LSB approves relaxation of separate business rule

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24 July 2015

Richard Moriarty

Moriarty: consumers may not “understand the possible implications”

The Legal Services Board (LSB) has approved radical reforms of the separate business rule (SBR) for solicitors, while noting that the changes “carry some risks to consumers”.

The board of the Solicitors Regulation Authority (SRA) last month backed the changes, which would allow solicitors to set up separate businesses providing unregulated services – so long as consumers are properly informed.

The current prohibitions in the code of conduct will now be removed and new outcomes introduced to protect consumers. The SRA has said the changes could be implemented as early as 1 November this year.

In the LSB’s decision notice, chief executive Richard Moriarty said the changes, which had been “consulted on and comprehensively reviewed by the SRA”, were consistent with the LSB’s objective of “breaking down regulatory barriers”.

Mr Moriarty went on: “The changes do present some risks to consumers. Those who receive services from separate businesses will not have the same protections as those using a regulated firm.

“For example, they are unlikely to have recourse to the Legal Ombudsman or the SRA’s Compensation Fund and their provider may not have professional indemnity cover.

“Therefore a notable risk is that consumers do not understand the possible implications of using a separate business.”

Mr Moriarity said that while most of the responses to the SRA’s consultation were “largely positive”, a number of respondents emphasised the risk to consumers, in particular the Legal Services Consumer Panel.

Given that the SRA “actually decided to slightly relax” the proposed safeguards following consultation, the LSB sought to assure itself that risks to consumers would “adequately and proportionately” addressed.

Mr Moriarty said the SRA had emphasised its commitment to provide “clear and publicly available information” on the difference between regulated services and “various types of alternative legal services”.

He said the SRA had agreed to test this material with consumer focus groups before relaxation of the rule was implemented in November, and carry out a review of the reforms within two years.

Mr Moriarity said the SRA would not be prescriptive on the meaning of “informed consent” from consumers, but predicted that many firms may “wish to protect themselves by obtaining signed confirmation”.

He argued that reform of the SBR would “contribute positively” to a number of the LSB’s regulatory objectives, including promoting competition, improving access to justice and increasing consumer choice.

In conclusion, he said “no material evidence” had been presented that would justify refusal of the rule changes.

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