The Solicitors Regulation Authority (SRA) has hedged the award of alternative business structure (ABS) licences to accountants PricewaterhouseCoopers (PwC) and insurer Direct Line Group (DLG) with a host of conditions, it has emerged.
Both PwC and DLG have been given waivers from the separate business rule. The rule is aimed at ensuring law firms and ABSs do not provide ‘mainstream’ legal services – that is, the kind which members of the public would expect a lawyer to offer – through a separate, unregulated business.
The waivers recognise that both groups already conduct so-called prohibited separate business activities and allow them to own law firms despite this. These activities include the reserved legal activites – mainly litigation, advocacy, conveyancing and applying for the grant of probate – as well as instructing counsel and “providing legal advice or drafting legal documents” where it is one of main services of the separate business. This could potentially catch PwC’s tax work.
There are various conditions attached to the waivers. PwC has to inform clients from the outset “on matters where prohibited separate business activities will be conducted, or are likely to be conducted, that such activities are not regulated by the SRA”.
Further, when PwC and its law firm work on a joint engagement, they are required to maintain separate files, and inform clients as to who will regulate the work being undertaken in relation to each file.
Also, “where PwC are required to be regulated in respect of certain services, they take all reasonable steps to become and/or remain regulated”.
The DLG waiver only applies to those prohibited separate business activities currently undertaken by the group, specifically cost drafting and the conduct of third-party claims and claims handling up to, but not including, litigation.
The SRA has demanded that the branding and logo for DLG Legal Services Limited is “sufficiently different from that of Direct Line Insurance Group PLC and any of its subsidiaries that it can be easily identified as a separate business”, although the law firm can still use ‘DLG’ or any similar mark as part of its corporate or trading name.
Where work is transferred from the group to DLG Legal Services Limited, “it must be made transparent to the client, in writing, the point at which DLG Legal Services Limited takes over conduct of a matter and the client becomes subject to the protections afforded to clients of an SRA regulated firm”.
Claims work can only go in the opposite direction if all the group company does is then refer the matter on to another law firm.
The separate business rule has been a long-standing source of friction between the SRA and the Legal Services Board. The SRA says it prevents law firms and solicitors from seeking to avoid regulation, while the board considers that the rule could make legal services more expensive, distort competition and prevent innovation.