Closed Consultation

Summary

This consultation sets out the contents of the SRA's proposed new Overseas Rules.

Purpose of Consultation

• 1.

  This consultation is intended to elicit any final comments on points of drafting detail on the proposed new section of the SRA Handbook on Practising Overseas and consequential amendments.

• 2.

  A public board paper published in April 2013 summarised the responses to the SRA's December 2012 consultation and explained how we proposed to adapt our approach as a result of the feedback received. This paper does not seek to duplicate this discussion with an analysis of why changes may or may not have been adopted, but instead focuses on what is now proposed.

• 3.

  Our proposals break down into the following:

  • A new Overseas Rules section of the Handbook which contains code of conduct and other provisions relating to practice in other jurisdictions (Annex 1).
  • New glossary terms (Annex 2).
  • Two new related domestic outcomes 7.11 and 7.12.
   
• 4.

  We are, however, conscious that there are other related issues which need to be dealt with, notably in the Practising Framework Rules. These rules are complex and we want to ensure that any changes which we propose are given proper and detailed consideration by all those concerned. We are therefore proposing at this stage simply to make the minimum consequential technical changes to the Practice Framework Rules and the Authorisation Rules to ensure that they enable our proposed approach to 'practising overseas'. This will allow us to clarify the regulatory framework for practising overseas in the October update of the SRA Handbook but we will nonetheless be looking to make further revisions to the Practising Framework Rules in the near term.

Explanatory note on proposals

• a)

   New Overseas Rules

• 5.

  Annex 1 sets out the new Overseas Rules. The structure, position and content of this section of the SRA Handbook are all worth noting.

• 6.

  In terms of structure, we are now proposing that the Overseas Rules are contained within an entirely separate section of the Handbook rather than as a chapter within the Domestic Code of Conduct. We feel that this has a number of advantages:

  • First, it allows us to draw a much sharper distinction between the regulatory approaches to be followed domestically and overseas; the overseas conduct provisions therefore, do not contain outcomes and indicative behaviours but are instead purely principles based.
  • Secondly, it allows us to bring all of the existing Handbook requirements governing 'practising overseas' together in one place as a self-contained source of all applicable requirements. The draft attached to this consultation indicates that consequential amendments in relation to accounts rules, etc., will follow as provisions from other sections of the Handbook relating to practising overseas are moved into this section.
  • Thirdly, it allows us to include provisions such as reporting requirements which would not sit easily in a chapter that contained pure conduct requirements.
  • Fourthly, it provides a flexible framework which will be easier to add to or amend, in future, should that be necessary.
  • And last, but by no means least, it allows the SRA to designate staff who 'own' these rules and who therefore become specialised in their application and who can see these as distinct from the rules applying to domestic practice.
   
• 7.

  In terms of the positioning of the Overseas Rules within the Handbook, we are proposing that this now sits after the sections relating to domestic practice but before the section on Specialist Services. We also propose that the existing annex to the Specialist Services section of the Handbook on Crossborder European Rules is then moved to become an annex of the Overseas Rules section. This will also provide the framework into which we could elaborate a UK regime which would be able to deal inter alia with the anomalies of treating other UK lawyers who are managers in SRA authorised bodies as 'registered foreign lawyers', the difficulties of managing the regime for Registered European Lawyers and European law firms and the increasing level of dual practice and integration between English and Welsh and Scottish firms.

• 8.

  In terms of the detailed content, we would draw the attention of consultees to the following.

• 9.

  There is now an extended introduction to the section on practising overseas which sets out:

  • The underlying purpose of the Overseas Rules;
  • to whom and the circumstances in which they apply;
  • the consequences of failure to comply;
   
• 10.

