Annual report 2016

President's report

In a shifting political, economic and legal landscape, the Society provided a leading voice for Scottish solicitors. Determined to ensure the interests of our members were central to the debate on our future relationship with the European Union, we conducted a consultation exercise in advance of the referendum, held successful discussion events and published a discussion paper examining the potential consequences of a leave vote. Maintaining our non-partisan position after the referendum, we remained closely involved in discussions at both the UK and Scottish parliaments and will continue to do so on behalf of our membership and their clients.

The Society also set out our policy priorities ahead of the Scottish Parliament elections, engaging across the political parties, while continuing to contribute to the debate on Scotland’s constitutional future as the Scotland Bill passed through parliament. One of our key priorities was the need for root and branch reform of the legislative framework that covers the legal services market. We are hopeful that, in early 2017, the Scottish Government will consult on the future regulation of the legal profession.

Discussions with the government and public agencies also took place over other proposed changes to the justice system, including the implementation of court reforms and improvements to the legal aid system. Our high-profile #DefendLegalAid campaign focused on the importance of legal aid and access to justice.

To ensure the solicitors’ profession reflects the diversity of the public it serves, we launched the Lawscot Foundation to help academically talented students from less advantaged backgrounds through their legal education. We already have close links with schools and will build on those relationships to develop the Foundation.

Our equality work included publication of the Parents in the Profession series of guides to ease the transition back to work for new parents. Also during the year, we ran a campaign on progression in the profession, which focused on gender equality. This included the #LetsTalkProgression initiative, which generated considerable social media comment. To promote improved mental health in the profession, we set up Legal Wellbeing Scotland to help raise awareness of common issues and provide best practice solutions.

Of course, the work carried out in the past year would not have been possible without the vital contribution from all those who sit on our Council, committees and working groups – their commitment is much appreciated.

Eilidh Wiseman
President

Chief Executive’s report

Serving our members is at the heart of our ambitious five-year strategy. Launched in August 2015, we have completed the first full year of Leading Legal Excellence, which aims to meet the needs of our members and the public in a rapidly changing legal market. And despite continuing challenges, alongside new opportunities, the Scottish solicitors’ profession continues to grow. Last year, we expected and planned for around 11,800 practising certificates issued.  We in fact reached a total of 11,789 practising certificates issued, with a further 344 non-practising members taking our total memberships issued for the year to 12,133.

In September, we launched the first of our new affiliate categories of membership with the introduction of student associates. With 750 students signing up in the first few weeks, many clearly recognised the benefits of getting involved with their professional body at an early stage, building networks and gaining valuable experience. Further categories of affiliate membership are due to be introduced.

Also among our strategic goals, the number of solicitors holding a Smartcard and current digital signature reached 9,600, representing around 85% of those with a practising certificate. As part of our innovative Street Law initiative, we delivered 30 programmes in 25 schools, involving around 960 pupils. 

In our first full year in the modern, efficient and flexible offices at Atria One in Edinburgh city centre, we carried out a major staff restructure across our five new directorates: education, training and qualifications; finance and operations; external relations; member services; and regulation. A comprehensive review of our pay reward performance system also took place, with improvements implemented. A new marketing strategy and engagement plan was approved and is now in the process of being introduced. We completed a full review of our international action plan and were active in using key events to promote Scotland as a centre of excellence for legal services.

In a year of many changes, the Society’s staff are due particular credit for their commitment and hard work – a big thanks to all. 

Lorna Jack
Chief Executive

Overview

We're reporting a surplus of income over expenditure from normal activities (prior to the actuarial charge to the Society's closed final salary pension scheme) of £33,000 for the financial year ended 31 October 2016 (2015, as restated under FRS 102, surplus £3,000).

The actuarial charge in respect of the scheme was £1,495,000 (2015 – £240,000), giving a total recognised deficit for the year of £1,462,000 (2015 – recognised gain of £2,898,000, inclusive of the gain on sale of heritable property).

