The Legal Services Board (LSB) has approved the new SRA Handbook, including the controversial proposal to allow solicitors to provide unreserved services to the public from unregulated businesses.
The LSB acknowledged that this change “does present some risk to the regulatory objectives”, given that there will be fewer consumer protections for clients of such services, “as well as potentially contributing to greater complexity for consumers”.
It continued: “However, the board’s view was that these risks, when set against the potential benefits that the proposal is likely to bring to the regulatory objectives and public interest as a whole, means the application should be granted in full.”
LSB chair Dr Helen Phillips added that “there was some merit in the SRA’s argument that these changes could be seen to increase consumer protection, given that many consumers already use unregulated providers and in doing so receive no regulatory protections”.
Rules are approved under a negative procedure, meaning they are passed unless there are reasons, as set out in the Legal Services Act 2007, to refuse them.
The Law Society strongly opposed the move, as did the Legal Services Consumer Panel.
The LSB received an unprecedented 130+ further submissions on the issue, the majority of which backed the Law Society’s point of view. But the LSB said a “sizeable minority” supported the Solicitors Regulation Authority’s (SRA) position.
In its submission to the LSB in response to this lobbying, the SRA contended that the new transparency rules would help ensure that consumers have the correct information and support to help them make choices on providers.
“More generally, the SRA made the argument in its application that the existing arrangements amount to an unnecessary market restriction and that allowing different models of legal service delivery will assist in meeting the high levels of unmet legal need.”
The decision notice allowing the new rule said the LSB accepted the proposition that it would have a “positive impact” on four regulatory objectives: access to justice, protecting and promoting the interests of consumers, promoting competition in the provision of legal services, and protecting and promoting the public interest.
“Moreover, the evidence is not conclusive that any perceived reduction in consumer protections is likely to have a significant negative impact on the regulatory objectives (particularly given the fact that there are already a number of exceptions to the current restriction).
“Whilst a limited negative impact is possible, the board was not convinced that this would outweigh the potential benefits, so as to have a prejudicial overall impact on the regulatory objectives or to be deemed contrary to the public interest.”
The LSB said it took into account assurances provided by the SRA with regards to monitoring and evaluation of the impact on consumers – first in the second half of 2020, a year after the rule’s introduction, and a three-year review in 2022.
The other controversial change introduced by the new Handbook will see individual self-employed solicitors (freelancers) allowed to provide reserved legal services without being authorised as an entity.
They will need three years’ experience, as well as adequate professional indemnity insurance for all their legal work, not just reserved activities. They will not be able to hold client money or employ people.
The LSB said it bore in mind that clients would still have access to the SRA Compensation Fund, and would need “adequate and appropriate insurance”, even if not at the level of the minimum cover required of firms.
“Moreover, they will be required to take out and maintain cover for all of the work done as a solicitor and not just restricted to reserved activities.
“The LSB is reassured that the SRA has introduced this additional protection, to enhance protection following calls to do so in consultation responses.”
The LSB also noted that the change was likely to have limited effect: “Given the requirements for freelancers to contract personally for services, and the ban on freelancers holding client money, the SRA considers that the arrangements are unlikely to appeal to a sole practitioner who is currently running a business and employing staff.
“It is more likely to appeal to those who wish to undertake ad hoc freelance work or set up in a chambers style model.”
The new Handbook – which should come into force next April – will be 130 pages in total, more than 300 pages less than now. It will include a seven-page code of conduct for solicitors and six-page code for firms that describe the standards of professionalism that the regulator and the public expect of those the SRA regulates.
The underlying principle is to put greater trust in professional judgement; the codes strip out the current indicative behaviours.
Other changes include requiring any firm the SRA regulates to have at least one manager or employee with three years’ experience. That individual will be responsible for supervising the work carried out, but means that a newly qualified solicitor, or non-solicitor, can set up a firm.
Scottish and Northern Irish law firms will be allowed to provide reserved services in England and Wales without having a practising address there, although they will still be subject to SRA regulation.
This “could potentially increase consumer choice”, the SRA has said.
New accounts rules would simplify the current set-up, introduce a new definition of client money and include rules on the use of third-party managed accounts.
Dr Phillips added: “The board welcomes the SRA’s move to modernise its regulatory arrangements and make them more accessible.”
She said the board was “fully aware” of the significance of allowing solicitors to practise from unregulated firms: “Our decision notice sets out a clear expectation for the SRA to monitor impact. In the event that its monitoring identifies risks materialising in practice, we will expect the SRA to take action.”