The ownership structure of law firms is “completely irrelevant” when assessing risk, a director of the Solicitors Regulation Authority (SRA) said yesterday.
Crispin Passmore, executive director for policy, also reaffirmed the regulator’s determination to change the approach to the minimum cover limit for professional indemnity insurance (PII) required by law firms.
Speaking at a Westminster Legal Policy Forum event on innovation, Mr Passmore said that what mattered in terms of risk was the kind of work done by the firm, and whether client money or vulnerable consumers were involved.
“It doesn’t matter if the profit-seeking is done by small groups of partners or corporate owners, they must be held to the same professional standards.
“Most accept that some people are going to fail – that is the nature of innovation. It is also a feature of markets that don’t innovate. Law firms have always failed.
“It’s not been a one-way street to success. Every sort of model has had problems.”
Mr Passmore said that if the SRA could make one legislative change, it would be ditching the requirement to do “the same things differently” for alternative business structures and partnerships.
On PII, Mr Passmore said no other regulator imposed indemnity insurance rules as demanding as the SRA.
“Given the diversity in practice that already exists, we have a set of requirements that presumes that, as a regulator, we know the right level of insurance for clients and firms.
“It is a one-size fits all approach that really doesn’t make any sense.”
Mr Passmore said small law firms came to the SRA asking if they could lower their indemnity insurance cover to £500,000, rather than £2m, because of their claims history or the work they did. He said reducing premiums would allow firms to invest more in services.
“Regulators should not be imposing unnecessary costs, particularly onto small businesses.”
Mr Passmore also called for a change in culture so that law firms abandoned the idea that they needed permission to innovate.
“I cannot ever quite believe the number of people who come to me for permissions to do things that are so obviously allowed.”
The policy director said he had been on the same stage as legal tech companies who had been told by law firms that they were not allowed to work together without the permission of the SRA.
“If any firm wants to something they don’t think the rules permit, but they think it is safe and ethical to do, come and talk to us.”
He said the SRA was pressing ahead with a rule book that would be “certainly under 100 pages” and there would be six to seven pages of standards for solicitors and firms.
“We must give individual solicitors the freedom to practice in different ways and without imposing constraints that parliament did not ask for and we have not got the evidence to justify.”