Income

The Society’s income in the year amounted to £10.99 million, an increase of 7.3% from last year. Income sources were as follows:

Expenditure

The Society’s expenditure (excluding actuarial charge to closed pension scheme) was £10.96 million, an increase of 7.0% from last year mainly as a result of the premises move. Expenditure was split as follows:

The Society is responsible for a defined benefit pension scheme which was closed to future accrual from 1 May 2010. The most recent full actuarial valuation was carried out at 31 March 2013 by a qualified actuary, independent of the scheme's sponsoring employer. The next triennial valuation date is 31 March 2016.

The overall deficit shown by this valuation was £2 million. A deficit recovery repayment plan has been agreed with the scheme trustees which is scheduled for repayment over a seven year period. In previous years this debt has not been incorporated within liabilities on the balance sheet as the valuation assumptions for accounting purposes, provided by an independent actuary, produced an accounting surplus. However, changes to bond yields following the EU referendum have produced an accounting deficit of £1.267m. As a result there is an actuarial charge in the income & expenditure account this year to reflect this.

Reserves

In 2015 the Finance Committee reviewed the Society’s reserves policy in light of the move from owned to leased office premises. The reserves policy is to hold between three and six months’ average expenditure. Reserves for this purpose are defined as net current assets plus realisable investments, less pension scheme deficit (from the most recent valuation less recovery plan payments made subsequently).

At 31 October 2016 this figure amounted to £3.3 million, which is between three and four months’ average expenditure. The committee regards this level as satisfactory.

Fixed assets

Following the sale of heritable property leasehold improvements were carried out in the new premises in 2015 and 2016 and are amortised over the length of the lease.

Investments

Investments are now stated at market value with the exception of the Society’s subsidiary company’s 20% shareholding in Legal Post (Scotland) Limited, which is accounted for as an associate using the cost model. The shares were acquired for £20 in 2000. Following a takeover the shareholding was sold after the year-end for a consideration of £261,585 which will be accounted for in the 2016/17 financial statements. We will donate this money to our new charity – Lawscot Foundation. As part of its review of the Society’s reserves during the year, the Finance Committee approved a further transfer from cash to listed investments of £500,000 during the year.

Cash

Cash balances at the year-end were £10.7 million. Of this sum, subscription income received in advance of 1 November 2016 was £7.7 million.

Pension debt

The Society’s defined benefit scheme was closed to future accrual from 1 May 2010. A full actuarial valuation was carried out at 31 March 2013 by a qualified actuary, independent of the scheme's sponsoring employer. The next triennial valuation date is 31 March 2016.

The overall deficit shown by this valuation was £2.0 million. A deficit recovery repayment plan has been agreed with the Scheme Trustees which is scheduled over a 7 year period.

Annual report 

The Society’s annual report, which includes the president's introduction and chief executive's overview of the year, sections measuring progress made against the corporate plan, a report on governance arrangements, the accounts of the Guarantee Fund and a summary of work on equality and diversity, is available.

The Society remains committed to achieving continual improvement in its financial performance through:

• achieving efficiencies and cost savings across the business
• improved financial forecasting
• growth of non-subscription incomes
• maintenance of reserves at an appropriate level
• managing historic final salary pension scheme liabilities through close liaison with the scheme’s trustees

Key risks 

The Society carries out ongoing monitoring and management of the risks it faces. Risks are also considered for each activity within the Society’s strategic objectives and annual plan. The risk register is reviewed monthly by the Society’s executive team and subject to additional scrutiny by the Audit Committee, Board and internal auditors. Key risks include:

• remaining liability on the closed final salary pension scheme and exposure to market risk

• legislative change and risk of changes to current regulatory functions

• events which may compromise the Society’s ability to act as an effective regulator

• competitive pressures through alternative business structures and the future economic health of the profession

• failure to deliver the Society’s strategic objectives

The effectiveness of controls to mitigate each of those risks is continually monitored by the senior leadership team and reported to Audit Committee and Board quarterly.

Financial year 2015/16

The budget approved by Council for 2016/17 left the cost of the practising certificate unchanged at £550. The retention fee and non-practising member fee also remained unchanged at £100 and £200 respectively. 