  The proposed new section then sets out conduct provisions governing practice overseas. These are based on compliance with the SRA principles which have been slightly modified to make them more relevant to overseas practice and to reflect the fact that the compliance of the overseas practice with the Principles is the responsibility of the Responsible Authorised Body in England and Wales. The key changes are as follows:

  • (i)

    Principle 1 has been modified from "Uphold the rule of law and the proper administration of justice" to "Uphold the rule of law and proper administration of justice in England and Wales". This addition is made because, in practice, the administration of justice and the role of the courts varies widely between jurisdictions and the 'rule of law' is not always easy to define. For these reasons we decided that the qualification was necessary.

  • (ii)

    Principle 6 has been modified from "Behave in a way that maintains the trust the public places in you and in the provision of legal services" to become "Not do anything which will, or be likely to bring into disrepute yourself, your responsible authorised body, or, by association, the legal profession in, and of, England and Wales. This formulation is considered to be: a) more relevant and b) more useful in determining the behavioural backstop for authorised individuals and entities. This section also notes that this principle cannot be overridden, even in circumstances where there might be a clash with local law and/or regulation.

  • (iii)

    Principle 7 has been modified to make it clear that compliance obligations and dealings with regulators apply only to those that stem from England and Wales. However the SRA does require firms overseas to comply with their local regulatory obligations and this is made a separate requirement in the Overseas Rules.

   
• 11.

  Rule 2 then sets out to whom and in what circumstances these Overseas Principles would apply. The new glossary definitions are key to understanding these application provisions and are explained in more detail below. Our intention is to require compliance with the Overseas Principles by all solicitors practising overseas, all managers in overseas practices and, where there are entity related provisions, to the overseas practice itself.

• 12.

  Finally, Rule 3 sets out the full reporting and notification requirements that would accompany this section of the Handbook. The SRA's intention is only to require monitoring and reporting in relation to material and systemic issues.

• b)

  New glossary terms

• 13.

  Annex 2 sets out four new glossary terms which will be key to the interpretation and understanding of the obligations contained in the new Handbook section: 'Practising overseas', responsible authorised body', 'An overseas practice' and 'connected practice'.

• 14.

  These definitions can be understood as follows:

  • Practising overseas is the activity which is undertaken by both regulated individuals and bodies. It implies establishment in another jurisdiction rather than the provision of services cross border or on a fly-in fly-out basis. This is to ensure that solicitors practising temporarily in other jurisdictions cannot evade domestic requirements which would properly apply to them. We have given some guidance on when 'establishment' is deemed to have occurred. These are not rigid criteria which must all be fulfilled but are to be regarded as indicators.
  • A responsible authorised body is the authorised body or recognised sole practitioner in England and Wales which has established an operation in another jurisdiction. The purpose of this definition is to allow us to link overseas practices to a body authorised in England and Wales. It also allows us to make reporting and notification requirements the responsibility of the responsible authorised body in England and Wales.
  • An overseas practice refers to a body established overseas under the control of an SRA authorised body or recognised sole practitioner in England and Wales (the 'responsible authorised body'). An overseas practice will be subject to the Overseas Principles in order to ensure that there is nothing in the conduct of an overseas arm of an SRA authorised body or recognised sole practitioner that might undermine the SRA's regulatory objectives or the reputation of the profession in England and Wales.
  • 'A connected practice' refers to a body overseas with which an SRA authorised body or recognised sole practitioner has a substantive business relationship, as set out in the definition, but which is not under its control. There is no intention to impose any obligations on the 'connected practice' itself. Rather the intention is to ensure that authorised bodies and recognised sole practitioners are conscious of and managing the risks arising from their wider international relationships which are not under their control.
   

• c)

  Consequential domestic code changes

• 15.

