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SRA board backs radical changes to separate business rule

Crispin Passmore [1]

Passmore: there will still be a rule

The Solicitors Regulation Authority (SRA) approved a radical overhaul of the separate business rule at its board meeting yesterday, despite strong opposition from the Law Society.

The reformed rule will allow solicitors to set up separate businesses providing unregulated services, so long as consumers are properly informed.

The current prohibitions in the Code of Conduct will be removed and new outcomes introduced to protect consumers. The SRA said the changes could be implemented as early as 1 November this year.

“There will still be a separate business rule,” said Crispin Passmore, SRA executive director for regulation and education. “Solicitors will have to make sure they don’t mislead clients and clients understand what they’re doing.

“Consumers can already choose unregulated legal services. This is simply about whether solicitors can own and manage them.

“It’s about how we loosen our grip. The board can’t know what will happen in the future – all you can do is step wisely.”

Paul Philip, chief executive of the SRA, described the changes, which require the approval of the Legal Services Board, as a “significant dilution” of the existing rule.

“All we are doing is allowing a level playing field,” Mr Philip said. He traced reform of the rule back to the SRA’s decision to allow “real” multi-disciplinary practices.

Enid Rowlands, chair of the SRA, added: “All these changes to legal services are happening, so let’s not pretend they’re not and let’s have a regulatory structure which is fit for purpose. There will never be absolute consumer protection”.

The Law Society warned that relaxation of the rule could lead to a “destabilised” legal services market as unregulated services grew. The City of London Law Society predicted that the move could cause “irreparable damage” to the solicitor brand [2], with “significant numbers of the profession” driven into the unregulated sector.

However, City lawyers on the SRA board backed the plans. Martin Coleman, partner at Norton Rose Fulbright, said: “This is a recognition that the divisions between regulated and unregulated services have broken down at the consumer end and at the multi-national end.

“Either we recognise this, or we try and put a finger in the dyke and that is not going to work.”

David Willis, consultant at Herbert Smith Freehills, agreed. “I support the changes,” he said. “I think the current position is unsustainable and I’m surprised it didn’t get more support in the consultation.”

In a less controversial change, the SRA board agreed that solicitors should be able to provide additional services, including accountancy, [3] without the need to set up a separate business.

In a separate development, the board asked the Law Society Council to approve contributions of £8.5m to the Compensation Fund. Individual contributions from solicitors for 2015/16 would stay the same at £32 and from firms at £548.