Philip Yelland, executive director of regulation, The Law Society of Scotland on how best practice in governance is achieved for the legal profession and judiciary bodies. The Law Society of Scotland is the professional body for Scottish solicitors. As such, we have a robust regulatory regime, which includes setting high professional standards that our members must adhere to, and the provision of client protections in the event that something goes wrong.
Client-focused regulationScottish solicitors, with the support and guidance of the Society, strive to ensure that their clients receive a quality service. The often sensitive nature of a solicitor’s work means the client must have a high level of trust in their solicitor. [pullquote class=”right”]In terms of measuring governance, it is clear there are huge challenges. Where some elements could be set down and audited, others are really a matter of individual or collective judgment.[/pullquote]The Society’s regulatory duties focus on ensuring solicitors meet our rules and standards, including anti-money laundering (AML) requirements. Our current approach to governance within firms is very much focused on financial compliance, risk assessment and inspection. At present, the legislation that governs regulation of the profession is focused on individuals rather than entities. We carry out firm inspections every three years, or more frequently if required. On occasions, these can uncover that a firm’s accounting records have not been kept properly. If it is suspected that client money is missing, in order to protect clients, we have the power to suspend the solicitor and apply to the Court of Session (Scotland’s highest civil court) to appoint a Judicial Factor – an individual who will examine the firm’s records. The Judicial Factor will reassure clients that business is on-going and, where necessary, try to put them in touch with other solicitors. We also have in place a number of other measures to provide protection to consumers.
Regulating a diverse sector – focus on powerful individuals?The legal sector is very diverse, with law firms ranging from a sole practitioner working in criminal law to multi-national firms employing thousands of solicitors who work in different jurisdictions around the globe. In this respect we are similar to regulators such as the UK pensions regulator and Food Standards Scotland. Although the Society does not currently regulate entities in the Scottish legal sector, we have looked at the experience of other regulators who do. Some have suggested that governance on an individual basis is not a concern, while others, for instance, have focused more on the role of disproportionally powerful individuals (the all-powerful CEO), who can be the cause of many difficulties. If the Society is going to become involved in entity regulation, there are lessons to be learned. [pullquote class=”right”]One of the risks we must anticipate for the future is the potential for alternative information about businesses coming forward – a type of ‘Trip Advisor’ for law firms – and be aware of the challenges that could pose to regulators[/pullquote]One of the risks we must anticipate for the future is the potential for alternative information about businesses coming forward – a type of ‘Trip Advisor’ for law firms – and be aware of the challenges that could pose to regulators. There may, of course, be benefits, as arguably some of the information that comes forward might assist us as a regulator, adding to our information gathering and risk assessment. Consumer awareness of a business’s performance in meeting regulatory requirements very much depends on the type of business concerned. For instance, in the legal services market in England and Wales, the Legal Choices website allows consumers to find out more about the records of firms and other regulatory issues. In other industries, the approach taken to making information available to the public varies significantly.
Management principles as a guide to governanceIn terms of measuring governance, it is clear there are huge challenges. Where some elements could be set down and audited, others are really a matter of individual or collective judgment. There is the potential to measure against an organisation’s management principles, but the challenge is if the principles are too broad then how can there be proper measurement on the quality of the governance? It is important to ensure that the principles behind any form of measurement are the right ones. Measurement can also be very difficult in part because it can only be carried out in hindsight. However, in talking with other regulators, both legal and across other sectors, there is a clear acknowledgement that the governance of an entity should be part of the scope of regulation. There is much to be discussed and learnt, cross-sector, about how best to do this.
Financial wellbeing as a governance indicatorOne of the issues that comes up in any discussion on governance is financial wellbeing. What is deemed appropriate will depend on the sector. For example, if a firm is six months behind with VAT or National Insurance filings that would indicate a risk to us as a regulator, but there may be other sectors where this is acceptable. Any measurement of governance has to be proportionate, and a regulator of businesses ranging from sole operators to large scale or international organisations needs to be flexible in its approach – we take a different approach to smaller firms compared to bigger firms because the risks associated with them are different. It is essential that we continue to adapt to the changing environment, remain effective in setting high professional standards for our members and have a robust regulatory structure that maintains these standards, providing assurance and protection for solicitors’ clients.
‘The Governance Trap: Tracking Behaviour and Change’ is the second event in a series of collaborations between Solvency II Wire and the Centre for Analysis of Risk and Regulation (CARR) at the London School of Economics.The event was held in London on 3 November 2016, hosted by . If you’d like to learn more about or read articles from the first event in this series, The Governance Trap and the Future of Regulation, please click here. To receive the next article in the series directly to your inbox and subscribe to the Solvency II Wire mailing list for free, click here. [widget id=”mp_featured_posts-28″]]]>