In-House Out: Not Passing The Buck

Date: 24/11/11

The Solicitors Regulation Authority’s (the SRA) new, streamlined, outcome-focused Code of Conduct (the Code) came into force on 6^th October 2011.

Gone, we are told, are the days of prescriptive rules supported by guidance. Instead the Code (and its mandatory outcomes and non-mandatory indicative behaviours) is designed to deliver flexibility and empower lawyers to tailor their systems to best protect their clients and to suit their practice.

In particular the SRA has responded to the increased use of outsourcing amongst lawyers by providing more guidance than the Code’s predecessor on this issue.

This e-brief looks at the outsourcing of legal work by in-house lawyers to external lawyers, the implications this may have, and what regulatory responsibilities the Code imposes on you as an in-house lawyer.

The Usual Scenario

A piece of legal work lands on your desk. It’s not something you’ve seen or done before, and from a risk perspective, you decide its best to outsource the job to external lawyers. You engage a panel firm and instruct them accordingly.

But have you done enough to fulfil your duties under the Code? After all, the Code regulates all lawyers, not just those in law firms. Just because external lawyers are also duty bound under the Code, does not mean that you can abrogate responsibility for compliance with regulatory requirements. The buck cannot be passed that easily.

So, what do you need to be thinking about?

Are you acting in your clients’ best interests?

The Code imposes a duty on you to act in your clients’ best interests, including by ensuring client information is kept confidential and there are no conflicts of interest (both of which are particularly important where any legal work is outsourced).

When anything is sent out-of-house there is always a risk to confidentiality.

You should always:

• Make sure the person you instruct has a proven track record
• Only instruct someone you know has all of the appropriate measures and procedures in place to ensure absolute confidentiality
• Make your client aware that work may be outsourced; and
• Consider if you need your client's specific consent to the outsourcing proposal.

Remember, if there is a breach of confidentiality, even at the external advisor's end, you may find yourself at risk.

Are you providing a proper standard of work?

Does the firm you are outsourcing to have the requisite experience and expertise to deliver what is required of them? Under the Code you must provide a proper standard of service to your clients; this relates not only to the quality of service you provide, but the quality of service provided vicariously by your external lawyers.

Are you consistently being provided with good quality work? If not then you may be at risk… and not just from a regulatory point of view!

Are you managing risk effectively?

When outsourcing your legal work it should not be a case of out of sight out of mind. Risk must be monitored at all stages of the outsourcing relationship, not just at the outset. This means making sure you can communicate effectively with your external lawyers – and they with you. A good working relationship is key to any successful arrangement.

Risk can come from lots of angles when outsourcing, be it compliance with the Code, compliance with legislation or compliance with FSA regulation.  It is important that you can identify possible operational and business risks such as complaints, credit risk and exposure and data protection issues. You must be able to manage these risks and the Code expects you to do just that.

It is also worth noting that the SRA now wants you to ensure that when you are outsourcing legal and business critical activities, contractual arrangements are in place allowing the SRA to obtain information from, inspect the records of, and enter the premises of your outsource provider. External lawyers should have no problem with this, but you need to make sure such a risk is covered off in your engagement.

What’s the good news?

Although there are obligations on in-house lawyers when outsourcing, which should be heeded and adhered to seriously, having a professional party at the other end that is also regulated by the Code should make the process easier. If you choose well, and monitor throughout, then your outsourcing should be risk free.