Culture, conduct, fines and fitness to practise – lawyers’ regulatory round-up to June 2023

As we approach the mid-point of the year, we thought it would be useful to distil some of the key regulatory developments in the legal sector so far in 2023, in particular those that relate to conduct and to sanctions for misconduct.

Conduct

1. Workplace culture/treating colleagues fairly: Following last year’s focus on workplace culture (including a Thematic Review, new Guidance, a consultation and recommendations), in April 2023 new rules were incorporated into the Codes of Conduct explicitly requiring individuals and firms to treat colleagues fairly and with respect, and not to bully, harass or discriminate unfairly against them (Code for firms, para 1.6 and Code for individuals, para 1.5). The rules include a positive obligation on managers (essentially a partner/member/director of a firm, depending on its legal structure) to ‘challenge’ behaviour in others that does not meet this standard. Alongside that, in May 2023, the SRA updated its Guidance on the workplace environment (and illustrative case studies):

• The Guidance recognises that a toxic workplace culture can damage not only the wellbeing and mental health of staff, but also the interests of clients (by leading to mistakes/poor client outcomes) and the wider public (by raising ethical concerns e.g. where staff feel under pressure to cover up problems).
• A precise definition of treating colleagues “fairly” and “with respect” is not given but it is distinct from fair treatment in an employment law sense and the focus is instead on encouraging the creation of a working environment which does not pose risks to client service or the public trust in the profession. “Colleagues” is defined (widely), as is “bullying” and the definitions of harassment and discrimination in the Equality Act 2010 are adopted.
• The Guidance explains what is required as regards challenging others’ behaviour, recording and reporting incidents. It makes clear that, in line with the Enforcement Strategy, the SRA will focus its action on the breaches that are most serious, either in isolation or because they demonstrate a persistent failure to comply or a pattern of misbehaviour. It also identifies factors particularly relevant to seriousness (motivation; the relative seniority of the parties; whether they have any specific characteristics or vulnerabilities).
• Specific examples are given of circumstances in which the SRA is likely to take action (and where such cases are likely to be referred to the SDT – see below) which for firms include where there are patterns of abuse of authority, mishandling of complaints about behaviour, failure to challenge unfair treatment, supervision failures or the imposition of wholly unreasonable workloads or targets.
• Firms should be thinking about their own systems and controls to ensure that they and their employees are complying with these new requirements. Firms should also be mindful that the SRA will not consider allegations against individuals of, for example, dishonesty and sexual misconduct in a vacuum and will also now actively consider whether poor firm culture has a role to play. 

2. Regulation of private lives: The SRA’s scrutiny of solicitors’ conduct beyond the professional sphere continues and has been fortified by new wording added to the Introduction to both Codes of Conduct in April 2023 stating explicitly that “Conduct does not need to take place in a workplace in order to relate to your practice – these requirements capture conduct which touches realistically upon your practice of the profession, in a way that is demonstrably relevant.”

• The difficulty, of course, will be in understanding what will be caught by the new wording. At one extreme a number of SRA decisions in recent years have concerned conduct ostensibly unconnected to private practice and the SRA has remained of the view that its regulatory remit can extend into private life (notwithstanding the objections raised by some following its defeat in the Beckwith appeal). 
• The updated Guidance regarding treating colleagues fairly does appear to draw a distinction between conduct outside the workplace which “touches realistically upon the practice of the profession…” and “purely social events arranged outside of the workplace or relating to someone in a personal capacity. For example, where they are a neighbour, friend or partner who also happens to be a solicitor or colleague”.
• However, sometimes even behaviour entirely outside practice will be caught if sufficiently serious. The Enforcement Strategy states that "We are concerned with the impact of conduct outside of legal practice including in the private lives of those we regulate if this touches on risk to the delivery of safe legal services in future. The closer any behaviour is to professional activities, or a reflection of how a solicitor might behave in a professional context, the more seriously we are likely to view it... However, we will also be interested in matters that are so serious that they are capable of damaging public confidence, such as dishonest or discriminatory conduct in any context." The Guidance on sexual misconduct of September 2022 gives further examples of  matters which might damage public confidence which include “serious non-consensual sexual touching” even where no criminal proceedings are involved.
• On the subject of sexual misconduct, a written ruling from the SDT is expected shortly in relation to its well-publicised decision earlier this month to strike off a solicitor following a trial in which numerous allegations of egregious sexual misconduct were found proven, in what is said to be the first instance of strike off for non-criminal sexual misconduct in the workplace. 

