Ross Earnshaw and Margaret Drent, The Law Society of Upper Canada

Compliance-based entity regulation is an entirely separate topic from that of ABS. Compliance-based entity regulation has a great number of potential benefits…It is a mature concept that needs to be moved forward. You could say that after 135 years of a reactive, disciplinary approach, it is time to look at a different system.

The Law Society of Upper Canada regulates, licenses and disciplines the lawyers and paralegals of Ontario.

The Law Society has had compliance-based entity regulation on its radar for several years now. We followed with great interest the changes in Australia and the UK, and also in other Canadian provinces. At first, we debated only internally, through our Professional Regulation Committee — you can find the Committee’s two interim reports on the topic on our website. Then, in June 2015, Convocation voted to establish our Task Force. We report directly to Convocation, rather than to the Professional Regulation Committee.

The Task Force has a two-part mandate:

The first part of our mandate is to study other jurisdictions, and primarily Australia and the UK, where compliance-based entity regulation has been adopted, and to enter into a dialogue with our fellow law societies across
Canada (there are 14 of them) in order to determine their activities in this regard. To this end, we have read a great deal of material and we have held a number of meetings and telephone interviews with our counterparts in other Canadian law societies as well as with regulators in the UK and Australia.

Based upon the Task Force’s review of other Canadian jurisdictions, we know this: setting aside Quebec, whose regulations are quite distinct, the other five large law societies in Canada (those of Nova Scotia, Manitoba, Saskatchewan, Alberta and British Columbia) are all at some stage of studying the possible implementation of compliance-based entity regulation, and, in some cases, ABSs as well. Nova Scotia, having started in 2013, is slightly ahead. The rest of us are more or less at the same point. As Task Forces, we’ve agreed amongst ourselves that we ought to try to proceed in some form of harmonious way. Canada has a number of firms that have offices in a number of provinces (Ross is partner with one of them, Gowling WLG), and for those firms, the need to comply with different compliance-based entity regulation regime would pose an unnecessary regulatory burden.

Again setting aside Quebec, it is our expectation that our six law societies will set the direction for the remaining law societies. This is because the remaining law societies are smaller in size and do not have same resources that we do.

In December 2015 we finalized our discussion paper, and in January 2016 we posted it on our website. In doing so, we moved to the second part of our mandate, a consultancy phase.

The discussion paper summarizes the issues in a manner that we hope is easily accessible for the reader. The paper poses five general questions — what principles might be included in a practice management system, to what sort of entities the principles of compliance-based entity regulation should be applied (for example, should size make a difference), who should hold the role of “designated practitioner,” what entity registration might look like (how much information about the entity should be publicly available), and any other comments or suggestions.

As part of the consultation process, we held a webcast. It had just under 1000 active viewers, and during its live broadcast about 120 questions were submitted. We also posted the webcast online, where a number of people have viewed it.

In addition, we held a preliminary outreach, where we met with the leaders of 20+ bar associations and other organizations in the province (as examples, the Federation of Asian Canadian Lawyers, the Canadian Association of Black Lawyers, the Ontario Trial Lawyers Association, Women’s Law Association of Ontario, the Criminal Lawyers’ Association of Ontario, the Ontario Bar Association, and the Advocates Society). They were all present at a meeting held in January, 2016 and they were invited to submit considered, comprehensive comments in response to the consultation paper.

The Law Society’s Alternative Business Structures Working Group was established in 2012. Its original mandate was quite broad, and it blurred the topic of ABS with the topic of compliance-based entity regulation. It is no secret that the ABS Working Group encountered resistance. In that process, we realized that compliance-based entity regulation is an entirely separate topic from that of ABS. Compliance-based entity regulation has a great number of potential benefits that have nothing to do with ABS. With the appointment of our Task Force, compliance-based entity regulation has been moved to be front and center. It is a mature concept that needs to be moved forward. You could say that after 135 years of a reactive, disciplinary approach, it is time to look at a different system.