John Mulholland
Treasurer

3 March 2017

View our full accounts

Financial Compliance

Financial compliance inspections carried out at Scottish law firms: 364, versus 371 carried out in 2014/15.

Client Protection Fund claims

Total received 70, rejected in full 2, admitted agreed in full 40, admitted partially 11, amount paid out £1,681,227

Conduct complaints

New investigations 281, investigations closed 237, active investigations at year end 233, suspended files at year end 133.

Top five areas of law/reasons for conduct complaints received

Residential conveyancing 52
Family law 45
Civil litigation 42
Executries, wills and trusts 39
Financial compliance (complaint raised by Law Society) 17

Closed complaints

Committee decision 196
Withdrawn - decision taken by complainer 32
Complaint closed for other reason 4
No complaint 5
Total 237

Details of service complaints can be found on the SLCC website

Scottish Solicitors’ Discipline Tribunal

The full SSDT report is available at www.ssdt.org.uk

Introduction

The Regulatory Committee of the Law Society of Scotland oversees all regulatory activity in relation to every aspect of the legal profession, from initial education and training, through entry to the profession and professional practices, waivers and rule changes, and financial compliance issues.  Conduct complaints against solicitors form only one part of an overall regulatory regime which is designed to reduce the possibility of a solicitor acting incorrectly. We fully appreciate how important this issue is to the public and closely monitors all regulatory activity to maintain confidence in the system.

We are responsible for ensuring that current regulations are observed, and action taken on the small number of occasions when this is not the case, and for improving the regulatory regime to the extent that legislation allows. The committee is now also actively involved in looking at legislative change which would enable further improvements.

We have a duty to protect the public interest, and the interests of the legal profession. These are not conflicting responsibilities. Maintaining trust and respect for solicitors is as much in the interests of solicitors themselves as it is in the interests of the public. An honest, reliable, effective legal system is the basis of an ordered society, and that is in everyone’s interest.

Our approach to this role is to promote an efficient and effective procedure for each area of regulatory activity, which is fair to all parties.  The introduction of performance indicators and regular reporting for sub-committees is designed to ease the monitoring process and identify areas requiring further attention.  But additionally, each regulatory area must now reflect on emerging trends and take time to consider future challenges and how to meet them.  As society and business models change, so must legal regulation, and we are building in the capacity to be ahead of the game rather than reacting to events. 

Both the lay and solicitor members of the Regulatory Committee consider their role to be a challenging one but one they are happy to undertake.  The combination of legal expertise and outsider opinion provides a solid basis for a regulatory system which meets the needs of the public and the profession.

Carole Ford
Regulatory Committee Convener

Read more about the overall role and remit of the Regulatory Committee.

Our work in 2015/16

Reviewing the work of the sub-committees

Over the year, the committee spent significant time considering the work of the sub-committees and the best means of monitoring and improving processes.

Some of the sub-committees are involved only in regulatory decision making while others deal with a mix of both policy and decision making.

Having reviewed the use of key performance indicators in previous years, it was decided for 2015/16 that sub-committees should prepare and submit trends analysis of the work they had carried out at six monthly intervals.

The committee believes that moving to a trends analysis system will assist in a better understanding of the flow of work through the sub-committees and any issues arising. In addition, each sub-committee now has a standing item on its agenda, to consider if there are issues arising that should be raised directly with the Regulatory Committee.

The trend analysis approach has proved valuable. The detail provided to the Regulatory Committee has clearly demonstrated the significant amount of work carried out by sub-committees in their decision making, and by the executive. Having now received two sets of trend analysis reports, the committee is reviewing the format and the information contained in them. The aim is to create a format that will allow easy dissemination to all relevant parties, to inform future thinking around regulatory issues and policies.

One of the committee’s first actions, following its inception in June 2011, was to set up a sub-committee dealing specifically with appeals and reviews of regulatory decisions where there is no statutory right of appeal. This sub-committee has dealt with a number of issues, and the information provided in relation to those appeals has been useful in considering the issue of consistency of decision making. The Complaints Sub-Committee has a role of overseeing policy in relation to complaints and that also involves the review of decisions made by the Professional Conduct Sub-Committees, with a view to improving the quality and consistency of those decisions. 