  There is a need to make some changes to the 'domestic code of conduct' in order to reflect the new requirements on practising overseas. These changes will do three things:

  • First, set out the obligations of the responsible authorised body in relation to its overseas practices and connected practices under the domestic code. An early version of proposed new outcome 7.11 was included in the December consultation. A revised version and a new outcome 7.12 are set out in Annex 3.
  • Secondly, delete any redundant provisions from the 'domestic code of conduct' in relation to practice from an office outside England and Wales.
  • Thirdly, ensure that the obligations of authorised persons and bodies are clear when they are conducting practice abroad but from a base in England and Wales rather than on an established basis overseas. As a general rule of thumb, an authorised person flying into another jurisdiction will be expected to follow local law and rules in the host jurisdiction and the latter will take precedence in case of a conflict of rules. However, the domestic outcomes will still need to be applied in order to avoid loopholes e.g. in relation to obligations to the Court, for example. In the case of practice within the European Economic Area and Switzerland, these provisions are supplemented by the European Cross Border Rules which will now appear as a sub-section of the new overseas part of the Handbook.
   
• 16.

  It may on the face of it seem unnecessarily complicated to make the distinction between overseas practice and cross border practice, but by doing so we are able to impose much more proportionate obligations on practices and individuals entirely established outside England and Wales, as well as to lay the groundwork through the definitions of responsible authorised body and overseas practice for better targeted regulation of bodies established overseas.

• 17.

  There is some additional housekeeping required in other sections of the Handbook to ensure that obsolete references to overseas practice are removed but these are purely technical changes which flow from the above and they will be made as part of the general October Handbook exercise.

How we propose to implement this approach

• 18.

  We intend to include the proposals contained in this consultation in the October 2013 edition of the Handbook in order to clarify the overseas conduct and reporting obligations of responsible authorised bodies. There will, however, need to be a transitional period between October 2013, when the conduct obligations are introduced, and the practising certificate renewal exercise in 2014 when authorisation and practising framework requirements are fully brought into line. This will allow us to design the authorisation scheme for overseas practices in the light of further discussion with responsible authorised bodies. However the overseas principles and reporting of material breaches will be expected to apply to overseas practices and regulated persons practising overseas from October 2013.

• 19.

  We have also not explicitly outlined the position governing in-house solicitors overseas in these proposed rules. This is deliberate because there is a wider review about to commence of in-house practice which we do not wish to cut across. In our view, the general approach proposed for individual solicitors overseas should work for most in-house solicitors overseas and we will pick up any further nuances as a result of the wider review. However, we would welcome views from consultees with comments on this point.

Conclusions

• 20.

  This consultation and its annexes explain the SRA's proposed new regime for individuals and bodies practising overseas. We would welcome views on the specific drafting proposed. The consultation period proposed is relatively short given that we have held two previous consultations, issued a public Board paper in April, which outlined the broad parameters of our approach, and conducted extensive discussions with interested parties.

• 21.

  The consultation will be open until 25 June 2013.

Annex 1

SRA Overseas Rules 2013

Introduction to the Overseas Rules

Although the SRA primarily regulates the provision of legal services by solicitors, firms and other authorised persons practising in England and Wales, it also needs to provide a regulatory framework for authorised persons and bodies established overseas in order to take account of the regulatory risk they pose in England and Wales. This must be proportionate, reflecting the different level and type of risks posed to the SRA's regulatory objectives by practising overseas, as well as the existence, in many jurisdictions, of local regulatory requirements.

These rules¹ apply to individuals and bodies practising overseas and to responsible authorised bodies. The SRA Code of Conduct does not apply to individuals and bodies practising overseas since its requirements are, in many cases, not relevant to, or may have a disproportionate impact on them.

These rules are the starting point for the conduct of SRA regulated individuals and authorised bodies providing legal services outside England and Wales. They are modified from the general SRA principles, in order to take account of the different legal, regulatory and cultural context of practice in other jurisdictions, which may require different standards of conduct than required in England and Wales. Regardless of these differences, there is no intention to imply a lower standard of general behaviour; regulated individuals practising overseas and responsible authorised bodies are therefore required to ensure that they, or those for whom they are responsible, behave in a way which meets both the SRA's Overseas Rules and its character and suitability requirements.

