In this two part article, we provide a case study on the importance of effective supervision, review the SRA's guidance and provide some top tips.
A case study
Picture this scenario – you are a partner in a law firm. You supervise a trainee who has day to day conduct of residential conveyancing matters. You and the trainee speak a number of times each day to discuss and answer queries, with a file review being conducted by you prior to both exchange and completion. Approvals of payments out would be authorised by you. So far so good as far as supervision is concerned, you might think?
Two instructions come in a month or so apart for sales of two properties by different sellers, both of them using the same estate agent. Trainee meets the sellers (and the estate agent who had accompanied them) in person and obtains their driving licence ID and a utility bill addressed to the client at the property.
In relation to property sale 1, the client is Chinese. The firm gives an undertaking to the buyers' solicitors that they have taken reasonable steps to establish their client's identity and connection to the property being sold. There is evidence that the seller is able to obtain gas and electricity certificates for the property and the firm is also in possession of a letter from the local council confirming that, whilst being entitled to first refusal, they did not wish to proceed with purchasing the property. This letter is undated, unsigned and bears no reference. It is forwarded to the buyers solicitors at their request.
In relation to property sale 2, the buyers' solicitors ask for a copy of a commercial lease relating to part of the premises and the trainee is able to obtain this from the client and provide it to them. The initial asking price for this property was £63,000 but is reduced to £50,000 for a quick completion.
The day before completion of property sale 1, client meets trainee accompanied by a third party who is introduced as the client's son. Client asks the firm to transfer the sale proceeds to her son's bank account on completion and a declaration is drafted and signed to that effect. Son is a white male and a copy driving licence is obtained matching the name of the bank account with an address in a small town in Scotland (a different area to where the property being sold is located). It completes the following day and you authorise the funds to be transferred to the client's son's bank account.
Two days before completion of the sale of property 2 (and approx. 1 month after property sale 1 has completed), client 2 explains to trainee that he owes his ex-wife some money and asks the firm to transfer the sale proceeds on completion to a third party who he explains is his ex-wife's new partner. Copy driving licence for this payee is obtained showing an address (albeit different) in the same small Scottish town as in property sale 1. On completion, you again authorise payment to this payee.
You might be able to guess where this is going? Spot any red flags/breaches in either or both of these property purchases, perhaps?
These are the facts of an SDT Agreed Outcome against a solicitor partner which reinforces the importance of effective supervision and training. In the case of SRA v Gurpralad Landa Singh (a second partner was also sanctioned in the same proceedings for unrelated matters), Mr Singh agreed to accept a fine of £12,500 for breaches (under the SRA Handbook 2011) of Principles 6 and Outcomes 7.6 and 7.8 Code of Conduct and of 14.5 SRA Accounts Rules 2011 (banking facility).
The Agreed Outcome, whilst noting (para 71) that it was not known whether the two transactions were in fact property hijacks, found that in his capacity as supervisor, he failed to provide adequate training to be able to spot red flags in respect of the two transactions that bore the hallmarks of property hijacks and that he had failed to properly supervise a poorly trained trainee.
The trainee failed to spot the obvious hallmarks and to make enquiries about them. That indicated a lack of adequate training.
It made clear in finding a breach of P6 that the "public expects solicitors charged with the day to day conduct of a case to be in a position to identify obvious hallmarks of fraud and either to make further enquiries into this or cease to act. It would be alarmed by a solicitor who put a trainee into a position where they were not adequately prepared to carry out this basic task."
In relation to the breach of O7.6, it added that "If a trainee was unable to spot these obvious hallmarks of a property hijack he should not have been given the degree of autonomy that he was"
And in relation to breach of O7.8 –"if the system allowed these obvious hallmarks of a property hijack to escape the net, the supervision system was inadequate."
So what were the red flags which the SRA alleged were obvious hallmarks of property hijacks?
The judgment listed six (and you might want to use the case study for your own training purposes to see how many your own teams spot?!):
- The letter from the council was an obvious forgery
- The Chinese client claimed to have a white son.
- 2 sets of payments in apparently unconnected transactions were made to individuals with an address in the small town in Scotland
- The request to transfer the sale proceeds to third parties instead of the vendors who could then transfer the funds as they wished
- The significant reduction in purchase price on property sale 2
- The pressure to complete both sales quickly
Whilst the respondent's and trainee's evidence was that they would speak several times each day with a file review pre-exchange and completion, it was held that these obvious hallmarks ought to have been picked up as part of that process and "the fact that they were not demonstrates that that supervision was inadequate".
