The Law Society’s vision for the future of legal regulation would enable it to restrict the licensing of alternative business structures (ABSs) so as to protect solicitors from competition, the Solicitors Regulation Authority has warned.
SRA executive director Samantha Barrass also said the society’s description of its proposals as “relatively minor changes” was “untrue”.
She was giving the SRA’s first public reaction to the Law Society’s submission to the government’s legal regulation review, in which it urged the Ministry of Justice to return responsibility for training, authorisation to practise and standard setting to representative bodies once more. Much reduced regulators such as the SRA would be responsible for enforcement and discipline only.
The SRA, by contrast, told the government that it needs structural independence from the Law Society.
Speaking in London, Ms Barrass said the society’s aim was “to wind the clock back to the previous millennium – dismissing Competition in the Professions [the Office of Fair Trading report that triggered the reform process], Sir David Clementi’s review, the Legal Services Act and, more importantly, the major public interest concerns that led to them, as a momentary blip in the historic ‘chaps regulating chap’.”
Ms Barrass said such a move would have “serious consequences” for the legal sector.
Returning regulatory powers to the Law Society would – “whether or not that is the intention of the current leadership” – allow it to restrict the licensing of ABS and the further development of new business structures, “thus preventing competition”.
It could also have wide-ranging economic impacts. “The Law Society could for instance – at the behest of its members, many of whom have called for this – require separate representation of lenders and borrowers in mortgage transactions, doubling the legal cost of buying a house and impacting on the housing market, and limit the numbers of individuals qualifying as solicitors to constrain supply and protect existing members.”
Ms Barrass added: “[The Law Society has] suggested that the regulatory objectives could be usefully shortened. Surprisingly one key word appearing in the current objectives that hasn’t made it into their version is ‘competition’. We can speculate as to why.”
She observed that the Law Society council “very nearly did not agree to permit the SRA to license ABS at all… In my view the council’s concern was to prevent competition from ABS to traditional law firms. This is not in the public interest. This will always be a dilemma for a representative body. I understand that, but it’s why independent regulation is so important”.
Ms Barrass argued that when the SRA was formed in 2007, it inherited “a regulatory regime that had been allowed to stagnate as an old-fashioned regulator of a membership organisation”. But the vision to “transform the SRA into a modern, proactive and risk-based regulator” has now largely been delivered.
Perhaps the biggest challenge the SRA has had to face in that time, she continued, is “significant pressure to take short cuts that aren’t in the public interest, to achieve short-term goals”.
This included pressure from the Law Society, at the time of giving the SRA the power to license ABSs, only to approve “a narrow range of business structures”.
There was then pressure to approve more ABSs in the early months than it did, and more recently “for authorisation to simply be a ‘taking names and addresses’ exercise”.
Without naming names, she highlighted the problems of dealing with “well-connected applicants” for authorisation.
“There is one case, which did not result in an authorisation, where the pressure felt at times unbearable but we had in mind everything we could learn from previous regulatory experience, to put the public interest rather than our own short-term comfort first. It would have been easy to go ‘oh all right then’, but it was not the right thing to do, so we didn’t.”
“We’ve also had pressure on many other issues where we’ve had to hold our nerve and stand firm. It’s been about having confidence in our decisions and communicating our decisions clearly and transparently.
“There’s been pressure from the LSB, for instance, to get rid of the separate business rule. They see this rule as holding up liberalisation. We see it as an important public protection in the absence of a rational basis for legal regulation. Yes a difference of opinion, but a risk we’ve not been prepared to take.
“Conversely, we’ve had pressure to ban solicitors from offering inducements to new clients. As a risk- and evidence-based regulator, we’ve yet to see significant evidence of client detriment so we’ve not been prepared to add another layer of regulation to a problem we’ve yet to see exist.”
In the SRA’s work on financial stability, Ms Barrass said, there had also been “informal pressure to desist on probing higher-impact firms, on the nebulous basis that somehow of course they can run their businesses properly”.
Law Society chief of corporate affairs Patricia Greer responded: “This parting shot from Samantha Barrass seems to be a wilful misrepresentation of our position. We are not looking for a return to the 1990s, we are looking forward to small changes which would reduce duplication between bodies and provide clear separation between standard setting and enforcement.
“That would mean less expensive red tape for solicitors and a simple form of redress for clients on the rare occasions when things go wrong.”