Regulators in many other jurisdictions rely on certificates of good standing granted by the SRA to regulated individuals and authorised businesses who wish to practise overseas and, in many cases, they will also expect and require that the SRA's regulatory oversight, will continue to operate alongside the local regulatory regime. Nonetheless, applicable law and local regulation should prevail in circumstances in which compliance with the overseas principles would create difficulties, with the exception of principle 6 which must be observed at all times.

In addition to the obligations of those individuals practising overseas, the SRA also requires that a recognised sole practitioner or authorised body in England and Wales will identify, monitor and manage risks arising from its overseas practices or connected practices to ensure they do not undermine its financial viability, or its ability to fulfil its compliance and regulatory obligations, its reputation and that of SRA regulation and the legal profession of England and Wales in general. These obligations are also present in the domestic Code of Conduct.

A failure to meet these obligations may result in the SRA taking regulatory action against an individual or an authorised body and its managers. Such action may include limiting, or removing, the right to practise as an authorised body or individual regulated by the SRA.

¹ The intention is to consolidate all requirements relating to overseas practice such as accounts rules and indemnity insurance, etc., into these rules.

The SRA Overseas Rules 2013

Preamble

The SRA Overseas Rules dated [date] commencing [date] made by the Solicitors Regulation Authority Board under sections 31, 79 and 80 of the Solicitors Act 1974, sections 9 and 9A of the Administration of Justice Act 1985 and section 83 of the Legal Services Act 2007, with the approval of the Legal Services Board under paragraph 19 of Schedule 4 to the Legal Services Act 2007 regulating the conduct of solicitors and their employees, registered European lawyers and their employees, registered foreign lawyers, recognised bodies and their managers and employees and licensed bodies and their managers and employees.

Rule 1 - The Overseas Principles

• 1

  You

  • (a)

    as a regulated individual practising overseas must ensure that you; or

  • (b)

    as a responsible authorised body must ensure that your overseas practice, and individual managers, members and owners of your overseas practice (those for whom you are responsible);

   

(1) Uphold the rule of the law and the proper administration of justice in England and Wales

Your obligations to clients, the court and third parties in England and Wales with whom you are dealing on behalf of your clients are unaffected by the location outside of England and Wales from which you practise or by the location of your overseas practice.

(2) Act with integrity

Personal integrity is central to your rule as the client's trusted adviser and should characterise all of your professional dealings with clients, the court, other lawyers and the public wherever they are being conducted. You should use your judgment when considering how best to maintain your integrity at all times and avoid any behaviour outside England and Wales which undermines your character and suitability to be an authorised person. A responsible authorised body should ensure that its overseas practice observes the same standards.

(3) Not allow your independence or the independence of your overseas practice to be compromised

'Independence' means your own independence and that of your firm and your overseas practice, and not merely your ability to give independent advice to a client. You should avoid giving control of your overseas practice to a third party beyond any statutory or regulatory local ownership requirements.

(4) Act in the best interests of each client

You should act in good faith and do your best for each of the clients for whom you are (or your overseas practice is) acting. In particular, you should follow the local legal or regulatory requirements of the jurisdiction in which you or your overseas practice are practising in relation to confidentiality and conflicts of interest. If no such requirements exist you should be guided by what you consider the best interests of each client in the circumstances.

(5) Provide a proper standard of service to your clients/the clients of your overseas practice

You should provide a proper standard of client care and work. This includes exercising competence, skill and diligence and taking into account the individual needs and circumstances of each client as well as the particular requirements and circumstances of the jurisdiction in which you are working. You should inform clients by whom the legal services provided to them are regulated, what client protections are in place for them and whether they have the benefit of professional indemnity insurance or other indemnity.

(6) Not do anything which will or be likely to bring into disrepute the overseas practice, yourself as a regulated individual or responsible authorised body or, by association, the legal profession in and of England and Wales

This includes any behaviour which occurs within or outside your professional practice which undermines your own reputation, that of the practice within which you are a manager or solicitor employee, or the wider reputation of the legal profession in and of England and Wales.

