there are situations where a practising certificate can be reinstated by the SRA. Application for this to happen can be made even before the formal declaration of bankruptcy.

My strong advice to solicitors anticipating bankruptcy is not to delay seeking advice and help. If, initially, you do not want to talk to the SRA, I suggest you call the Solicitors Assistance Scheme, which offers advice on insolvency and also redundancy.

Some might ask whether the SRA ought to do something at least to temper the effects of this recession. As one who was in private practice for approximately 35 years, I can understand why some solicitors would think that. But the regulator’s job has to be to protect the interests of consumers by setting and enforcing standards in the public interest. We cannot protect firms and solicitors from the economic realities, but we are working hard, in cooperation with the Law Society, to provide advice to firms to help them avoid trouble.

Another way we can help is by keeping the cost of regulation proportionate to the scale of the task. The SRA is constantly looking to regulate more effectively and efficiently. We have reduced our expenditure in real terms since we were established, and will continue to look for ways to contain costs. However, we are concerned that the financial burden of regulation on those who remain in practice is liable to increase, simply because there will be more for us to do, but fewer people to pay for it.

Legal disciplinary partnershipsFinally, you may have noticed that, subject to final parliamentary approval, the SRA will be able to regulate legal disciplinary practices from 31 March. Possibly because of the economic climate, fewer firms have expressed interest in this new type of business structure than we originally expected. Nevertheless, the LDP model is there for those who wish to take advantage of it. Perhaps, in better times, the level of interest will increase markedly.

Next month, I plan to deal with issues affecting trainees and those who manage them in these difficult times.

Peter Williamson is chairman of the board of the Solicitors Regulation Authority