Not all alternative business structure (ABS) applicants have understood what is required of them, which in part explains delays in approving some licences, the chief executive of the Solicitors Regulation Authority (SRA) has said in a robust defence of the regulator’s performance that also dealt with compliance officer approvals.
Responding to a blog by Legal Futures editor Neil Rose, published on Wednesday, Antony Townsend said he understood the exasperation of some solicitors over the wait to have their compliance officers for legal practice and for finance and administration (COLPs and COFAs) confirmed, but argued that the SRA had been pursuing an outcomes-focused approach by focusing on the problem firms.
He also acknowledged that in certain aspects of the SRA processes – particularly some of the transactional ones – “our standards of service still fall below what we would like”.
Mr Townsend said he was “very pleased with the large number of firms responding positively to the opportunities offered by the new legal services market”, but emphasised that a key objective of the SRA is to facilitate “safe” liberalisation.
He explained: “As we have learnt from the liberalisation of other sectors, a lack of appropriate regulatory engagement in the key risks being presented by new business models may end up undermining not just client protection and the public interest, but also the specific market and the economy.”
The need for a “robust” process has sometimes meant lengthy engagement with applicants – for example on their proposed structure – to ensure “we can be confident that the authorisation approach, including which individuals need to be approved, meets the complex requirements of the Legal Services Act”, Mr Townsend said.
“We also need to be confident that the applicant understands the key regulatory risks in their business model and has the capacity, capability and willingness to manage those risks and comply with our regulatory requirements. It is fair to say that not all applicants have easily grasped what is required, despite at times intensive engagement by the ABS team.”
However, he accepted that, as with any new regime, the SRA has been through a learning process, leading to “frustrating” delays for applicants. The SRA has reviewed its processes to ensure the approach is proportionate to the risk and complexity presented by each applicant.
“We picked up speed on this in the latter part of 2012, building on our growing experience, and further focused work is taking place as an early priority for 2013. This will result in speedier resolution of applications in 2013.”
On COLPs and COFAs, Mr Townsend said the SRA would have liked to have confirmed the nominations earlier than the end of the year, “but as you rightly point out, we have had to divert substantial resources to the firms who had either not engaged with us at all, or nominated unsuitable people for the roles.
“We were surprised by the quantity of firms involved, which increased the challenge of processing the satisfactory applications. We met this challenge and the vast majority of approvals, including, in many instances, those who hadn’t ‘done everything by the book’, were completed by the end of 2012.”
He continued: “Those who did ‘everything by the book’ should have received their approvals by the due date. We engaged proactively with all those where we identified issues, such as failing to nominate or declare suitability issues, neglecting to deal with all of their corporate entities, or simply providing us with inaccurate information. We resolved many hundreds of issues informally. Many of these cases understandably fell outside of the approval timescale.
“Moreover, and in line with our outcomes-focused approach, the COLPs and COFAs exercise has been risk-based and therefore our resources have been focused on those areas presenting the greatest risk – so staff have not been employing the ‘old’ SRA attitudes.”
Mr Townsend added that the SRA is in the middle of a major reform programme, part of which is to improve its effectiveness and efficiency. “We are simultaneously concentrating upon improving regulatory effectiveness, reducing regulatory burdens, and improving efficiency (our operating budget for 2013 is lower than last year’s).
“We acknowledge that in certain aspects of our processes – particularly some of the transactional ones – our standards of service still fall below what we would like, but we are committed to improving these as a priority for 2013.”