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Consumer panel backs separate business rule with dig at the Co-op


Co-op: panel unconvinced by its argument

Law firms and alternative business structures (ABSs) should not be allowed to dodge regulation by establishing separate businesses to handle unreserved work, the Legal Services Consumer Panel said this week.

The panel also appeared to rebuke Co-operative Legal Services (CLS) – whose stated intention is to be one of the first ABSs – for calling for freedom in how businesses choose to provide unreserved work.

Supporting retention of the separate business rule, the panel said given that its own research on quality assurance [2], which found that consumers assume all legal services are regulated, “it would be unhelpful to create a regulatory environment that went even further against consumers’ expectations”.

Research carried out by the Solicitors Regulation Authority [3] echoed that of the panel, finding that consumers lack understanding of the various providers of legal services and the differing levels of protection associated with purchasing legal services from them.

Responding to the SRA’s consultation on the draft new Solicitors Code of Conduct [4] – which proposes retaining the rule – the panel said: “There are very few reserved activities, thus removing the rule would lead to consumers losing existing protections. Research by Professor Stephen Mayson [5] showed that the list of reserved activities is an accident of history rather than the consequence of a clear policy rationale. In this light, the argument that an activity is unreserved for a reason and so businesses should be free to decide how to deliver such services is unconvincing.”

This appears to be a direct riposte to CLS, which the SRA reported as saying, in its response to the first consultation on the new code: “The current separate business rule does not address the heart of the real issue, i.e. is a matter a reserved or a non-reserved activity? If a matter is non-reserved, it is for a reason and businesses should be free to decide how they might deliver such a service.”

At the same time, in its recent submission to the consumer panel’s call for evidence on will-writer regulation, CLS said that once it becomes an ABS, it intends to provide all of its services, as well as unreserved estate administration and will-writing currently delivered by the Co-operative Trust Corporation, through one regulated practice.

Though most respondents to the first consultation backed retention of the separate business rule, its effectiveness is set to come under considerable scrutiny [6] in the run-up to ABSs being allowed on 6 October. Legal Futures is aware of legal practices looking at ways around it – for example, a two-partner firm splitting into two entirely independent businesses, one regulated and one not, with each former partner running one and cross-referring work to the other.

The Legal Services Board on whether will-writing should be a regulated activity until next year, with no date yet on when it will form a policy on reserved activities more generally.