(7) Comply with your legal and regulatory obligations in England and Wales, and deal with your regulators and ombudsmen in England and Wales in an open, timely and co-operative manner and assist and not impede any authorised person or body practising in England and Wales in complying with their legal and regulatory obligations and dealings with their regulators and ombudsmen

You should ensure that you and those for whom you are responsible comply with all of the reporting and notification requirements that apply to you and respond promptly and substantively to communications. You should ensure that you (and those for whom you are responsible do not cause, contribute or facilitate a failure to comply with the SRA's regulatory arrangements by any authorised person or body practising in England and Wales. Individuals practising overseas should assist their responsible authorised body to comply with its regulatory obligations to the SRA.

(8) Run your business/the business of your overseas practice or carry out your/their role in the business effectively and in accordance with proper governance and sound financial and risk management principles

As a responsible authorised body you are required to ensure that your relations with your overseas practise accord with sound governance, financial and risk management principles. You should ensure that those for whom you are responsible assist you in meeting your obligations to the SRA in relation to managing any risks that your overseas practice might pose to your operations.

(9) Run your business/the business of your overseas practice or carry out your/their role in the business in a way that encourages equality of opportunity and respect for diversity

Every jurisdiction has its own legal, regulatory and cultural framework for equality and diversity. The SRA does not expect, or require, its authorised individuals or bodies practising overseas to approach these issues as they would in England and Wales. It does, however, expect that SRA authorised individuals and bodies will, within whatever legal, regulatory and cultural context in which they are practising overseas, do what they reasonably can to encourage equality of opportunity and respect for diversity.

(10) Protect client money and assets.

You and those for whom you are responsible should comply with local regulatory requirements in relation to client money, documents and assets and, in any event, you should ensure that they are protected appropriately

Rule 2 - Application

• 2.

  With regard to the principles set out in Rule 1:

  • 2.1

    They apply in full to you, if you are a regulated individual practising overseas or a responsible authorised body.

  • 2.2

    You will be committing a breach if you permit another person to do anything on your behalf, which if done by you, would constitute a breach.

  • 2.3

    You should ensure that you and those for whom you are responsible comply with all legal and regulatory obligations applicable in the jurisdiction outside England and Wales in which you or they are practising. You and those for whom you are responsible should not cause, contribute to or facilitate a failure to comply with those legal or regulatory arrangements by any other person or body subject to them.

  • 2.4

    Where there is a conflict between the Overseas Principles and/or the Reporting Requirements on the one hand and any requirements placed upon you or those for whom you are responsible by local legal or regulatory obligations on the other hand, the latter shall prevail, with the exception of principle 6, which must be observed at all times.

  • 2.5

    Nothing in these rules removes or modifies the requirements under the Legal Services Act 2007, for authorisation to be obtained for the delivery of reserved legal services.

  • 2.6

    If you are a solicitor and your practice predominantly comprises the provision of legal services in England and Wales then, regardless of where you are established, the SRA will apply the full Handbook to your practice.

   

Rule 3 - Reporting Requirements

• • 3.1

    The SRA does not expect or require the same level of detailed monitoring, reporting and notification from those practising overseas as it would expect of authorised individuals and bodies in England and Wales. It does, however, require that material and systemic breaches are monitored and reported to it when they occur. Notifications by the compliance officer of a responsible authorised body, or by another person on behalf of an overseas practice will satisfy these requirements without separate notifications from each individual or body who has knowledge of the breach.

  • 3.2

    The level of reporting the SRA expects is proportionate to the level of regulatory risk posed by an overseas practice. You must notify the SRA of any material or systemic breaches of the overseas principles that apply to you or those for whom you are responsible. In this context, you will be required to:

    • 3.2.1

      Notify the SRA, if you, or any of the partners, managers, solicitor employees or other professional employees in your overseas practice, are convicted by any court of a criminal offence or become subject to disciplinary action by another regulator;

    • 3.2.2

      Notify the SRA immediately if you believe that your firm or your overseas practice is in serious financial difficulty;

    • 3.2.3

      Provide the SRA with documents held by you or your overseas practice, to which it is entitled, and any necessary permissions to access information as soon as possible following a notice from the SRA to do so.