3. Fitness to practise: In April 2023, new wording was inserted into the Assessment of Character and Suitability Rules (rule 2.6) and the Authorisation of Individuals Regulations (rule 7.2) stating explicitly that the SRA may take into account, as part of assessing a person’s suitability to work as a solicitor/any conditions on their practising certificate, any health issues which indicate that the person may be unfit or unable to meet their regulatory obligations or be subject to regulatory investigations or disciplinary proceedings. These provisions, which bring the SRA more into line with other regulators, are intended to help manage health issues before they may lead to misconduct and also to ensure any solicitor with a practising certificate is well enough to face regulatory/disciplinary scrutiny of their activities.

4. Conduct in disputes/SLAPPs: In February 2023, the SRA published its conclusions from its Thematic Review of conduct in disputes which focused on firms with defamation, privacy and/or reputation management practices. This follows last year’s Guidance on conduct in disputes generally (March 2022), its Warning Notice on abusive litigation known as Strategic Lawsuits Against Public Participation (SLAPPs) (November 2022) and public and political scrutiny prompted in particular by Russian oligarchs’ use of the English courts.  

• The review considered the litigation techniques of the relevant firms and their understanding of and response to the risks of abusive litigation. It found good practice in the firms it visited but concluded firms need to do more in relation to their understanding of SLAPPs, their management of risks in handling disputes, reporting misconduct and training. The Warning Notice (published after much of the thematic review work was completed) gives further guidance as to when the line might be crossed from legitimate into abusive litigation and the SRA may publish further on this once it has progressed the 40 or so cases it has been investigating in relation to potential SLAPPS.

Professional sanctions

5.    Referrals to the SDT: The SRA and SDT issued a joint statement on 30 January 2023 setting out their “shared expectation” of the types of cases which should be referred to the SDT, in light of the increase of the SRA’s fining powers for traditional firms and solicitors from £2,000 to £25,000 in July 2022.  

• The SDT will continue to hear the most serious cases of professional misconduct, where appropriate sanctions would be suspension, strike off or a likely financial penalty of over £25,000. The statement also lists other types of cases which should also be referred to the SDT, irrespective of whether the SRA has the relevant sanctioning power. That list includes cases with allegations of sexual misconduct, racism, bullying, harassment or other counter-inclusive misconduct and cases where there is evidence of the firms creating a “pervasive toxic culture” (see above).

6. Fines: Changes to the SRA’s fining regime have been made from 1 June 2023, following a consultation on the proposals last year (see Financial penalties statement and Guidance, both updated 30 May 2023): 

• To introduce fixed penalties of up to £1,500 for a small number of low-level breaches of the rules (see Regulatory and Disciplinary Procedure Rules, rule 11).
• To take into account, when setting fines in all cases, the annual domestic turnover of firms (max fine = 5%) and gross income of individuals (max fine = 97% or higher) (see Guidance).
• To make clear that the appropriate sanction for individuals who commit sexual misconduct, discrimination, or any form of harassment will usually be suspension/strike off, with fines being an unsuitable penalty save in exceptional circumstances (see Enforcement Strategy (section 2.2) and Guidance). However, in a recent case, the SDT fined a partner £30,000 for ‘handsy’ behaviour towards a female solicitor, whom he had met at a networking function and who had made clear to him that his actions were unwanted. The SDT is reported to have found the conduct to be sexually motivated and “significantly serious”, but not serious enough to justify a suspension or strike off. 

7. Economic Crime: The Economic Crime and Corporate Transparency Bill moving through Parliament  contains provisions which would enable the SRA to impose unlimited fines in cases where a firm’s actions or omissions have inhibited the prevention or detection of economic crime. The provisions also give the SRA enhanced powers to call for information/documents relating to the prevention or detection of economic crime and make such prevent and detection a regulatory objective.

• The Bill also contains a new corporate criminal offence of “failure to prevent fraud” which will make an organisation (including a professional firm) criminally liable where an associated person (an employee, agent, subsidiary or someone performing services for/on behalf of the organisation) commits a fraud offence with the intention to benefit the organisation or a client. Our colleagues cast a critical eye over the likely effect of this new offence, including the complications introduced by its intersection with civil lawsuits and (for professional firms) regulatory oversight in a recent article here. Amendments narrowly passed by the House of Lords this week have, inter alia (1) extended the proposed offence so it applies not just to “large organisations” (as defined in a previous draft of the Bill) but to any body corporate or partnership, irrespective of size and (2) added an additional offence in some cases of failure to prevent money laundering. We shall continue to track the passage of the Bill and note that there may be further changes before both Houses agree the exact provisions which will become law.