Why supervision is so important
In November 2022, the SRA published a detailed guidance note on effective supervision. The guidance and the Singh case are timely reminders of our obligations around supervision. In January 2023, the SRA made it very clear in its response to the LSB's statement of policy on ongoing competence that it will start collecting firm data on first-tier complaints and professional indemnity insurance claims, will do spot checks, and conduct audits and file reviews and as part of that, will expect to see evidence of supervision, quality checks and training records. In the same way as it is difficult to defend PII claims if there is no evidence of what was said/done on the file, so it is for defending any action brought by the SRA for supervision failures.
Supervision covers a whole range of issues including things like performance management, capacity and resource, training and knowledge sharing (very relevant in the aforementioned case study) and being alert to employees' mental health and well-being (which is a topic for another day!).
It is incredibly important for a number of reasons including:
- The SRA requires it
- PII insurers expect it
- It gives confidence in the quality of service to clients
- It supports competency, learning and development
- Is indicative of a supportive firm culture and therefore good for recruitment/attraction of talent
- It protects the firm's reputation
Lack of supervision is one of highest causes of claims and this was the case even before more people started working from home during and post-COVID and which has brought additional considerations when supervising remotely or hybrid.
It's clear that proper supervision will reduce the risk of things being missed whether it be crucial advice within a report, a key date, the use of an old template/precedent (see the findings in SRA v David Carter Hughes) or as in the case study, the hallmarks of fraud. Insurers and the SRA will want to see a clear strategy and evidence of supervision taking place.
So what is expected of us from a regulatory perspective in relation to supervision? In Part 2 of this insight, Michelle Garlick will review the SRA's guidance and provide top tips on implementing an effective supervision strategy.
SRA's guidance note on effective supervision
In part one we reviewed a case study on the importance of effective supervision and training. In this follow up article, Michelle Garlick discusses the Solicitors Regulation Authority's (SRA) guidance note on effective supervision and offers tips and takeaways for firms.
In November 2022, the SRA published a detailed guidance note on effective supervision. It was a timely reminder of our obligations because in January 2023, the SRA made it very clear in its response to the LSB's statement of policy on ongoing competence that it will start collecting firm data on first-tier complaints and professional indemnity insurance claims, will do spot checks, and conduct audits and file reviews and as part of that, will expect to see evidence of supervision, quality checks and training records. In the same way as it is difficult to defend PII claims if there is no evidence of what was said/done on the file, so it is for defending any action brought by the SRA for supervision failures.
The key points of the guidance to note are that if you are a qualified solicitor supervising client work, you need to do so effectively and you remain accountable for the work done by those you are supervising. You also have to make sure that they are competent and that they keep their knowledge and skills and their understanding of legal, ethical and regulatory obligations (3.5 and 3.6) up to date.
There are similar provisions in the Code for Firms (4.4 and 2.1) to ensure that firms have effective systems and controls in place to comply with all legislative and regulatory requirements, including supervision.2 Remember also that regulated work must be supervised by at least one person who has practised as a lawyer for at least 3 years.
The latest SRA guidance sets out four key themes of the approach the SRA expects a firm and their managers to follow when considering supervision. It also gives guidance on particular situations and areas of legal work as well as good practice examples. Whilst there isn't anything new or ground-breaking in the guidance, it highlights lots of common-sense suggestions that are worth considering in your firms when applying a risk-based approach, based on the type and nature of the services you offer.
It is a must read for COLPs, supervisors and those responsible for training.
The four key themes
The four key themes that the SRA addresses are:
- The need for supervision
The guidance stresses the accountability point already mentioned and the requirement to have at least one appropriately experienced person supervising the legal services.
- Appropriate supervision arrangements
It encourages firms to adopt a risk-based approach and sets out a list of factors to think about including:
- Risks for clients (loss of life/liberty/limited scope for redress?)
- Specific legal/regulatory requirements on who can supervise (e.g. reserved activities, immigration/claims management activities)
- Inherent risks – exercise of judgement v routine/administrative work?
- Client's circumstances/vulnerabilities
- Experience, competence and workload/level of support
- Capacity of supervisor
- Geographical location
- Nature of/ease of access to other support/tools/standardised processes
Ask yourself the who, what, where, when, how questions–
Who will supervise and be supervised (remember it's not just juniors who need supervising!); will you have different supervisors and line managers and what will be their roles?
What work will be supervised – will it be everything the supervisee does or will it be more limited? What will it entail?
Where - will it be face to face, remote, a mix? There is a section in the guidance on supervision in a hybrid and remote environment. Think about the importance of learning by osmosis, including the calls that junior fee earners could listen to if in the office that they won't hear if you as a supervisor are working from home and similarly, the calls that a supervisor might overhear a more junior lawyer conducting that might suggest a difficult client with a potential complaint that a supervisor's intervention might be able to nip in the bud.
When will the supervision take place? Will you have set times in the day/week/month and how regular will it be? Will you have team meetings to discuss problem cases/queries?