The committee believes that work in this area – to ensure the consistency and proportionality of regulatory decision making – is key to ensuring the confidence of the public and the profession in the regulation of solicitors. 

Complaints against solicitors

In the course of the year, work has been done to review the way complaints against legal professionals are handled.  The Society is not the only organisation responsible for legal complaints. Its role is to deal with conduct complaints remitted to it by the Scottish Legal Complaints Commission, which is the single gateway for all complaints against legal professionals. The Regulatory Committee is routinely updated in relation to current disciplinary issues. For example, the committee rigorously reviewed the case of Christopher Hales, a solicitor struck off the roll by the Scottish Solicitors’ Discipline Tribunal. The key concern arising from this case was the length of time taken between the discovery of business irregularities and the solicitor appearing before the Tribunal. In reality, the solicitor had been suspended, and prevented from practising as a solicitor, at a very early stage. However, the processes from this stage to appearing before the Tribunal required urgent review.

The review considered all stages in the process, from the initial financial compliance inspection which uncovered the problem, through to the referral to Tribunal. Changes have been implemented, including more formal protocols for liaising with other agencies.

The committee recognises that the current complaints legislation could be improved. In the later part of the year, following a successful appeal by a firm of solicitors regarding an eligibility decision made by the Scottish Legal Complaints Commission (SLCC), even more focus has been thrown on this issue. The current legislation, and the 2007 Legal Profession and Legal Aid (Scotland) Act which created the SLCC, constricts reform. Part of the committee’s annual plan for 2016/17 includes a bench-marking exercise, to look at how other legal jurisdictions deal with legal complaints, and how other professions deal with complaints against their members. Part of the Society’s longer-term strategy is to seek new enabling legislation to allow greater flexibility in the regulation of the legal profession in the 21^st century. A key element of this will be proposals on how complaints might be handled differently. 

Regulatory issues and developments

Over the course of the year, the Regulatory Committee discussed a number of relevant regulatory projects. 

a)    Alternative business structures – application to become an approved regulator under the Legal Services (Scotland) Act 2010

In December 2015, the Society submitted its application to become an approved regulator of licensed legal services providers. This is the legislative regime that will create alternative business structures for the delivery of legal services by a range of professionals working alongside solicitors.

The Scottish Government led a consultation exercise in the spring of 2016 and then consulted with the Lord President. Moving forward, creating further policy and guidance in relation to the licensing regime will be necessary.

This has been a challenging exercise from the start but the Society is optimistic that in 2016/17 it will be in a position to invite the first applications from licensed providers for consideration, thus opening up competition in the legal services market in Scotland.

b)    Project 80/20 – legislative change

The Society recognises that there is a need for legislation to be updated in relation to the regulation of the profession. While there have been some amendments to the Solicitors (Scotland) Act 1980, the reality is that it is outdated in relation to current legal business practices.

As part of its strategy, the Society wishes to see new enabling legislation that would create regulation for the legal profession fit for the 21^st century. In December 2015, the Society submitted a formal paper to Scottish Government on this issue. The current Scottish Government is committed to consulting on the regulation of the legal profession but at this time it is not known when such a consultation will take place; the Society is preparing proposals for this.

c)    Entity regulation

The Society believes that changes to the regulation of the legal profession should include the ability to regulate entities (businesses) as well as individual solicitors. The Regulatory Committee is clear that, while the regulation of individual solicitors would continue to be of paramount importance, there is also a need to recognise that legal services businesses should be the subject of regulation. The legislation that creates the alternative business structure regime includes the regulation of businesses on an entity basis. The Society is therefore moving forward with creating an entity regulation model for the whole profession. The intention would be that the ability to regulate the entity would be broadly included in legislation, but that the detail would be included in the rules. This would allow future change, to reflect the changing marketplace. 

