The Law Society has issued a damning critique of the Solicitors Regulation Authority’s (SRA) proposals for a streamlined code of conduct and – to a lesser extent – its planned overhaul of the accounts rules.
The code of conduct proposals – for a seven-page code for solicitors and a six-page code for firms – were misconceived, unnecessary, unclear, would create a two-tier profession, and threatened solicitors’ reputations, the society said in a fierce response.
Commenting that the current framework arose from the Clementi review, the society said: “The regime which was implemented is less than 10 years old, and in some aspects less than five years old but is nevertheless undergoing radical and extensive, multi-stakeholder reviews which potentially overlap. These piecemeal changes create uncertainty, threaten viability and increase risk of irreversible harm.”
Further, “the code of conduct and principles are the most simple and workable aspects of the current regulatory regime and in least need of change.”
The evidential basis of the SRA’s plans was “neither robust nor sufficient” and even “flawed and dangerous”, it said. There was no evidence that major regulatory reform was pressing and in the circumstances of national uncertainty following the decision for the UK to leave the European Union, should wait “at least until the immediate issues around Brexit” were addressed.
“The society is of the view that there is insufficient evidence of significant clear and present ‘harm’ generated by the current system which would require systemic and radical reform such as is proposed.”
It continued: “The current proposals will… erode consumer protections and have serious implications in a number of areas… Furthermore, the proposals are substantially incomplete and lacking in clarity and guidance. This is likely to give rise to additional costs and add to the regulatory burden on regulated solicitors and firms, in particular smaller firms.”
Central to the society’s complaints was the proposal that solicitors could practise from unregulated entities providing unreserved activities. This would lead to consumer confusion, it said. “Such solicitors will be subject to a new code of conduct for solicitors but the organisations they work for will not be subject to the SRA’s proposed new code of conduct… [or] be subject to any SRA code or enforcement powers.”
It added: “This has potentially serious implications in a number of areas including client protection (and confusion), legal professional privilege and professional supervision. It will in our view lead to the creation of a two-tier profession with a significant risk that the SRA’s proposals will undermine the positive reputation held in relation to England and Wales solicitors and in the long term, undermine the global competitiveness of UK law.”
The society objected to the SRA’s premise that reform was justified because of unmet legal need assumed to result from the current regulatory regime stifling innovation. It pointed out that the Competition and Markets Authority, in its provisional report on legal services, had not referred the market for formal investigation. In fact, it argued, the most significant unmet need related to the removal of legal aid.
On the accounts rules proposals, the society was more equivocal. It supported “the principle of simplification [as long as] the new rules are practical and genuinely simplify compliance for solicitors without reducing client protections”.
However, it added: “The current rules are burdensome but they work; if it is not possible to simplify the rules in a way that reduces administrative burden, the current rules should be retained.”
The society agreed that the rules should be relaxed to allow more solicitors to use third-party managed accounts. But it did not agree that the definition of client money should be changed to exclude fees and disbursements, saying it was “not persuaded that the risks for clients would be offset by the suggested benefits of the proposed change; in particular… whether firms operating with an overdraft in the office account would be in breach of requirements to protect client assets and might incentivise poor behaviour”.
Law Society president Robert Bourns said: “Currently if you walk into your local solicitors’ firm in any part of in England and Wales, you get the benefit of legal professional privilege for communications, full insurance cover in the unlikely event things go wrong, and protection from the solicitor acting in conflict with the interests of the consumer.
“The new regulatory proposals will create a two-tier solicitor profession – certain organisations will not be regulated despite employing solicitors and providing services to the public. Consumers and clients of these organisations will not receive these basic protections…
“The rational for the proposed changes is to increase client choice but no evidence has been provided to demonstrate that the proposals will in fact achieve this…”
“The SRA has failed to make a convincing case when it comes to any benefits from its proposals. There simply isn’t convincing evidence that allowing solicitors to deal with the public from unregulated companies will either drive up choice or drive down cost.
“Instead a clear situation will become confused and current protections for consumers lost.”