Heat rising over SRA plan for solicitors in unregulated firms

Whittle: Questions over the SRA’s relationship with smaller firms

The Legal Services Board (LSB) has received unprecedented lobbying against the Solicitors Regulation Authority’s (SRA) plans to allow solicitors to practise from unregulated businesses.

It comes as research shows widespread ignorance among solicitors in small firms about the change.

The LSB is currently considering the SRA’s proposed new Handbook, the most controversial element of which is freeing up solicitors to deliver unregulated legal services to clients from unregulated businesses.

The solicitors would still be subject to SRA regulation as individuals.

The Law Society, which has consistently opposed the move, has lobbied the LSB directly to reject it, and the LSB revealed that it has received a further 128 submissions, most of them backing the Law Society’s point of view.

Back in 2014, the LSB received 33 submissions against the SRA’s hugely contentious plans to reform professional indemnity insurance, which the board eventually rejected.

The LSB has until 5 November to announce its decision on whether to approve the SRA’s application – the Legal Services Act 2007 requires the board to approve rules changes unless it is satisfied that one of six criteria for refusal are met.

The main two of these are that granting the application would be prejudicial to the regulatory objectives or to the public interest.

However, the LSB could issue a warning notice that it was considering rejecting the application, in which case it would have more time to reach a final decision.

According to the first of LexisNexis UK’s 2018 Bellwether reports, 57% of the 200 small and medium-sized firm respondents were “simply unaware” that this change had been put forward.

The report, A dangerous allegiance to the status quo? said 70% believed the reforms could compromise the ability of regulated firms to compete effectively with solicitors for firms working outside the regulated environment, and a similar number thought they could have the long-term effect of lowering legal standards in the market.

At the same time, 65% predicted that the regulatory change would increase the level of competition in the market; only 16% believed it represented an opportunity.

The research revealed “an alarming chasm” between expectations of the impact on the profession as a whole and for individual firms.

“Somehow, almost half of the solicitors we spoke with believe that the SRA changes are a risk to the profession, but only 29% believe that they will be a risk to their firms.”

Jon Whittle, market development director at LexisNexis UK, said: “At a time when solicitors appear disillusioned with regulatory body, the findings raise real questions over the SRA’s relationship with smaller law firms and its strategy when it comes to reform.

“The SRA is there to ensure standards are maintained, but it needs to act in a way that does not alienate the firms with which it works.

“There is a pervasive concern that reforms could drive unfair levels of competition, compromise the rule of law, and lead to a race to the bottom, fundamentally damaging business reputation and bottom line.”

Mr Whittle said few respondents saw a compelling argument for the reforms and even fewer have considered what action they should take as a result.

“However, whilst the SRA has work to do, it is still, to some extent, the responsibility of small firms themselves to keep up-to-date with industry developments and reform.”

In general terms, the report found that lawyers were “most comfortable adhering to a ‘business as usual’ mindset, even in the face of significant challenges”.

The report also suggested that firms were not responding to the reform because they thought it unlikely to have much of an impact.

“But is that a good enough reason to ignore what’s happening?” it asked. “Is that really just a failure of imagination? Can solicitors not envision a world built on different rules?”

The survey found widespread discontent with both the SRA – which respondents felt were not taking the concerns of small firms into account – and the Law Society, with 50% of the solicitors surveyed believing that it represented their interests badly.

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