Streamlined and quicker ABS licensing process on the way

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By Legal Futures

19 October 2012

Mayson: concern over SRA approach to reserved legal activities

The Solicitors Regulation Authority is set to “streamline” the alternative business structure (ABS) application process, its chief executive has revealed after its approach and the time it takes were criticised at a high-profile event yesterday.

At the Westminster Legal Policy Forum event in London, Professor Stephen Mayson urged the SRA to operate in “market time, not profession time”, while Legal Services Board chief executive Chris Kenny questioned the need for it to “interrogate business plans in minute detail”.

Only 31 organisations have received ABS licences from the SRA in over 10 months, although there are another 100 currently going through the system. Mr Townsend said he would like it to be quicker but did not apologise for the time it has taken, explaining that “no two structures look the same” and that it has been “a big learning process for us and the applicants” – around 70% of applicants are existing legal entities, with the rest newcomers to the market.

However, though “we are still feeling our way”, Mr Townsend said the SRA “can now offer a more streamlined and tailored authorisation process; we have the experience to target the real risks [and] make it quicker… Unless there’s a serious consumer impact, we shouldn’t be second guessing the market”.

Mr Townsend also predicted that there would be enforcement activity directed at ABSs over the next 12 months. “If there’s been no enforcement action against an ABS by this time next year, then it will imply that we have been too risk averse.”

In the keynote address, Professor Mayson said he was disappointed that the authorisation process has not moved more quickly. “There is some evidence that the exploration of risk is commercially excessive where there is no risk to the consumer.”

Professor Mayson was also critical of how, in all but two instances, ABSs have been authorised to conduct all the reserved legal activities; he questioned whether this was appropriate, for example, in the case of small firms that only work in one particular area of law. It is “difficult” to see how one person could maintain expertise across all the reserved areas throughout their careers, he suggested, and explained that he had hoped the ABS authorisation process would take a more considered view of competence to undertake reserved activities.

Mr Townsend responded that the SRA has “not been looking in narrow terms at whether an ABS should have each reserved legal activity”; competence to carry out a particular activity would be picked up in the SRA’s supervision work.

Mr Kenny told delegates that one of the challenges of making outcomes-focused regulation work is to improve supervision. He said: “Proper supervision has nothing to do with ‘regulation by permission’ in which you can only act with the regulator’s say-so. What is the case now for changes to training contract arrangements needing SRA approval? Do firms that decide to change into LLPs really need permission?

“Even in looking at ABS, the focus needs to be – and, increasingly is – on ensuring rapidly that fit and proper person tests are met, none of the statutory criteria for refusal are invoked and proportionate supervision can be put in place, rather than seeking to interrogate business plans in minute detail.

“So our challenge to regulators will increasingly not be ‘Can this process work better?’. Instead, it’s likely to be ‘Why is the industry paying for such a process at all?’.”

Mr Kenny also touched on the board’s concerns that the “present fragmentation of appellate arrangements [over disciplinary matters] is confusing for consumers and bad news for the rule of law as well, because of the scope for inconsistency.

“There is also continuing debate about the civil versus the criminal standard of proof. I personally think that the Law Commission’s support for the civil standard in its report on health regulation which points out that ‘the criminal standard implies that someone who is more likely than not to be a danger to the public should nevertheless be allowed to continue practicing’ is the last word in policy terms.”


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