With a more robust regulatory environment, Vanessa Shenton asks whether the professional standards unit will refer as well as support firms


Anecdotal evidence suggests that the Solicitors Regulation Authority (SRA) is flexing its new muscles. It is reasonable to question how its professional standards unit (PSU) might respond to the SRA's political objectives.



PSU visits to law firms are 'neither investigative nor disciplinary in nature' (SRA's March 2007 Summary of Performance), a description adopted by SRA board chairman Peter Williamson (see [2007] Gazette, 24 May, 15). The unit has a reputation for helping firms comply with rules and regulations.



The criteria for a visit have included themes which have undoubtedly developed as a reaction to the demands of key stakeholders. Initially, visits were complaints driven. During 2006, the unit visited firms relying on referral arrangements. It developed a helpful approach and encouraged firms to remedy any breaches, rather than using muscle. This was in step with the politics of the time.



What might be the role of the PSU in a new robust regulatory environment?



In 2007, the politics of the day dictate a further round of referral fee visits. A March 2007 progress report confirmed that 'data held by the PSU is being used to identify firms for investigation, including some which had poor levels of compliance when visited as part of the latter's themed project'.



It may seem a little unfair (and costly) if firms face further investigation because of failings found during an earlier supportive but non-investigative PSU visit.



The PSU summary report says the PSU 'is well placed to judge if firms should be formally referred for further disciplinary action where they are not responsive to PSU's supportive approach, or in cases of suspected dishonesty or serious regulatory breaches. The PSU also refer intelligence on issues which may not require disciplinary action but of which Regulation Response needs to be aware'. In December 2006, 14% and 11% of firms visited were subject to formal referrals and intelligence referrals respectively.



Clearly, an appropriate regulatory response is needed to protect the public. But, let us hope a reasonable and fair interpretation is applied, both by PSU advisers and those who direct them, to phrases like 'suspected dishonesty' or 'serious regulatory breaches', and that the potential harm to practitioners is fairly weighed in the balance.



In The Law Society v Adcock [2006] EWHC 3212, the respondent solicitors were accused of retaining commissions on conveyancing search fees in contravention of rule 10. The SRA was unsuccessful before the Solicitors Disciplinary Tribunal and in its appeal. The allegation of dishonesty was discredited as 'inconceivable' and 'unfortunate that that suggestion was ever made' by Lord Justice Waller (see [2007] Gazette, 18 January, 5). If the regulator considered this dishonest, might it also, for instance, consider that profiting from telegraphic transfer fees is dishonest and deserving of an undisclosed intelligence referral if discovered by the PSU? Could disciplinary action follow?



Let us also hope that any PSU referral is made only after a firm has had the opportunity to be 'responsive to PSU's supportive approach'. It would be unfortunate if advisers had to refer immediately after a visit rather than after a firm has had time to adjust its procedures. It would be unfair if firms, despite their efforts, were subject to action for past breaches.



No doubt the SRA is alive to such potential unfairness and has balanced it against the need to regulate proportionately and transparently. However, you may wish to make up your own mind whether the PSU may be a wolf in sheep's clothing and whether firms may do well to ensure compliance before it is at their door.



Vanessa Shenton is in business as The Compliance Partner, prior to which she was practice standards adviser for the London and south-east region of the Law Society. She is also a member of the Solicitors Assistance Scheme