The Legal Services Consumer Panel and the Legal Ombudsman are the latest organisations to come out against the Solicitors Regulation Authority’s (SRA) proposal that practising solicitors be allowed to handle unreserved legal work for the public from unregulated firms.
The panel said that though it supported greater flexibility and could see the advantages, particularly where solicitors work with law centres or charities, the revised arrangement would create two distinct types of service.
“One, of solicitor providing reserved legal activities through an authorised firm, and another of a solicitor providing only unreserved legal activities through an unauthorised firm.
“While their training and qualification may have met the same standards, the two models do not offer the same service or level of client protection, as the current proposals do not require solicitors working in unauthorised firms to have professional indemnity insurance or access to the compensation fund.
“For those unfamiliar with using a solicitor, there is a sizeable risk of confusion as we know that consumers are unclear about regulatory distinctions as they currently stand.”
The panel added that it appeared that a solicitor operating in an unregulated firm would be beyond the Legal Ombudsman’s jurisdiction.
“We would expect to see clear guidance around this area, as this potentially undermines the notion of there being more protection [in the advice coming from a solicitor] than that from an unregulated provider [without one].
“When one factors in the existing information asymmetries between providers and consumers, the frequency with which this is a distress purchase, and behavioural biases which make consumer decisions prone to errors, this additional issue tips the allocation of risk unfairly towards consumers.”
The Law Society’s aggressive response to the consultation  has predicted that the move would create a two-tier profession.
The Legal Ombudsman said it too supported the “wider policy objective” of providing greater flexibility for solicitors to deliver services, but argued that the proposal would “complicate the system of redress and create confusion for consumers and service providers”.
LeO said it had “serious concerns” about lack of clarity in determining its jurisdiction, the risk to consumers if the compensation fund or professional indemnity insurance were not available and the viability of the Small Claims Court as an alternative to the ombudsman.
The complaints body went on: “The proposals primarily create difficulty for us because our jurisdiction is over the authorised individual (solicitor) rather than the firm or anyone else who works there.
“While technically a consumer still has access to the Legal Ombudsman for the work of the solicitor, it will rarely be so straightforward. We envisage difficulties in understanding who has actually undertaken work for the consumer, whether this can be evidenced, and whether we have powers to request evidence.”
Leo said it disagreed with the SRA that alternative means of redress, such as voluntary ADR or the Consumer Rights Act, provided enough safeguards for consumers.
“We do question how much consumers will consider the relationship they are entering into. In our experience consumers rarely appreciate the difference between a regulated and unregulated practice, and choice is often driven by cost and word of mouth rather than an assessment of the protections available to them.
“We are also concerned about the tensions the proposals will create between the professional obligations of the individual solicitor and the way an unregulated firm may be run.
“While a solicitor retains many of their obligations, such as competence, conflict of interest, complaint handling, these are not requirements for an unregulated firm. What should a solicitor do when these obligations come into conflict?”
The Legal Ombudsman also took issue with an aspect of the SRA’s plans to reform the Solicitors Accounts Rules. It said that if the definition of client money was changed so that fees paid in advance no longer needed to be paid into client account, consumers may lose important protections.
“While the compensation fund will still be available to consumers, it does effectively create an extra hurdle for them to jump through to access their funds.”
The panel said the revised definition would remove a “fundamental consumer protection” because consumers who paid in advance would no longer have their money automatically returned should the firm become insolvent.