Weekly round-up: criminals target law firms, LPO ethics and accountants eye legal market

Accountants: Institute says clients should be able to choose who provides their legal advice, whatever their adviser's professional background

Our weekly round-up of other useful news and articles (a touch late, for which apologies) starts by pointing readers to Legal Futures Editor Neil Rose’s weekly Guardian blog, which last week looked at the Legal Services Board’s plans to make law firms and chambers publish details of the diversity of the staff they employ (see blog here and our story here).

Professor Richard Moorhead in his Lawyerwatch blog supports these plans but points out the practical difficulties it raises, such as “firms gaming the system (outsourcing work to Inian offices should not count in the diversity statistics for instance)” and how to go about presenting the real picture. Click here. Professor Moorhead also blogged on our story about possible aptitude tests for entry to the legal practice course (see here), and suggested that a better approach would be to use tests “as an indicator which firms and students could use for their propensity to succeed in practice”, rather than as an entry requirement for the LPC. Click here.

Criminals are suspected of hijacking dozens of law firms whose owners sold up under pressure from the financial crisis, the Financial Times reported last week. Steve Wilmott, head of the Solicitors Regulation Authority’s (SRA) fraud bureau, told the paper that the SRA was working with several police forces over dozens of cases in which criminal groups were suspecting of taking over troubled firms. “There are lots of practices up for sale at the moment because of the recession,” said Mr Wilmott. “What we are concerned about is criminals buying them up and using them for nefarious means.”

The paper said the concern about firm hijacking “is part of a wider worry over the quality of management at law firms whose businesses have unravelled amid big alleged losses to clients and other creditors”, pointing to the closure of Cheadle and Birmingham firm Wolstenholmes. Click here (subscription required).

The Times published a letter from Felicity Banks, head of business law at the Institute of Chartered Accountants, which followed an article in the paper on the Legal Services Policy Institute report on reserved legal activities by Neil Rose (see our story here).

“I read with great interest… that the origins for the closed shop of the legal profession have more to do with protectionism and political expediency than the desire to serve consumers and promote the public interest,” she wrote. “Recent research commissioned by the Legal Services Board indicates that many small traders and businesses eschew lawyers altogether and are dependent on their accountants and financial advisers to keep them up to date on crucial issues such as tax and business regulation.

“Clients should have access to their preferred skilled legal advice with appropriate regulatory provisions, from whichever profession it comes. A new and rational approach to the reservation of legal services should look at who provides legal services and how their professional oversight is provided, not at distant and obscure history.”

The big City law firms do not want any change in the rules around conflicts of interest, the Law Society Gazette reported last week. It said that in response to the SRA’s consultation on the new Solicitors Handbook, the City of London Law Society’s professional rules and regulation committee rejected all three options put forward for a new conflicts rule. Just four years since the current rules were put in place, the committee accused the SRA of “foolhardy” haste and said that applying outcomes-focused regulation to conflicts, “which leaves greater scope for interpretation, is not what the profession generally wants”.

Solicitors’ professional indemnity insurance is well known for its unique nature, with the minimum terms and conditions meaning a policy is unvoidable even if the solicitor lies on his proposal form or fails to pay his premiums. The Association of British Insurers is calling for reform in this area, a move backed in an article in The Lawyer by Nick Pointon, managing director of professional indemnity insurance broker PYV Legal,

“In effect this is a quality control issue,” he wrote. “By removing this so-called safety net we are promoting an environment based on utmost good faith. If strong regulatory action was taken against guilty firms, it would encourage insurers to expose these ­practices and ­provide a disincentive. This would create a more ­attractive market, stimulate competition and improve the opportunity for ­firms to obtain premiums more ­commensurate with their risk ­profiles. Removing ­uncertainty should also serve to cut rates.

“The ability for insurers to void a ­policy could also have a positive impact on the assigned risks pool, which is suffering from overcrowding, as it would not be required to pay out on claims where ­evidence of deliberate misrepresentation or non-­disclosure was found.” Click here.

Robert Sawhney, managing director of Hong Kong-based strategic and management consultancy SRC Associates, picked up on our story of big firms looking to bulk up their marketing staff to make up for lost income (see story). And he was not impressed by those behaving this way. “As a strategy for boosting business, knee jerk hiring of marketing and BD staff has to be one of the most ill thought out approaches,” he blogged. The key factor is to understand why the firm has less business and why some clients are either using other firms or reducing their outside spend. Marketing staff cannot solve the issues that are usually at the heart of this. “The problem lies in the value creating mechanisms of the firm which are not aligned with the value that clients seek,” he explained. Click here.

A blog by solicitor Mark Ross, now vice-president of legal services at legal process outsourcing (LPO) provider Integreon predicts that regulators on both sides of the Atlantic will pay increasing attention to the growth of LPO and the need for ethical guidance.

He reports that most recently the international department of the Law Society established an ad hoc LPO committee to examine legal outsourcing in detail. “It met with key stakeholders (general counsel, law firms, LPO providers and consultants) on a number of occasions to obtain a broad perspective and formulate ethical guidelines. The committee’s remit is to recommend to the Law Society and the SRA best practice for firms considering LPO.”

In July the SRA issued what the website LPOEthics.com calls the first public statement on the ethical implications associated with legal outsourcing (see here), “although the guidance is limited to say the least”, said Mr Ross. “The statement appears to permit the practice of legal outsourcing contingent on the outsourcing lawyer’s compliance with his or her existing ethical obligations.” Click here.


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