“Risk management” has been the buzz term in the solicitors’ profession since the end of the mutual Solicitors Indemnity Fund in 2000 and the switch to open market insurance. A significant number of claims and other problems still arise, however - not from lack of specialist legal knowledge but from straightforward oversights that might well be avoided by more effective office management and supervision.

For example, serious difficulties can arise when conflict of interest and confidentiality issues are not properly addressed and can result in unwelcome and high profile coverage. More commonly, something as simple as a missed time limit can result in a lost opportunity to pursue a personal injury claim or “right to buy” property transaction. As well as reducing public confidence in the profession, these oversights can result in hefty claims for the solicitors involved.

Small wonder, then, that the trend is towards addressing these problems at their source, through better supervision or effective office procedures such as diary management systems. This approach is reflected in the Solicitors’ Code of Conduct 2007, which will come into force on July 1.

The code is the most fundamental change introduced so far by the Solicitors Regulation Authority (SRA), which has regulated the profession in England and Wales since January this year. The code replaces the Guide to the Professional Conduct of Solicitors (1999) and the Guide Online together with 10 other codes and rules (including the Solicitors' Practice Rules 1990 and the Law Society’s Code for Advocacy) and introduces various changes. Although welcomed by larger firms, its requirements are onerous for smaller firms.

However, no one can argue with the core principles of the new code: justice and the upholding of the rule of law; acting with integrity; maintaining independence; acting in the best interests of all clients; provision of a good standard of service and the maintenance of public confidence. Breach of these principles (or allowing anyone to act on your behalf in such as a way to place you in breach) may constitute professional misconduct.

Whereas the old guides were cumbersome and difficult for risk managers to implement clearly and consistently, the new code provides clear and accessible guidance on almost every aspect of solicitors’ duties and office management. Each rule is brief but supplemented by detailed, non-mandatory guidance.

Outdated and arguably unlawful provisions, such as the rules on conflicts, confidentiality and disclosure, were replaced in 2006 and are now integrated in the new code.

The rules require firms to prevent discrimination and harassment and to promote equality and diversity among staff, clients and third parties.

In addition, each principal (or member or director in the case of LLPs and companies) must have a demonstrably effective system for supervising staff and ensure adequate supervision and direction of client matters. Minimum standards are laid out.

Principals must also provide for compliance with money laundering regulations and regulatory requirements, the identification of conflicts of interest, control of undertakings, continuation of the practice in the event of absence or emergencies and risk management. There are minimum requirements for someone to be “qualified to supervise”.

Firms will have to record their new methods accurately in writing and be able to demonstrate implementation. No doubt this will tie in with the system of visits to law firms introduced by the Practice Standards Unit (now run by the SRA) in 2001.

It is not permissible to delegate responsibility for compliance to external consultants - it must be undertaken by someone who is genuinely part of the practice. This is likely to reduce firms' exposure to claims and will be welcome news for professional indemnity insurers.

The key question for smaller practices, however, is at what cost? Many larger firms have risk management partners and procedures - the code’s guidance notes anticipate that “most well run firms will already be complying”.

However, the new rules will place additional burdens on smaller firms who currently rely on a less formal (even if equally effective) management structure. At a time when many smaller practices feel under threat from imminent changes to the legal sector, many may consider that this "big firm" regulation regime will only add to the pressures to consolidate or be consolidated.

Katherine Rees is a partner in the Lawyers’ Liability Group at City law firm Reynolds Porter Chamberlain LLP and Rebecca Armstrong is a solicitor in the same group

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