Panel tells SRA it must do more to protect consumers using solicitors in unregulated firms

Martin: Thin impact assessment

The Legal Services Consumer Panel has fired a warning shot across the bows of the Solicitors Regulation Authority, saying it needs to put more consumer protections in place before pressing ahead with its controversial plan to allow solicitors to practise from unregulated firms next year.

The panel also criticised the lack of economic analysis carried out by the SRA on the impact of the move and said information ‘remedies’ to ensure that people understand the risks of using such a solicitor may not be enough.

Writing on the panel’s website, its chair, Dr Jane Martin, said she welcomed the “thinking” behind the move: “This proposal means improved flexibility. And markets need flexibility to thrive, to be competitive, and to be agile enough to respond to consumers’ needs. And increasingly, consumer needs include a preference for convenience and or one-stop shop models.

“I must also commend the SRA for pursuing a pragmatic solution to the problem of access to justice – flexibility in delivery methods.”

She also accepted that in developing such solutions, “tensions between competing objectives may arise”, such as here between advancing access and consumer protection.

“The reality is that a reduction in consumer protection may be defensible if a decrease serves a wider and broader interest,” she explained.

Solicitors working in unregulated practices will not be required to have professional indemnity insurance and will not contribute to the Solicitors Compensation Fund. There are also uncertainties around access to the Legal Ombudsman, because work carried out under the supervision of a solicitor would appear to fall outside of its remit.

Dr Martin said she had expected the SRA’s impact assessment to justify this reduction in consumer protection.

“Unfortunately the SRA’s impact assessment is thin on economic analysis and consumer research; the backbone of such a significant shift in policy,” she said.

She continued: “The SRA proposes to use information remedies to highlight the reduction in consumer protection. But this skips over whether the reduction is justifiable in the first instance.

“Also, information remedies have limitations… In a market with existing information imbalance between providers and consumers, often in relation to a distress purchase, and where behavioural biases can render consumer decisions more prone to error, this additional layer of complexity, and the proposal to mitigate it with information remedy, seems overly ambitious.

“The SRA needs to be realistic about the risks that consumers can reasonably be expected to both understand and manage.”

Dr Martin suggested that the SRA consider reducing, but not eliminating, insurance and/or compensation fund contributions, recognising the “reduced risks as solicitors operating within unregulated firms will not have access to client money”.

She also questioned the SRA’s claim that its proposal was widely supported by consumer groups at a focus group meeting.

“We can only comment on what we have seen publicly from other consumer groups like Citizens Advice who have also warned against an imbalance between flexibility and access…

“Like us, Citizens Advice has cautioned against severe reductions in consumer protection. We hope the SRA takes heed.”

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