Vale “Appropriate Management Systems”?
Several weeks ago the American Bar Association Centre for Professional Responsibility held a conference in Colorado which focused on the “new” approach to legal regulation sweeping the common law world – “entity regulation” developed right here in NSW.. This approach shifts the focus of regulation from discipline alone to assisting firms to develop appropriate management systems to improve service delivery and reduce complaints.
“Appropriate management systems” (AMS) have been a part of the legal landscape in both New South Wales and Victoria for over a decade. Today every incorporated legal practice (ILP) in Australia must implement and maintain AMS. Research shows that many law firms and clients have benefitted from this requirement. This is because AMS requires ILPs (and now all legal practices) to implement a management framework that addresses ten key areas relevant to legal practice: negligence, communication, delay, conflict of interest, cost disclosure etc. AMS are a codification of good business practices, legal ethics, and risk management.
AMS is a successful proactive regulatory measure that is designed to ensure that law firms effectively manage their affairs. Research has shown that law firms that have implemented AMS have fewer complaints lodged against them than law firms that don’t and that AMS enables law firms to be better managed. The ten key areas in the framework, coupled with a self-assessment process has enabled law practices to know what they should comply with and what targets to meet.
Unfortunately, it looks like the requirement to implement and maintain AMS under the new Legal Profession Uniform Law (LPUL) has been done away with. Under the LPUL there is no positive obligation placed upon an ILP, or any other type of law practice, to implement AMS.
The LPUL instead states that a law practice may be given a “management systems direction” by a designated local regulatory authority (DLRA) to ensure that “appropriate management systems are implemented and maintained”. However, a management systems direction can only be made if the DLRA considers it reasonable to do so after the conduct of an examination into a law practice, an investigation, or a compliance audit. The LPUL states that a “compliance audit” can only be triggered if the DLRA considers that there are reasonable grounds to do so based upon:
1) the conduct of a law practice
2) the conduct of one or more associate of a law practice
3) a complaint against a law practice
4) a complaint against one or more associates of a law practice.
So, a law practice will only know what standard it is expected to comply with AFTER being audited and found wanting. This was not the intention of the previous legislation. How did this happen?
Rumour has it that the large law firm group by making it clear to the Governments of NSW and Victoria that they were unhappy, and even insulted by the concept of being audited by the regulator have managed to avoid being audited as few complaints are every made against them.
So, in an attempt to stop “over regulation” the leaders of the profession have, potentially, done many law firms and clients a disservice by ensuring that appropriate management systems will now not be considered as a positive guide rather something which must only be done after regulatory intervention. However, legal regulators may still choose to publish the ten key elements and utilise the self-assessment process to foster a positive partnership with the profession to deliver better service to the public. Only time will tell.
Meanwhile, a growing number of jurisdictions in Canada and the US are now looking to implement “entity regulation”, developed in Australia and already followed by the UK.