Ring-fencing: legal work in MDPs should be separate from non-legal work
The Law Society has begun laying down the red lines beyond which it will not be able to support alternative business structures (ABSs), Legal Futures can reveal.
The society’s regulatory affairs board (RAB) has highlighted a variety of issues that it expects to see addressed if it is to judge the arrangements for ABSs satisfactory, including effective controls on the fitness to own of prospective external owners.
In particular, the RAB argued that it should be for the applicant for an ABS licence to demonstrate that their resources were legitimately acquired, rather than for the Solicitors Regulation Authority or other licensing authority to prove the opposite.
It also said that those with significant criminal records, especially for dishonesty, should not permitted to own ABS firms, and that the licensing authority should take account of corporate behaviour as a whole, even outside the provision of professional services.
“Corporate behaviour in its widest sense will demonstrate whether prospective owners pay proper respect to their legal and regulatory obligations,” the board was told.
The RAB emphasised the importance of ABSs and other law firms facing the same regulatory requirements, especially in the approach to the separate business rule. It said there should be no direct regulation by the Legal Services Board unless no other approved regulator was able and willing to regulate an ABS of the type concerned.
Concerns around multi-disciplinary practices highlight the need for ring fencing the legal side of a practice from the non-legal, the RAB said. The society, whose policy is that clients of such practices should not receive the same protections for non-legal work as they would for legal work, would expect to see:
- Strict arrangements to ensure that client information of an ABS firm cannot be shared with other parts of the owners business;
- Arrangements to ensure that any referrals between the ABS firm and another part of the owners business are subject to the rules concerning referrals between solicitors and third parties; and
- A requirement that all legal work undertaken by the owner is undertaken through an ABS firm, rather than by an unregulated part of the business.
The final major concern was around access to justice, with the RAB saying it would want to see:
- Provisions in licensing rules concerning the circumstances in which particular attention needs to be given to access to justice issues on licence applications;
- Requirement for the applicant to fund (but not control) any detailed assessment of access to justice issues arising from their application;
- Powers to grant licenses subject to conditions (concerning the range of work to be offered, in locations from which it should be offered, or the provision of funding for alternative services; and
- Requirements for periodic reviews of the impact of ABS firms on access to justice.
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