SRA unveils new draft of Handbook to govern both law firms and ABSs from October 2011
Townsend: business model should be incidental to regulation
The new draft of the single Handbook that will govern both traditional law firms and alternative business structures (ABSs) from October 2011 is being unveiled today by the Solicitors Regulation Authority (SRA). This is the last opportunity to comment on it.
The latest stage in the SRA’s move to outcomes-focused regulation (OFR) also includes a call for the Legal Services Board (LSB) to extend the definition of reserved legal activities to cover all “solicitor activities”, so as to avoid consumer confusion over which legal services are regulated and which are not.
It follows SRA research that shows consumers do not appreciate the differences between regulated and unregulated providers of legal services (see story).
The consultation on the Handbook, which includes the latest draft Code of Conduct, also gives the first indication of the kind of information the SRA will in future require firms to provide so that it can target its resources on the areas of highest risk.
The consultation on the first draft of the handbook, published in May, received 83 responses which strongly supported a single regime for law firms and ABSs, and generally welcomed OFR. At the request of the SRA, the LSB is seeking to ensure ABSs have the same level of consumer protection as law firms by ironing out disparities in various pieces of legislation.
SRA chief executive Antony Townsend said that “as far as humanly possible and despite the awkwardness of the regulatory regime, we are trying to have a structure where the business model is incidental to regulation”. He said the SRA has been arguing that the separate business rule and the definition of “solicitor services” should be “read across to ABSs” – Mr Townsend said it was a “shame” that the LSB was not further on in its consideration of the key issue of reserved legal activities.
Various changes have been made since May, and the SRA has backed away from its plans to change the rules on conflicts of interest, accepting the argument that it should leave the relatively new rule as it is. Despite a call from the Legal Services Consumer Panel, conveyancers will still not generally be able to act for both buyer and seller.
Other key points of interest in the new draft include:
- The SRA has kept the requirement for all firms to have a Compliance Officer for Legal Practice (COLP) and Compliance Officer for Finance and Administration (COFA). “Our experience shows a clear need for specified individuals within firms to be responsible for implementing systems and controls, in the interests of all firms and the public,” the SRA said. Consultation responses were split on this issue.
- The majority of respondents supported restricting firms and individuals that provide reserved legal services from delivering non-reserved activities through a separate business. This is to prevent providers from trying to avoid regulation, and to reduce confusion – this feeds into the issue of reserved legal activities.
- Companies employed in-house lawyers will have to be licensed as ABSs unless there is a “nexus” between the organisation and the “client”, such as acting for fellow employees or related companies in the employer’s group. This could have an unintended impact on in-house solicitors’ pro bono work and the SRA is talking to the LSB to try to resolve this.
- The exception that allows in-house solicitors working for associations has been re-drawn so that it only applies to organisations whose members have a specialist interest in common. If they do not, then the association will need a licence to carry out reserved legal work for its members. The SRA says it believes “the current exemption is being exploited”.
- The SRA is looking to extend is disciplinary powers so that it can make discounts for early admissions and order suspended penalties.
Mr Townsend said he was confident that the SRA itself would be ready for the new regime, with plans for a new IT system and business processes, as well as all staff being assessed against the new competencies they will be required to have, all proceeding to schedule.
Under OFR, a significant number of detailed rules in the current Code of Conduct will be replaced by the high-level professional standards expected of a solicitor and an explanation of how they should be experienced in reality by clients (the outcome). These will be supported by non-mandatory “indicative behaviours” that will tend to show that an outcome is or is not being achieved. The goal is to give firms greater freedom than now in deciding how to achieve the outcomes, taking account of the particular needs of their clients.
The consultation, which will be published later today on the SRA website, closes on 13 January 2011. The final Handbook will be published in April 2011. It is expected that the SRA will be designated as a licensing authority for ABSs in August, with the first ABS licensed and the Handbook taking effect on 6 October 2011.
Tags: ABS, Alternative business structures, conflicts of interest, Legal Services Board, outcomes-focused regulation, reserved legal activities, Solicitors Code of Conduct, Solicitors Regulation Authority
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