The rule which prevents solicitors and alternative business structures (ABSs) from hiving off non-reserved legal work into unregulated businesses risks making legal services more expensive, distorting competition and preventing innovation, the Legal Services Board has warned.
LSB chief executive Chris Kenny also indicated that the board’s current review of whether general legal advice should become a reserved activity is unlikely to lead to a blanket extension of regulation.
The LSB has previously suggested that the Solicitors Regulation Authority’s (SRA) separate business rule is not compatible with the regulatory objectives or the better regulation principles, but took reassurance from an SRA pledge to review it.
In a letter last week to his counterpart at the SRA, Antony Townsend, Mr Kenny said he now expected the authority to make good on this.
He said the LSB’s starting point is that it would be disproportionate for all legal activities to be regulated – this could change with the review of general legal advice, he acknowledged, but added: “Having completed our investigation into will-writing, estate administration and probate, we are unconvinced that a blanket, as opposed to more targeted, approach would be likely to emerge as our preferred option.”
There are currently just six areas of reserved legal activity: advocacy, litigation, conveyancing, probate, administration of oaths and notarial work. Last week to the government that will-writing be added to the list.
While accepting that there may be times when a business mixing reserved and non-reserved legal services may present “unacceptable risks”, Mr Kenny said the interaction of the rule with the SRA’s approach to non-reserved activities is at the heart of problem.
“We struggle in particular to understand why a business that has successfully delivered legal advice outside of legal regulation without any evidence of consumer detriment should be compelled to bring those services within the oversight of the SRA in order to deliver reserved legal activities.”
He also challenged the notion within this – and the use of the term multi-disciplinary practice (MDP) as some kind of sub-set of ABS – that mixing reserved legal activities with other services (whether legal work or not) is inherently more risk than traditional law firms or legal-only ABSs.
“We are not aware of any evidence, whether in terms of regulatory action elsewhere, prosecutions for criminal infringement or solid survey evidence of actual confusion leading to mis-purchase of services by consumers that would support such a conclusion.”
Mr Kenny said the issue is only likely to grow. “At the retail end of the business, we are concerned that the rule, combined with the approach to what you call MDPs, may create artificial boundaries within the market between firms that want to deliver non-reserved activities and those that want to deliver reserved ones: if the price of delivering reserved services is regulation of other legal services that do not need to be regulated, that adds to the costs that consumers pay, distorts competition and prevents innovation.”
He said it was also a significant problem in commercial work – which is not reserved – both for law firms to respond to the challenge of unregulated advisers and for clients. “SMEs and larger firms will seek advice from professional services firms on business problems widely defined and should face artificial regulatory barriers which force them to carve their issue into its different legal, financial or other components, which have to be pursued separately – and probably more slowly and expensively.”
Mr Kenny said any risks that do arise from the mix of reserved and non-reserved work can be managed through conditions on law firms and ABSs, or on individual practising certificates.
The LSB has asked the SRA to provide by the end of this month details of how it intends to take forward its review of the separate business rule.