SRA tells MPs: Regulatory reform needed to mitigate impact of Brexit

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1 December 2016


Parliament: MPs investigate

Parliament: MPs investigate

The Solicitors Regulation Authority (SRA) has spelt out to MPs the many risks of Brexit to the legal market – to clients, solicitors, law firms, foreign lawyers, the UK as a legal centre and the cause of liberalisation generally.

The regulator told the House of Commons’ justice select committee – which is investigating the impact of Brexit on the justice system – that this strengthened the case for regulatory reform.

Focusing on the limb of the enquiry looking at the implications of Brexit for legal services, the SRA said that as well as around 60 European law firms in London, there are approximately 3,000 European lawyers in partnership with English solicitors in the UK and elsewhere in Europe, accounting for nearly 60% of all the partnerships English solicitors have with non-English lawyers.

“This provides some indication of the importance of the European market to the UK legal sector,” it said.

“In addition, many American law firms use their English subsidiaries (who are registered with us) as a mechanism for gaining entry to the European single market. If SRA registration no longer provides that benefit US law firms may choose an alternative centre, such as Dublin, as their entry point into the EU.”

Various rights that flow from being in the EU are of “high value” to the profession, the SRA continued.

The right to appear before the European courts and to legal professional privilege only accrue to lawyers holding qualifications from the European Economic Area but “are very significant because they underpin all high value commercial work”, it said.

“The inability of UK lawyers to maintain legal privilege in the EU would mean that UK lawyers would almost certainly no longer be instructed on high-value mergers and acquisitions and similar transactions.”

Losing the right to establish offices in other member states “would increase the costs of using a purely English firm to clients who want advice covering a number of jurisdictions in the EU, since this advice would no longer be able to be provided seamlessly from a single firm.

“This would mean either increased costs of using an English firm, since local firms would also need to be instructed, or that English firms would lose such instructions.”

Further, the right of UK lawyers to fly in and fly out of European member states to provide opinions, advice and represent clients would disappear as many member states either do not permit foreign lawyers to practise temporarily or impose restrictive economic needs tests on the ability of non-EEA lawyers to obtain work permits.

“Rights of legal practice painstakingly acquired through EU free trade deals will be jeopardised,” it added. “In particular, UK law firms who have relied on the EU’s free trade agreement with the Republic of Korea to establish in that market may lose the right to retain their office licences.”

The SRA said the easiest ‘work around’ would be to hire lawyers with both UK and EU qualifications and EU nationality.

“Some limited rights may be protected by solicitors simply re-qualifying as lawyers in other EU member states (as over 700 English solicitors have already done in Ireland). This is not a perfect solution, however, and increases costs for those lawyers as they will be required to pay dual registration fees and possibly maintain dual insurance requirements.”

Individuals, meanwhile, often need access to legal advice in relation to property, personal injury, inheritance, tax, debt, consumer and family matters in other EU countries.

“UK and European citizens will therefore suffer if the single market regime for lawyers is undermined by Brexit. UK citizens with property, family and inheritance issues elsewhere in Europe, may find themselves unable to use a UK lawyer to help them deal with their problems.”

There would also be policy consequences. “When the UK leaves the European Union, the single market will lose its main advocate for a more liberal and deregulated market for legal services in the EU…

“Taking all of these various potential consequences into account, in our view, the decision to leave the European Union strengthens the case for further regulatory reform in order to support the UK in maintaining its status as a centre for legal services post Brexit.

“Attractive regulatory policy could help, to some extent, to offset the disadvantages of being of outside the single market.”

The SRA highlighted its regulatory reform programme, including the proposed rewrite of the code of conduct, its ‘training for tomorrow’ programme, and work to help firms innovate.

“Our reform process is intended to increase flexibility in law firm ownership and structure. This will make UK regulated law firm vehicles attractive to foreign investors, since they will be able to use these forms of business to raise capital for their expansion (just as in previous decades European law firms have used English LLP structures to limit their liability).

“Our reforms should also help to replace some of the dynamism in the UK export sector for legal services with new competitiveness in the domestic legal economy. They will enable more law firms to obtain ABS status, including law firms from outside the UK.

“They will encourage more capital to flow into law firms and support the provision of more technologically driven, lower cost and more accessible legal services. They will also continue to drive the development of partnerships between solicitors and other professions through MDPs, leading to more innovation in service provision.”

Further, removing restrictions on the business structures solicitors can operate in “will provide an added incentive to foreign law firms currently established in the City to invest further in their operations in the UK.

“It will allow these firms to offer English law work through solicitor partners, without needing onerous law firm authorisation, provided that these firms are not supplying legal services in areas that are more heavily regulated for reasons of public or consumer protection”.



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