How – how many people will supervisor be responsible for and at what level. How does this fit with capacity? How detailed a file review might it be? Does it involve reviews of the documents on the file as well as discussions and questioning of the supervisee? Is there a file note of the discussion?
The factors set out in the guidance and above will help you decide the appropriate approach.
- Conducting supervision
The guidance expects supervisors to communicate directly with each person they're supervising often enough to make sure that the supervisor has clear oversight of the work being done, is readily available to support the person doing the work and can provide robust assurance that legal and regulatory requirements are being met. It also suggests that the supervisor should have some knowledge of each matter being progressed by the person being supervised and/or should monitor a meaningful sample of their work in addition to providing advice and guidance on specific matters (e.g. non-standard issues)
- Ensuring supervision is effective
And probably most importantly, the SRA makes it clear that it's not enough to just have arrangements in place – they need to be effective.
Any firm can have a written policy (and it's important that you do have one on supervision) but its what happens on the ground that is essential to ensuring compliance and minimising risk. Are your partners/supervisors doing what you say you do?
Many firms I've visited say they have a process of file reviews conducted by the partner in each department each month but there is either no evidence of this taking place or if there is such evidence, it will occasionally give an impression that it is just a tick-box exercise with very little thought or time devoted to it or alternatively they've chosen the smallest files (because they are quicker to do) rather than the more complicated/bulky ones.
The SRA also expects the firm to take pro-active steps to ensure that it is working effectively. It doesn't give much guidance on what that might involve but depending on the size of your firm, I would suggest things like:
- having a system of internal audit (outsourcing to experts can be useful for this if you do not have the internal resource or you are unsure if it is being done well enough);
- getting feedback from employees through performance reviews and surveys;
- reviewing claims and complaints for any trends where supervision might be lacking;
- making sure that supervision is documented and you are evidencing learning from mistakes;
- training supervisors;
- sharing knowledge through round table team meetings or training sessions.
The guidance has lots of good practice examples of what good supervision should look like and also covers specific areas of legal services which might be problematic including litigation, claims management activity, immigration and legal aid work so if you practice in these areas, take a careful look at it.
So finally – some further tips/takeaways
- read the guidance note!
- critically assess and discuss within your firms how well you do
supervision. What does good supervision and quality control look
like in your firm? Is everyone working to that standard? Here are
some questions to ask as a "starter for ten" when
- choose your supervisors and line managers carefully and where they are different, share feedback – they don't all have to be partners so think about the strengths and weaknesses that people have and give them roles which they will do well.
- are they approachable, available and 100% attentive?
- open door policy – what does this actually mean in your firm? Every firm I speak to says they have it but often when pressed or in our healthcheck questionnaires sent to fee earners, the feedback is that it can be difficult to get access to their supervisor. How has this been adapted for remote working?
- is there appropriate and supportive delegation? Are matter risk assessments carried out (not just for AML compliance!) to appropriately allocate the work based on capacity, skills, experience etc. Be alert to the instructions which at first look straightforward/process-driven/low margin work but can become more complex/time sensitive/a complaint risk etc.
- are instructions clear as to what is expected, timescales and role responsibilities?
- is there regular constructive feedback (both ways!) - good communication is essential and remember that it is a two way street, so supervisees also have responsibility to speak up, ask for clarification and chase supervisors if a deadline is looming. And if you are reading this as a trainee/paralegal/junior solicitor, remember that partners were in your position once and there is no such thing as a daft question!
- is there careful checking of drafts/file reviews and approval requests?
- record/evidence supervision – whether through time recording with a narrative or as a supervisory file note and by way of file reviews and internal auditing. Where you have internal auditors, be clear what are they checking for - they might be able to check for compliance with policies and procedures/Lexcel requirements etc but they may not be suitably qualified or experienced to check the quality of advice.
- what are the blockages preventing certain supervisors or the firm generally from providing effective supervision?
- who is responsible for 121s and peer file reviews and how do you make sure they are carried out?
- is there any recognition/allowances given for those who have greater supervisory responsibilities?
- do junior lawyers feel comfortable speaking up /admitting mistakes – how do you know?
- is your training, both firmwide and within the practice areas, robust enough? Use the case study from Part 1 (below,) if you have a residential conveyancing team to test their understanding of ID fraud red flags. Use alternative disciplinary cases to raise awareness and understanding. Learn from the firm's mistakes/claims by providing training on how they arose/near misses (anonymously of course to avoid embarrassment) and the cost to the firm.
Every firm will approach supervision differently and no one way is better than another as long as there is clear evidence that it is taking place. We can expect further activity from the SRA in relation to this and competency requirements generally in the future so be prepared now!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.