Regulation translation

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7 March 2014

Although the number of ABS licences being dished out by the SRA has begun to increase at what appears to be an exponential rate, the grand total at the end of February 2014 was still only 250. To put this figure in context, it represents only 2% of the 10,589 law firms in England and Wales regulated by the SRA – a drop in the ocean instead of the tidal wave of applications that were predicted when the regulator became a licensing authority in January 2012.

And while the SRA assured prospective ABS applicants at the outset that its doors were open for business, the under-resourced regulator struggled to manage the influx of applications and expressions of interest, deterring many from even beginning the process of conversion. Relocation did not help matters (with rumours of files lost in the move) and the Legal Services Board (LSB) eventually decided to intervene, demanding an explanation from the SRA as to why considering and even allocating applications was taking so long and what efforts were being made to improve internal processes.

The situation has since improved, although the LSB is still closely monitoring the SRA’s progress in this area and remains concerned that the regulator’s application procedure is prejudicial to non-conventional legal practices and multi-disciplinary practices. Having project-managed a number of ABS applications on behalf of clients, we can endorse that view. But why is this the case?

One reason why the SRA and applicants do not see eye-to-eye is that their expectations are often not aligned. Some applicants have hugely underestimated the length of the process, assuming it will be straightforward. Then there’s the SRA which – let’s face it – is used to getting its own way and makes no apologies for the delays or difficulties encountered. Similarly, it is usually difficult to reconcile the commercial considerations of the applicants with the SRA’s risk-based approach to regulation which accords priority to the interests of consumers.

But surely differing views are to be expected and used as a starting point for negotiation? This is true, but the problem is communication: the SRA and non-lawyers speak different languages. The SRA (understandably) does not have a detailed understanding of other sectors and likewise, concepts such as legal professional privilege and the separate business rules are completely alien to non-lawyers.

So how do non-lawyers overcome this hurdle? The key is to ensure that the SRA understands your business and how your industry operates by articulating the inherent risks and the challenges ahead, plus acknowledging the relevant provisions of the SRA Handbook. This will involve extensive dialogue and, in some cases, meetings, presentations and negotiations. It is advisable to start this process as early as possible, even before submitting an application, and to seek the advice of those who can help interpret the information for the SRA’s benefit.

Ultimately, the aim is to gain the SRA’s trust and unfortunately this process may take some time because the SRA will not grant an ABS licence or a waiver from the requirements unless it is satisfied that the applicants have demonstrated sufficiently robust risk management systems. However, do not panic because the commercial benefits to be gained from an uninhibited business model are likely to exceed the opportunity cost of not being able to obtain a licence immediately.

For those contemplating ABS conversion, regulation translation is one of our specialties. We speak your language too though and would be happy to assist you in brokering a deal that allows you to retain the optimum business structure.

Adam Entwistle is a member of Compl-i, the bespoke consultancy service of Weightmans LLP. Compl-i delivers a full-service, flexible package of tailored support to lawyers, including expert legal and best practice advice, as well as assistance on regulation, compliance, business management and structure.

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