There have been efforts by commentators in the press and social media to link the work of our Task Force to the work of the ABS Working Group. But the reality is that the groups are completely distinct. What we did learn from the ABS Working Group’s study is that compliance-based entity regulation offers a great many benefits that have nothing to do with ABS. This is how we, the Task Force, are proceeding.

For the moment, we are focused on private law firms. At this time, we are not looking at other practice environments, such as in-house counsel, legal clinics or government lawyers. By the same token, we are reserving the possibility that the term entity might be broadly enough defined to include other practice environments in some future iteration of a compliance-based regime. In contrast to Ontario, Nova Scotia has already defined its ambit for reform to include those other practice environments. Also in contrast to Ontario, but in the opposite manner from Nova Scotia, British Columbia has expressly limited its work to the regulation of law firms, to the exclusion of any other kind of practice environment.

The present system, which, again, has been in place for over 100 years, is a reactive system. In contrast, the compliance-based system is a proactive system. The carrot and stick analogy is simplistic, but appropriate. The present, reactive system is like a stick. It is a set of proscriptive rules. We hope and trust that professionals will adhere to the rules. If they don’t, someone complains (or not), there is an investigation, and in appropriate cases a disciplinary sanction is imposed. All of this takes place reactively and after the fact. Some might say after the damage has been done, even if corrective discipline does take place. The proactive system is the carrot. The regulator establishes general principles, but does not describe the manner in which they are to be complied with by the practitioners. Practitioners are allowed a great deal of autonomy and discretion in how they meet those objectives. A self-assessment tool is used to measure the compliance by the entity with the principles established by the regulator.

All of this leads to a paradigm shift, or a sea change. In the present system, when a practitioner receives correspondence from the Law Society, the reaction can be one of apprehension, because of the possibility of discipline, which is one component of the Law Society’s function. (It is important to note, however, that currently, if lawyers and paralegals do not comply with regulatory requirements, there may be a regulatory response from the Law Society, which may include discipline but which could also include other measures).

In the same way, with a proactive system, the Law Society would instead provide assistance, guidance, and education. It would engage in disciplinary proceedings only in the most egregious of circumstances, and would consider remedial measures whenever possible. Instead of functioning solely as a disciplinarian, it would also function as a wise teacher and friend. This is a very difficult shift in thinking, by both the regulator as well as by the regulated. It might be one of the most difficult shifts in thinking that a move from the present system to a compliance-based system would entail.

If you placed on a continuum the regulatory frameworks of England and Wales, on the one hand, and of Australia, on the other, the framework of England and Wales would tend towards being relatively more proscriptive and heavy-handed, whereas the framework of Australia would tend towards being more aspirational and light-touch. The English position of COLP carries with it responsibilities that we perceive to be quite onerous as compared to the comparable position under the Australian framework. In our consultation, we use the term “designated professional” and we are seeking to determine where this person’s responsibilities should fall on that continuum.

Our discussion paper contains statistical information about the sources and frequency of complaints as well as of negligence claims under our present proscriptive and reactive system. Both sets of statistics suggest that practice management skills are a greater problem for practitioners than knowledge and application of the law. Examples include failure to communicate with clients and failure to follow instructions. These types of problems lie at the root of many of the issues that the Law Society and our professional indemnity insurer address. The experiences of both the UK and Australia demonstrate that the implementation of a compliance-based system results in a substantial and in the case of Australia, arguably overwhelming, reduction in the number of complaints. These statistics had a powerful effect on our Convocation and played an important role in its decision to appoint our Task Force.

At the Law Society, we are concerned with the question of competency beginning at the time a professional is admitted to practice and continuing as they carry on through their career. It is our expectation that moving to compliance-based entity regulation will address this concern at least in part. In 2014, of 4781 complaints which were referred to the Law Society’s Professional Regulation Division, half involved client service and other issues relating to practice management, including financial matters. The malpractice claims handled by the Lawyers Professional Indemnity Company in Ontario suggest a similar pattern. We expect that if compliance-based regulation were to be implemented in some form, encouraging all practitioners to reflect on and improve the systems they have in place could improve practice management overall and may have the effect of increasing client satisfaction and reducing the incidence of complaints and claims.

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