d)    Whistle-blowing/raising concerns

This issue of whistle-blowing was raised in the independent KPMG report on the Guarantee Fund. The matter has been considered and this now constitutes a specific project for the Rules, Waivers and Guidance Sub-Committee. The sub-committee is researching widely, looking at other jurisdictions and at other professions. The concept of whistle-blowing is comparatively straightforward but the operation and implication of any rules, both in relation to the whistle-blower and the person who is the subject of the allegation, need to be thought through carefully. This project will now progress over the course of the next year. 

e)    Financial Action Task Force inspection

In 2017/18, the European Financial Action Task Force will visit the UK. The purpose of the visit is to assess the ability of regulators to deal with issues in relation to money laundering. As the Society is one of those regulators, it will be subject to inspection.  

Other European countries have already been inspected and some lessons have been learnt from what has happened there. In the spring of 2016, the Financial Compliance Team employed a specialist in relation to money laundering matters, and over the course of the remainder of the year this has led to the creation of a questionnaire to review the anti-money laundering procedures for larger firms. The survey was sent out before the end of 2016, and the results will be analysed with a view to improving the regime. In addition, the Client Protection Sub-Committee (formerly the Guarantee Fund Sub-Committee) responded to consultations from HM Treasury about the future of anti-money laundering regulation and in relation to the Fourth Anti-Money Laundering Directive, which is scheduled to come into force in late June 2017.

f)     Working group - permissible ways to practise

A new working group was set up during the year to look at permissible ways to practise. It was agreed that this group should look at a number of areas where there is a need to ensure that the Society’s regulatory practice is in accordance with the Solicitors (Scotland) Act 1980 for all practitioners, including those operating in niche markets.

The group will continue its work in 2017.

Conclusion

The work of the Regulatory Committee is extensive and varied. Much of the Society’s regulatory work goes unseen and is not connected to either complaints or professional conduct matters. Decisions are made on a daily and monthly basis that affect individual solicitors, including those joining the profession for the first time. Each decision is made in the interests of both the public and the profession. A well-regulated legal profession is key to the smooth functioning of a developed society.

The Regulatory Committee is of the view that its clear remit is to set, maintain and enforce standards in the interests of the public and the profession. The information contained in this report illustrates the extent and depth of its work, and its commitment to a well-ordered legal profession, which retains the trust of the public.

Regulatory statistics

The appendix contains statistics for conduct complaints during years 2014/15 and 2015/16.  These figures are closely scrutinised by the Regulatory Committee and discussed with the relevant executive officers and sub-committee conveners.

The total number of complaints fluctuates slightly from year to year.  The time taken to resolve complaints has reduced significantly and compares well to other complaint handling organisations.  Benchmarking is an important tool in monitoring the efficiency and effectiveness of the complaints process.

The breakdown of complaints statistics into the differing areas of law is a useful indicator of future possible areas for regulatory activity or guidance to the profession.  However, the figures must be interpreted in relation to the much higher number of transactions in certain areas, such as family law or conveyancing, compared to others, such as employment law or human rights.  An apparently high absolute figure may well be relatively low in relation to the number of transactions in that area of law.

In-house events

We held ten dedicated in-house CPD events attended by over 300 in-house solicitors across Scotland and beyond.

Professional practice

7,000 telephone queries and 2,000 written queries from solicitors dealt with by our professional practice team, a 6% increase on 2014/15.

Career support

We matched 32 mentors with mentees during the year.

Our members in England & Wales

100 people attended our St Andrew’s Day ceilidh in London.

High Street members

Our president made 16 visits to meet High Street members in constituencies around Scotland.

The Journal & Lawscot Jobs

• 92% say the Journal has an important role keeping them up to date about developments in the legal profession
• 85% say the Journal has an important role in keeping them up to date with legal changes
• 72% say that overall, the quality of the Journal is high
• 1,580 jobs were placed on lawscotjobs.co.uk

Our restructured professional practice team dealt with 9,000 queries from members of the profession

Brand review

Over 50 members, staff and stakeholders were interviewed as part of our brand review, ensuring the Society is recognised as a modern, dynamic and trusted organisation.

Investors in Young People

We successfully achieved the Investors in Young People award.

