SRA on track after ABS regime clears final parliamentary hurdle

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By Legal Futures

17 November 2011


Parliament: Lords approve final statutory instruments

The final legislative obstacle to the Solicitors Regulation Authority (SRA) licensing alternative business structures (ABSs) was removed on Tuesday when the House of Lords approved secondary legislation on non-lawyer owners' disclosure of criminal convictions and appeals against ABS licensing decisions.

It should leave the SRA on course to start accepting ABS applications by the end of the year and grant its first license early in 2012.

As was the case in the House of Commons last month, the government refused to allow an exception to the Rehabilitation of Offenders Act 1974 – urged by the Law Society and others – which would have required all non-lawyer managers to disclose convictions.

Instead, only those holding a ‘restricted interest’ in an ABS – that is, at least a 10% share – will have to reveal spent convictions to pass the SRA’s ‘fitness to own’ test.

Explaining the move in the chamber, justice minister Lord McNally said extending exceptions under the Act to those with a restricted interest “addresses the immediate concern of safeguarding the new structures from the risk of criminal ownership… It effectively captures those who might pose a risk of improper management of firms providing legal services, including the risk of the exploitation of access to client money”.

But he pointed out that if the SRA deemed it necessary, and the Legal Services Board (LSB) agreed, the ABS licensing rules could be altered so as to lower the 10% threshold at which a person is considered to have a material interest. Alternatively, if “compelling evidence” emerged for extending the exceptions to the 1974 Act further, a legislative amendment could be made then.

However, the government “must be mindful of the careful balance between access to information about spent convictions and the important goal of improving access to employment for offenders who have proven that they have put their criminal lives behind them”, he cautioned.

In the second of the two items of secondary legislation, the Lords approved an order amending the functions of the Solicitors Disciplinary Tribunal (SDT) so it could become the venue for appeals against SRA decisions relating to ABS licences.

Introducing the order, Lord McNally squarely blamed the Law Society’s insistence that the SDT hear ABS appeals for the delay in the 6 October ABS start date. The society had exercised its right under the Legal Services Act to determine the appeals venue, arguing it was essential to ensure a consistent approach to appeals by all the firms it regulates, whether ABSs or traditional law firms, and because of the less favourable costs regime in First-tier Tribunal.

The minister agreed with the LSB that it would have been preferable for the First-tier Tribunal – which will be used by the Council for Licensed Conveyancers and other future licensing authorities – to be the single appellate body for all ABS appeals.

Labour’s frontbench justice spokesman, Lord Bach, also backed a single appeals body as “an attractive proposition”. But returning to the exceptions to the Rehabilitation of Offenders Act, he made the point that “the universal opinion of the various groups that were consulted [by the LSB]” had been that all ABS owners and managers should be included.

Although he would support the government’s position in order to get ABSs “on the statute book in one way or another”, he added: “It would be unfortunate if people who should be exempted from this Act were not exempted at this stage, and if the government had to do it on a “first today and then tomorrow” basis.

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