Traditional partnerships dying out as ABSs top 1,000

SRA: Annual regulatory reports

The traditional partnership is now the least popular form of law firm structure, while alternative business structures (ABSs) now make up more than 10% of all practices, new figures have shown.

The Solicitors Regulation Authority (SRA) also recorded in fall in the number of reports of sexual misconduct at work as well as non-sexual harassment, discrimination and bullying, among 10,400 reports of possible misconduct by solicitors overall.

The annual reports on its regulatory work – for the year to 31 October 2021 – showed there were 9,860 firms at that date, 565 (5%) fewer than five years earlier.

The numbers were “relatively stable” between 2013 and 2019, it said, “before dropping in more recent years, potentially due to fewer new firms being established during the Covid-19 pandemic”.

The number of ABSs topped 1,000 for the first time, reaching 1,040 – 10.5% of the total.

More than half of all law firms (5,093 or 52%) were now incorporated, while 15% were limited liability partnerships and 19% were sole practitioners (which cannot be ABSs).

The number of traditional partnerships has continued to shrink, from 2,419 in 2013/14 (23% of all law firms) to 1,352 in 2020/21 (14%).

Despite the reduction in the number of firms, the solicitor population has continued to grow to new heights. There were 156,928 practising solicitors as at 31 October, with a total of 212,601 on the roll, both records.

The SRA only closed down 26 law firms in the year, the lowest since a spike caused by the 2008 financial crisis – compared to 40 the previous 12 months.

“There is no immediate apparent reason for the reduction in interventions last year,” the SRA said, “but we continue to remain focused on supporting solicitors to address issues before they lead to an intervention, and in controlling risks through strong engagement and the use of controls.”

However, we reported in April that the SRA Compensation Fund paid out £27m to the victims of solicitors’ dishonesty in the year, an increase of 162%.

The SRA received around 10,400 reports of concerns in 2020/21, around the average, and referred 1,816 of them for investigation.

Some 268 investigations resulted in the SRA taking internal enforcement action of some sort – and 10 of 24 appeals were then wholly or partly successful – while 101 cases were referred to the Solicitors Disciplinary Tribunal.

Among the areas of heightened public interest, the SRA received 34 new reports concerning harassment and inappropriate sexual behaviour in work-related environments. It resolved 67 cases and referred an increased amount to the tribunal. “[We] anticipate that this will continue next year.”

The report said: “The number of reports on this topic spiked in the wake of the #MeToo movement, when we issued warning notices relevant to inappropriate behaviour and non-disclosure agreements (NDAs). Numbers have since stabilised. This could be due to an increase in home-working and the fact that a number of historical cases were reported in the wake of #MeToo.”

The SRA is also to publish guidance on sexual misconduct later in the summer.

During the year, the SRA received eight new reports relating to NDAs, and closed 10 cases, the majority with no further action. One was referred to the SDT and one was closed with a rebuke, however.

The number of new reports of workplace bullying, discrimination or harassment fell from 83 in 2019/20 to just 19. “The reasons for the apparent fall in case numbers are unclear but may relate, at least in part, to the different working environment during the Covid-19 pandemic.”

There were 25 new matters concerning solicitor involvement in dubious or risky investment schemes and 33 of compensation claims cases, including claims over mis-sold loans by payday loan companies and others, faulty cavity wall insultation and mis-sold mortgages.

“These 33 investigations all involve evidence that the standards we expect from solicitors are not being met.

“In some cases, solicitors are not investigating whether the claim is properly valid prior to making it, or failing to advise clients about their options and what will be expected of them when making a claim.

“We have also found that some firms have been acquiring clients by giving them incomplete or misleading information, and that the work of some firms is not adequately supervised.”

The SRA pointed out that claims being improperly brought in areas relating to consumer rights were not new, pointing to previous concerns over holiday sickness claims and payment protection insurance.

The statistics again showed an over representation of Black, Asian and minority ethnic solicitors, and men, in both concerns raised with the SRA and investigated when compared with the diversity of the profession as a whole.

The regulator also announced yesterday that it has appointed a research team to help it better understand the reasons for this, a consortium made up of academics from the universities of York, Cardiff and Lancaster.

SRA chief executive Paul Philip said: “We have made significant changes to our enforcement processes and reformed our regulation over the last few years, but the pattern remains the same – as it is for so many regulators – and it is unclear why that is the case.

“Since 2007 we have held three independent reviews into our processes to make sure they are fair and free from bias, and none found any evidence of discrimination.

“There could be many factors affecting the troubling picture we are seeing, including wider societal issues or structural features in the legal sector, for example the different diversity profile of small firms compared to large firms.

“Having a better understanding of the causes will help us and others address these issues.”

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