The process of approving alternative business structures (ABSs) seems to be weighted against multi-disciplinary practices (MDPs) and business services firms, it has been claimed.
In its latest review of the Solicitors Regulation Authority’s performance in licensing ABSs, the Legal Services Board (LSB) said that many of the licences have been granted to firms that only provide legal services and not ‘one-stop shops’ envisaged by the Legal Services Act.
The data available does not suggest that the SRA’s authorisation processes are weighted against new entrants generally, the LSB said, but “there does appear, both in the data and anecdotally, to be an issue with MDPs and business services firms” – organisations it described as “potentially innovative”.
Analysis showed that business services firms – typically offering UK, employment or other services to companies – have been the least successful applicants for licences so far, with 35% of applications granted. The next least successful (40% granted) are accountants, independent financial advisers and wealth managers, which the LSB classified as MDPs.
The LSB said one of the reasons for this is the “SRA’s views regarding the discretion (or lack of discretion) to not regulate all activities undertaken by an ABS”.
Overall the LSB concluded: “Our concern remains that applications are put off, modified or withdrawn as a result of the SRA’s authorisations process. We consider that to liberalise the market, the business structure of the applicant should be chosen not to satisfy the regulator’s rules but instead be appropriate for the business needs of the applicant.
“It is not clear, for example, that decisions on ‘forced’ restructuring have been predicated on poor compliance records with other regulators or on hard evidence of business plans that might run the risk of deliberately or inadvertently misleading consumers, as opposed to a rigid interpretation of the demands of the separate business rule.
“Equally, the negotiation of waivers from the [rule] can, on the evidence of some ABS applicants, of itself be a lengthy process with clear adverse commercial consequences.”
The oversight regulator – which began investigating the issue because of concerns at the length of time ABS applications were taking – said there had been improvements in the last six months and the SRA has reached “a stable (albeit not ideal) state of performance in relation to the timeliness of general ABS applications and has a plan to implement process improvements which have been long advocated by the LSB”.
The LSB said it takes an average of seven months from the submission of a second stage application for a firm to be granted an ABS licence.
While a new director of authorisation took up post in June with a view to “sharpening performance” in this area, the LSB expressed concern that the imminent departure of both chief executive Antony Townsend and Samantha Barrass, the executive director with responsibility for ABS licensing, “may have an opposite effect”.
New figures from the SRA show that it is receiving around 50 new ABS applications every quarter.