SRA signals fresh approach to regulation

Collins: too much focus on regulatory theory

The Solicitors Regulation Authority has signalled a fresh approach to its work, with a focus on simplifying the requirements it imposes and ensuring they are proportionate.

Executive director Richard Collins has also indicated that the controversial separate business rule (SBR) could be a casualty of this policy shift.

It follows a column by SRA chairman Charles Plant in the Law Society’s Gazette in which he said that “on balance the SRA’s view is that our current requirements and approach still err too much on the side of being overly prescriptive and unnecessarily burdensome”.

The article was notable for not referencing either outcomes-focused regulation (OFR) or risk-based regulation.

Mr Collins told Legal Futures: “Perhaps the whole debate about the future direction of regulation has focused too much on the theory at times. This was, perhaps, understandable as all of the regulators came to terms with the impact of the Legal Services Act, and as the major change to independent regulation and the introduction of alternative business structures was made.

“However, there is a real need to talk in a language that ordinary lawyers and consumers understand. What we need to focus on is what it means to be a good regulator in this market – proportionate, efficient, effective and underpinned by good customer service – in very practical terms.”

There is a particular recognition that small firms are not enjoying the current OFR regime. Mr Collins said: “It is widely recognised that removing prescription and rules can offer greater freedom to law firms to run their business as they see fit within the professional parameters that regulation seeks to achieve. But there is also a growing view that small firms sometimes respond to this freedom by retrenching in the face of risk and thus making less of the opportunities on offer.

“The government’s new regulators code makes these points well and, coincidently given that we were already well ahead on making our plans, suggests that regulators should make it easier to comply and provide guidance and advice for small firms.

“We think that certainty is as important in some ways as the level of regulation because that uncertainty drives retrenchment and costs. But that doesn’t mean that we do not think that there are areas where we can be more proportionate. Our education and training framework, some of our approaches to authorisation and the wider work on Red Tape Initiative all point to more that can be done. We think that the compensation fund also offers opportunities for reform.”

Proposals to come out of the SRA shortly will also include whether the requirements for minimum levels of professional indemnity insurance are too high for certain firms doing low-risk work – with the result that either premiums are higher than they need to be or that insurance is unobtainable – or needed at all for firms with sophisticated corporate clients.

And having previously staunchly upheld the importance of and need for the SBR – despite criticism from the Legal Services Board – the SRA has acknowledged that the changing legal market means the rule needs to be reconsidered.

Mr Collins said: “We have always recognised that the SBR is restrictive, but it also offered protection for consumers. The question is one of balance between its positive and negative impacts. As the legal market has changed and the way that solicitors practice becomes more plural, then we have to reconsider that balance.

“We have to ask ourselves if we can achieve an appropriate level of consumer protection in a different way that allows greater freedom for innovation without having such tight restrictions. Our work on MDPs will help us consider these issues and we wouldn’t make changes without proper consultation.”

The indication is that the SRA is moving towards more of a ‘You can’ regime, rather than one starting from the premise that ‘You can’t’.

Mr Collins said: “Certainly the changes made in recent years have allowed greater freedom. But changes that flow from the Legal Services Act allied to even more powerful changes to consumers, the wider legal market and technology mean that we have to be increasingly flexible. Regulators always have to work hard to keep up with the pace of innovation in the real world.”


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