    • 3.2.4

      Provide the SRA with an annual return which

      • a. identifies the contact details of the office(s) from which you are, or your overseas practice is practising, and
      • b. confirms that you have fulfilled your reporting and notification obligations.
       
     
   

[NB. Other provisions relating to overseas accounts rules, overseas provisions in relation to professional indemnity insurance, etc., will be consolidated into this section].

Annex 2: New glossary definitions

Overseas practice

'an overseas practice' means:

• (a) a branch office of an authorised body;
• (b) a subsidiary company of an authorised body;
• (c) a subsidiary undertaking, within the meaning of section 1162 of the Companies Act 2006, of an authorised body;
• (d) an entity whose business, management or ownership are otherwise in fact or law controlled by an authorised body or recognised sole practitioner;
• (e) an employee (but not of (a) to (d) above) of an authorised body or recognised sole practitioner; or
• (f) a sole principal whose business, management or ownership are otherwise in fact or law controlled by an authorised body or recognised sole practitioner,

established outside of England and Wales and providing legal services but which does not carry out reserved legal activities and whose practice does not predominantly comprise the provision of legal services to clients or in relation to assets located in England and Wales.

Responsible authorised body

The 'responsible authorised body' in respect of an overseas practice is the authorised body or recognised sole practitioner referred to in whichever of paragraph (a) to (f) of the definition of 'overseas practice' as is applicable to that practice.

Connected practice

'Connected practice' means a body providing legal services, established outside of England and Wales;

• (a) which is not an overseas practice;
• (b) but is otherwise connected to,
  • (i) an authorised body in England and Wales which if it is part of,
    • a Verein or similar group structure providing legal services, the authorised body is the headquarters of the Verein or group structure, or of a significant part of that Verein or group structure;
    • a joint practice, the authorised body is not a branch office or a subsidiary of the body established outside England and Wales; or
     
  • (ii) a recognised sole practitioner in England and Wales;
   
• by virtue of:
  • (iii) being a parent undertaking, within the meaning of section 1162 of the Companies Act 2006, of the authorised body;
  • (iv) being jointly managed or owned, or having a partner, member or owner in common, or controlled by or, with the authorised body;
  • (v) sharing costs, revenue or profits related to the provision of legal services with the authorised body or recognised sole practitioner; or
  • (vi) common branding.
   

A 'body' means a natural person or company, LLP or partnership or other body corporate or unincorporated.

Practising overseas

'Practising overseas' means the practice:

• (a) of an overseas practice;
• (b) in that capacity, of a manager, member or owner of an overseas practice; and
• (c) a solicitor established outside England and Wales for the purpose of providing legal services in an overseas jurisdiction.

Guidance

• The question of whether an individual is established outside England and Wales will be fact specific but the following factors may tend to indicate permanent establishment:
  • a requirement for a work permit;
  • the intention to reside outside of England and Wales for a period of 6 months or longer;
  • a requirement for authorisation with local regulatory body;
  • an overseas practising address nominated in mySRA;
  • an employment contract with a legal practice established outside England and Wales

Annex 3: New related domestic outcomes

Draft Outcome 7.11 and 7.12 (Management of your business)

• O(7.11)

  You identify, monitor and manage the compliance of your overseas practices with the Overseas Rules.

• O(7.12)

  You identify, monitor and manage risks to your business which may arise from your connected practices.

• IB(7.4)

  you maintain systems and controls for managing the risks posed by any financial inter-dependence which exists with your connected practices.

• IB(7.5)

  you control the use of your brand by any body or individual outside of England and Wales which is not an overseas practice.