Corporate social responsibility

Throughout the year, 28 colleagues participated in a CSR Day, spending time helping out a local charity or a cause. Activities included building a bottle greenhouse and creating a play area at an early years centre in a deprived area. 

Our charity of the year was the Cystic Fibrosis Trust, the UK charity working towards a brighter future for everyone with cystic fibrosis by funding cutting-edge research, driving up standards of care and supporting people with the condition and their families. 

Eight colleagues, including Chief Executive Lorna Jack, climbed Ben Nevis, raising over £4,000. Throughout the year, we held bake sales, ran sweepstakes, organised a pub quiz and took part in the Edinburgh marathon relay.

We raised a total of £9,040 for the Cystic Fibrosis Trust.

Equality and diversity report 2016

We continued to embed our equality and diversity standards during the year, with a number of practices adopting the framework.

Early in 2016, we published our Parents in the Profession guidance to ease the transition back to work for new parents. Many members across the profession took part in preparing this well-received guidance. As well as the series of 12 guides, we also held events for maternity returners and for managers.

Throughout the year, we ran a campaign on progression in the profession, which focused on gender equality. This included the #LetsTalkProgression initiative, which generated considerable social media comment. To support this work, we held focus groups on how to improve gender equality in the legal profession, and published a series of blogs and role model interviews with leading women.

We spoke about equality and diversity at a number of events, including alongside the Lord Justice Clerk, Lady Dorrian, and the Solicitor General, Alison Di Rollo, at the Supporting Offenders with Learning Disabilities conference. We were invited to speak at numerous firms on equality and diversity.

We supported Women in Law Scotland by hosting their launch at Atria One. We also supported the launches of both the Scottish Ethnic Minority Lawyers’ Association and the GLASS Network.

Our equality work featured on Engender’s website, and in The Scotsman, The Herald, and Flux, a magazine produced by Cambridge Business School. We hosted a cross-profession event on equality and diversity in business.

Next year we will host an equality event, publish a review on the teaching of equality and diversity and human rights on the LLB and the Diploma, and publish a review of our Equality and Diversity Strategy. We also hope to see many more practices sign up to our equality and diversity standards.

• We responded to 75 consultations across the Scottish and UK governments and the European Commission. Last year we responded to 101 consultations.
• 26 Bills commented on across Scottish parliament and Westminster, compared to 20 the previous year.
• 61 amendments proposed to legislation across Scottish parliament and Westminster. 79 was the total for 2014/15.

Access to justice

Over 19,000 emails sent to Scottish parliament election candidates as part of our #DefendLegalAid campaign.

Eight teams made up of tech and legal professionals took part in our Hackathon event to generate innovative ideas and technical solutions to address access to justice issues.

Street Law

Around 960 school pupils were involved in our Street Law programme, an increase in 37% from the previous year.

Brexit

520 people viewed our live-streamed Brexit seminar following the UK’s vote to leave the EU.

Research

672 responses to the technology audit of the legal profession carried out by our newly-created research team.

International

We worked with law associations and bars from over 100 countries through membership of the IBA and CCBE.

We supported the establishment of the European Lawyers in Lesvos programme, providing legal services to migrants and refugees in Lesvos.

Total number of solicitors 11,538 (+2% on previous year), Female (52%) Male (48%).

Newly-admitted solicitors 565, Male 195 (35%) Female 370 (65%)

Non-practising members/retained on the roll 2,293

Solicitors working in private practice

(a) large firms (10+partners)  3,940
(b) small-medium firms (2-9 partners) 2,837
(c) sole practitioners – 610

Solicitors working in-house

Solicitors working in-house (a) local gov 569 (b) central gov 454 (c) crown office 546 (d) other 1,428.

Outside Scotland

• Solicitors working outside Scotland 789
• Number of multi-national partnerships 44 (including limited companies, LLPs, and traditional partnerships)
• Number of registered foreign lawyers 1,512

Trainees

Traineeships commenced 549, +2% on the previous year

Registered paralegals

Number of registered paralegals 434

Students

After launching this new affiliate category, 750 student associates have joined us.