Compliance-based Entity Regulation: Questions and Answers

There are a number of ways of measuring the impact of any regulatory change, if the Law Society were to implement compliance-based entity regulation.  Based on the experience in other jurisdictions, one possibility might be to examine the number of complaints about practice management issues to see if there was a decline following the introduction of Compliance-Based Entity Regulation, in the event that Convocation decided to implement it in some form.  

Another possibility would be to survey licensees regarding their perception of the impact of self-assessment on their practice management.

In Australia, practitioners were surveyed about their experience of self-assessment and indicated that the experience had a positive influence on firm management, risk management, and client services issues.  This is discussed in the Call for Input paper at p. 9.  At p. 10-11, the paper notes that lawyers and paralegals who have been involved in the Law Society’s Practice Review or Practice Audit have provided positive feedback about these initiatives.

The proposed Practice Management Principles reinforce the ethical guidance in the Rules of Professional Conduct and the Paralegal Rules and Guidelines.    In that sense, this initiative builds on the existing regulatory framework. 

As noted in the Call for Input paper, there is increasing recognition of the importance of practice environment in determining an individual’s professional conduct. A firm generally sets the overall practice standards for those within the firm. Firms often develop their own cultures, distinct from the culture of individual lawyers and paralegals in the firm. Firm policies and practices in areas such as the management of trust accounts, marketing and advertising, and service standards, are all currently the individual responsibility of all the licensees in a firm.

However, the reality is that these practices are the responsibility of the firm to develop and the practitioner may be required to follow them. This means that, in effect, some of the responsibility for common firm practices is a matter for the firm directly. As such, it seems appropriate, and likely more efficient to require the firm to manage and be accountable for these responsibilities.

However, while the focus of a new proactive approach would be on the entity, or practice, itself, lawyers and paralegals would continue to be subject to Rules of Professional Conduct or Paralegal Rules and Guidelines.   In that sense, lawyers and paralegals would continue to have individual professional responsibilities.

At page 12 of the Call for Input paper, there is a discussion of the continuum of regulatory responses from the Law Society, in the event that compliance-based entity regulation were to be implemented. If an entity were having difficulty implementing or complying with practice management principles, the Law Society might contact the entity to discuss the reasons for the entity’s non-compliance, and whether its policies and procedures might be improved.

Another possible approach might be a compliance audit similar to the current Practice Management Review program for lawyers, described in the paper. The objective of the compliance audit, or review, would be to assist the entity to ensure that it had implemented the practice management principles. Your concern regarding regulatory responses to practitioners who are misleading in their reports is noted and will be considered by the Task Force.

As indicated earlier, Convocation has not made any decisions yet about how self-assessment might occur. As discussed in the consultation paper, one option could be that practitioners would be asked to indicate their compliance with a particular principle on a scale of 1-5. 

The Law Society may explore whether the benefits of compliance-based entity regulation might be achieved through enhanced CPD requirements, rather than by making changes to the regulatory system.

In the consultation paper, there is some discussion about the benefits of proactive regulation.  On pages 10-11, there is a discussion of feedback received by lawyers and paralegals who have participated in Practice Management Review or Practice Audit. Lawyers and paralegals who participated provided extremely high approval ratings for the program.