Major law firms will soon “eschew the solicitor brand” in favour of conducting non-reserved legal business in the unregulated sector, the compliance officer at a top City firm has predicted.
Meanwhile, regulation by the Solicitors Regulation Authority (SRA) has received votes of confidence from one large firm and from sole practitioners, but City firms are sceptical.
Speaking at the Legal Futures Regulation & Compliance Conference in London, Jo Riddick, the compliance officer for legal practice at Macfarlanes, said solicitors were becoming less relevant in terms of services to clients.
Ms Riddick asked how relevant the “badge” of regulation would be to legal brands when “well-funded and well-managed players” entered the unregulated sector.
She suggested the solicitor brand would become less important “when large and City firms jump into the unregulated market to provide non-reserved activities – possibly with other professional service providers, [maybe] accountants… technology experts, or project managers, providing high-end services… to sophisticated clients”.
Predicting this would happen, she said: “I would be surprised if we were not seeing people who were eschewing the solicitor brand in the next five to 10 years, including some quite significant names.”
Also in a session on the reality of SRA regulation, Simon McCrum, managing partner of Oxford firm Darbys Solicitors, raised eyebrows when he described the SRA as a valued “business partner”, whose officials’ input was “uplifting”.
He said that since Darbys had grown to become a ‘high impact’ firm with turnover exceeding £12m, so becoming part of the SRA’s relationship management system, he had come to value the connection.
“Compliance and regulation crept onto my radar and is now the number one thing on my daily, monthly, annual, agenda… I came to adopt a completely different stance to the SRA.”
Along with the firm’s professional indemnity insurer and the bank, the SRA has become its “third business partner”.
He added: “That is truly how we have come to see them. We very much like being under the microscope. It is very comforting to know that the regulator knows you. Compare that to the old ‘black hole’.”
Some of this enthusiasm was shared by sole practitioner (SP), Hilary Underwood, the former chair and now co-ordinator of the Sole Practitioners Group. She highlighted improvements in the relationship between the regulator and SPs, particularly in relation to start-ups, the provision of more guidance on compliance, and in its understanding of pressures on their time.
“The SRA is a lot more willing to listen to SPs… to shift the way in which they liaise with us and communicate with us… The feedback we’ve had from our members has been extremely positive.
“On the whole the experience for us is more positive… But there’s still a long way to go.”
However, Ms Riddick said the centralisation of risk management and compliance functions within City firms had made the case for self-regulation compelling “particularly if they have sophisticated clients… Arguably the market will provide its own protections because you will have that ubiquitous client service message coming down from the top”.
She added: “I think client care is one of the areas where there is a case for different levels of regulation, where it might be appropriate for firms with a lot of consumers for the SRA to say ‘you need to tell your clients about what you are doing, inform them of their rights to complain, and so on’.
“It’s far less appropriate, arguably, for City firms with more sophisticated clients. Client care is such a core mantra for City firms that we don’t need our regulator to tell us how to do it.”
She said that outcomes-focused regulation had been beneficial, but that it had only speeded change that would have happened anyway. “Generally in terms of compliance I find I am much less likely to have a debate with partners on particular parts of the Code of Conduct than I might’ve done five years ago…
“One of the impacts of SRA regulation has actually been to lift the compliance burden off the shoulders of the partners and place it more squarely on the shoulders of compliance departments, who are experts.”
Direct contact with the SRA has been a disappointment, she reported. Interactions with the regulator’s staff had been a “learning curve” – with the firm being the educator. “What the City hoped for from… the whole relationship management process was a two-way street where we would get something back and we’re not seeing that at the moment…
“We must have had six or seven meetings where we are just repeating the same thing over and over again. Who is getting a benefit from it?”
The only areas where SRA regulation continued to add value to City firms were in the international market, where the “badge” of regulation still had currency, and in legal professional privilege, she said.
From the floor, former Law Society president Linda Lee complained that law firms had been the victims of a “massive experiment” in regulation that had “cost millions upon millions” without delivering benefits to clients.
She continued: “Now there is going to be another Legal Services Act, and there will be… Instead of fixing the problems with the last one, they’ll throw it all up in the air and start again with another experiment.”