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SRA presses on with solicitors in unregulated businesses

Reform will ensure quality of advice while making legal services more affordable

19 January 2017

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The Solicitors Regulation Authority is pressing ahead with a proposal which authorises solicitors to work in unregulated businesses as part of its wider drive to open the legal services market both to lawyers and consumers.

After the introduction of alternative business structures, the regulator’s chief executive said the move was the next step to allow legal services to be available to more consumers and small businesses, especially in the context of declining legal aid.

‘When we authorised some of the ABSs, particularly the accountants, a number of them were employing solicitors doing exactly what they’re doing at the moment but they weren’t able to call themselves solicitors,’ Paul Philip told Solicitors Journal. ‘They had to come off the roll because they weren’t working for solicitors’ firms, but they were doing exactly the work, because legal advice is not a reserved activity.’

Having opened the ownership of law firms to non-lawyers, the ABS regime now allows solicitors to remain on the roll even when they work in a non-lawyer owned entity, but only as long as the business is regulated by the SRA. Now the regulator wants to go further, pushing for plans first unveiled last year in its ‘Looking to the future’ consultation.

‘All we’re saying is that if a solicitor were able to act as a solicitor, properly authorised, properly regulated, to the same professional standards, would that not provide more opportunities for people, individuals and small business to access solicitors,’ asks Philip. His answer is that there’s no doubt it would. ‘It would allow opportunities for growing businesses to employ their own solicitors in-house and provide the clients of those businesses with legal advice.’

In practice, Philip says, this would mean two separate but complementary codes: one for regulated entities, and one for solicitors, covering those not working in regulated entities. Feedback received by the SRA suggests that, in the main, this is ‘a good idea’.

‘Bundling is the way it might work, businesses providing legal services as part of their brand offering,’ Philip comments. ‘Another could be to deal with the pro bono angle, to provide more socially egalitarian outreach for bona fide solicitors. There’s no doubt that with less legal aid, fewer people will have access to publicly funded advice, so this arrangement could make things better, even if it’s not the panacea.’

The change would have two major consequences: solicitors working in unregulated entities would likely not require professional indemnity insurance and their advice would not be protected by professional legal privilege. Not everybody is as enthusiastic as the SRA.

The Law Society says there is a risk that this will create a two-tier profession, with solicitors working in unregulated entities not subject to the same professional supervision requirements. In its response to the consultation, Chancery Lane also warned about potential implications with respect to the prevention of conflicts of interests and client protection if professional indemnity is not required and legal privilege not available.

Professor Joan Loughrey, of Leeds University, has also expressed concerns in her consultation response, saying solicitors in unregulated firms could find themselves unable to resist commercial pressure.

Philip has acknowledged the criticism but suggests this should be no obstacle to pressing on with the reform. The regulator, he said, will need to ‘look at the checks and balances to put in place if solicitors were able to do that’.

On professional privilege, Philip retorts that ‘clients virtually never ask the question’. However, he adds, solicitors in unregulated businesses would have to explain this to clients, what the difference means in practice, and that they would also recommend instructing a regulated firm if circumstances made it advisable.

‘The idea is that lawyers could operate outside regulated firms as long as they don’t undertake reserved activities, and of course the number one non-reserved activity is legal advice. Would they need PII? Probably not. Would they need privilege? Privilege only matters if you go to law and discovery kicks in. But you can get over that in very careful client letters and ensure that clients give informed consent as to what that means,’ he says.

‘It’s a different model and we accept this is contentious, but we believe it will give a greater percentage of the population access to bona fide solicitors who are properly trained and give quality advice. But the Law Society thinks it will lead to a two-tier profession; that’s their argument.’

Jean-Yves Gilg is editor-in-chief of Solicitors Journal

jean-yves.gilg@solicitorsjournal.co.uk | @jeanyvesgilg

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Looking to the future