Consumer watchdog gives SRA’s ABS application green light – with reservations

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By Legal Futures

9 May 2011

Hayter: consumers “did not relate” to Code of Conduct's guiding principles

The Solicitors Regulation Authority’s (SRA) application to become a licensing body for alternative business structures (ABS) has been endorsed by the Legal Services Board’s consumer watchdog, but with reservations.

While it described the SRA’s proposed arrangements for regulating ABSs as being “broadly right”, the Legal Services Consumer Panel (LSCP) expressed disappointment that some recommendations it made during consultations were not adopted.

In a letter advising the board on the consumer impact of the application – in its role as a statutory consultee under the Legal Services Act – the LSCP’s chairwoman, Dr Dianne Hayter, highlighted that the SRA had adapted the solicitors’ existing Code of Conduct rather than started afresh, despite its own research finding consumers “did not relate” to its guiding principles.

Another issue still of concern was the failure of the SRA to fully incorporate the risks of consumer vulnerability – the fact that consumers have different needs, abilities and circumstances – into its regulatory regime. For example, the regulator had not promoted the issue from a voluntary “indicative behaviour” to a mandatory “explicit outcome” under the code, the LSCP complained.

The panel welcomed many aspects of the application, which it said were consistent with issues it raised during the SRA’s four consultations. These included proposing a single regime across regulated entities, giving consumers the same protections when dealing with ABSs and traditional firms; maintaining the separate business rule; a single compensation fund; the code’s approach to conflicts of interest; and protection for whistleblowers.

However, the LSCP called for evidence that plans or commitments made in the application have subsequently been followed through effectively. It also emphasised that the success of outcomes focused regulation would depend on its delivery, in particular whether the SRA could obtain good behaviour from providers without stifling innovation and be tough when dealing with those “that abuse the freedoms given to them”.

Lastly, the LSCP approved of the SRAs plans to create a consumer affairs unit but cautioned it was essential that all staff took responsibility for it. Also, the panel reiterated its view that the SRA should “develop capacity on behavioural insight in order to understand the impact of its policies on consumer behaviour”.

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