Outcomes-Focused Regulation - A 'Naked Road' Scheme For The Legal Profession?

As the SRA continues with its timetable to implement outcomes-focused regulation (OFR), it has recently published its new Handbook, containing a principles based Code of Conduct.

The SRA's move from requiring compliance with detailed rules to the spirit behind certain principles is not unprecedented.

In April 2004, Seend, a village in Wiltshire, removed all markings from its roads. In January 2005, it was reported that accidents in the village had dropped by a third and vehicle speed had fallen by five per cent. It seemed that the psychology underpinning the experiment had struck at a truth of human behaviour. As the SRA prepares, in October 2011, to implement a scheme requiring firms to ensure that they abide by principles of good practice rather than avoid breaching rules, can we expect to see an improvement in the profession's management of risk, or will firms be left in doubt as to what exactly the SRA requires?

The new Handbook for the profession (which is subject to approval by the Legal Services Board) will be in force from 6 October 2011 (with some phased implementation from August) and brings together in one place standards and regulations applying to firms including sections and guidance on, amongst other matters, accounting and PII. The Handbook and Code will also apply to alternative business structures regulated by the SRA when they are permitted. The Code is structured so that the profession must comply with mandatory principles and deliver on mandatory outcomes. To do so, non-mandatory indicative behaviours (IBs) are provided to assist. Some sections of the Code also contain notes. The SRA has also published a quick guide to OFR and the new Handbook, which in particular contains some Q&As on achieving outcomes.

The publication of the new Code follows a consultation process that suggested that the profession was broadly supportive of the changes, but considerable uncertainty remains as to how the scheme will work in practice. A recent Legal Week survey suggested that half of City partners did not understand the move towards principles-based regulation. One particular fundamental concern has been the role of the IBs. In response to criticism that the SRA might treat non-compliance with the IBs as failure to achieve the outcomes hence making the IBs de facto rules, the SRA confirmed that firms have the option to achieve the outcomes in other ways. It amended the language used in the Code of Conduct to make clear that acting in...