The Solicitors Code of Conduct contains major changes, but compliance with them can be automated if firms are forward-thinking and have a good practice management system, says Simon Young




Most solicitors will by now be aware that the new Code of Conduct has transformed the compliance landscape from the beginning of July.



Forward-thinking solicitors will have considered how they can use their practice management system (PMS) to provide automated aids to ensure compliance. Creative software suppliers will have thought of additions they can build into their software to offer such help to their lawyer-customers. This article is intended to suggest, to lawyers and IT suppliers alike, some of those ways in which the burden of regulatory observance can be eased.



Rule 2 deals with various aspects of a firm's relationships with its clients and, in particular, with the costs information that needs to be given to them. Rule 2.03(1) requires that the best possible information about future costs be given.



'Best possible' does not mean, as many solicitors still seem to think, their idea of a guesstimate, without any scientific assessment. Rather, it puts a burden on the firm to do its best to analyse the costs per case of all their sorts of work, and to develop the tools that the PMS offers to break that information down into ways which will be relevant for clients. In other words, the client has the right to properly-informed estimates.



Having given an estimate, the firm will need to keep an eye on whether that estimate needs revising - if an estimate is exceeded by more than 15% without revision, the firm is unlikely to be able to recover any excess at all. Often, the PMS can be used to set alarms when estimates, or indeed contractually-agreed limits, are approached. Such tools may, however, be dangerous rather than useful, if the ledger system does not provide for the inclusion of unbilled disbursements in the accumulating figures.

Say an estimate of £2,000 has been given. The ledgers record time costs incurred of £1,200, and a paid medical report fee of £400. There appears to be a £400 leeway. But what if the fee-earner has instructed counsel and agreed a £800 fee? The reality is the firm is already committed to a total of £2,400, 20% over the estimate, and is at risk of being £400 out of pocket.



Only if the PMS allows for a process whereby ledgers are noted as soon as a liability is taken on, and only if the firm rigorously applies that process, will it actually be able to rely on the giving of an automated alarm to prompt a revised estimate.



Rule 3 deals with conflicts. Most PMS arrangements will include client-to-client conflict-checking facilities. But how many will enable firms to ensure compliance with rule 3.01, a duty not to act if there is a conflict between the interests of a client and those of the firm, which, in many instances, will include those within the firm and their families?



Imagine you are asked to sue a local garage. How do you know if the garage is owned by a company in which the wife of one of the partners has a controlling interest? In the absence of a properly-sourced and maintained database as to the interests of partners, staff and their families, which is searchable by fee-earners, how can you know?



We lag behind other professions in being methodical in our approach to this issue, and we are not helped by the fact that most software suppliers either have never spotted the problem, or duck it by saying that the 'contacts' part of their database can be used for the purpose. Self-protection requires that this be a priority, highly-visible part of any database arrangements.



Rule 5 deals with business management arrangements within firms, and requires evidence of a systematic approach to a range of issues with, in each case, adequate provisions for monitoring and review. This is naturally an area in which the PMS can play a large part. Instances would include:

l Developing existing money laundering routines to include the provision of a database sufficient for firms to comply with the obligation to provide 'ongoing customer due diligence', which will come into effect in December this year. In other words, it is not enough just to establish identity and other records as to a client at the start of a business relationship - those records must be updated and built upon throughout.

l Offering cashflow forecasts. Many PMSs are merely backward-looking, in that they only offer historical data. This will not help in satisfying the new requirement for a forecast. It should not be acceptable for suppliers to say: 'You can export the data to an Excel spreadsheet.' Many firms will not have the expertise to construct such a spreadsheet. Suppliers should accept it as their responsibility to offer a fully-integrated forecast template.

l A risk register. The requirement for a risk management system will mean that someone will have the task, across the whole of the firm's operations and management, of identifying where risks may occur, what the likelihood of a given risk event may be and the severity of the consequences if that event occurs. A register of those analyses must be kept, and it needs to be monitored against what actually happens, so that reviews can take place and corrective action instigated.



There will be other instances in which a good PMS can offer huge compliance help. It is for the managers of the firm to work through the new code to ascertain where that help may be possible. It is for responsible software suppliers to ensure that they are two steps ahead of their customers in designing and offering the tools for them to do the job.



Simon Young is a solicitor and the director of Lawyers Compliance