Consumers of legal services do not all need the same level of protection and some of them, such as big corporations, might not need “any protection at all”, the Solicitors Regulation Authority (SRA) has said in a policy statement on its new approach to regulation.
As it launched four consultations yesterday, on indemnity insurance and the compensation fund, multi-disciplinary practices and accounting requirements, the SRA outlined what it sees as a less interventionist and more pragmatic approach to regulation.
The SRA said that “on balance, it might be in the public interest and provide a greater overall public benefit to set lower requirements [levels of consumer protection] at the cost of accepting that some individual clients will not be fully protected or compensated in every case”.
For example, large corporations that were sophisticated purchasers of legal services might be “perfectly competent to ensure their own ‘protection’”, although they were entitled to expect solicitors to be properly trained.
The policy statement argued that, before the Legal Services Act (LSA), the SRA overwhelmingly regulated solicitors and traditional law firms, but the market was changing and would “increasingly fragment”.
Despite the implementation of a new handbook in 2010, there remained a “heavy emphasis” on defining permitted business structures.
“This approach has the tendency to constrain innovation and competition and also to reduce transparency where individual waivers against general prohibitions are granted,” the SRA said.
The regulator said its work to create a better regulatory regime for SRA-regulated MDP ABSs had been “significantly complicated by the current handbook structure, as has the analysis of the regulation of solicitors working within new licensed bodies regulated by other approved regulators”.
As a result of this, the SRA said it was likely that regulatory arrangements would need to be restructured to “separate more explicitly the regulatory requirements placed on solicitors as individuals and those placed on regulated entities.”
The SRA said its aim would be to ensure that solicitors had “the freedom to work on their own or within a wide range of businesses, whether regulated by the SRA or not, and that where they do so they are bound by a very clear set of personal obligations based on the LSA professional principles”.
The regulator would also aim to ensure that the entities it regulated had “wide freedom, as permitted by statute, to structure themselves in ways that make sense for their businesses and their clients”.
The SRA said it believed that the current regulatory arrangements provided “too great a level of intervention in the market which, in important respects, cannot be justified”.
The regulator went on: “Overall, this is having the impact of increasing cost and suppressing innovation and growth in the market to the detriment of consumers.
“Given this, the SRA will take the approach that the continuation of any existing regulatory intervention needs to be justified, rather than one of focusing on justifying its removal”.
Crispin Passmore, executive director of policy at the SRA, said the changes were only possible because of what the SRA had achieved in the past, particularly the 250 ABSs and the more streamlined handbook.
“The market is changing all around us – whether it is the growth in the number of in-house lawyers or solicitors working for other regulators.
“I don’t think the changes we’ve announced are the last word, but part of a long journey of change and reform.”
The SRA promised more consultations, later in the year. In the summer, it said it would publish “a package of measures to reduce regulatory burdens on small firms”.
This would be followed by a consultation on the separate business rule in November 2014, with the aim of putting the changes in place by April 2015.
There would also be changes to the way in which in-house solicitors are regulated to “remove the current complicated system of rules and exceptions and provide a clearer less restrictive framework”.
Along with its response to Professor Gus John’s comparative cases review, on the issue of disproportionality in the regulation of minority firms, the regulator promised a wholesale review of the holding of client money, including the solicitors’ account rules.