To BSB or not to be?

My firm became regulated by the Bar Standards Board (BSB) on 27 May 2016 and I have no regrets about being regulated by the BSB rather than the Solicitors Regulation Authority (SRA).

I thought it be would useful to reflect on what I’ve learnt about the authorisation process, insurance and client money to assist other solicitors who are considering BSB regulation – or are starting up a new firm or considering a change of regulator.

The BSB starting regulating entities other than just barristers in January 2015.

It has now been given the power to license bodies who have adopted an alternative business structure (ABS). The latest published data from the BSB shows it has authorised just over 100 entities; it has licensed 10 bodies; and 15 entities have not renewed their authorisation.

Handbooks compared

For me, the SRA handbook is like the vintage television for Andrex toilet roll – ‘strong and very long’ – but without the cute photogenic little puppy. By September 2017, the handbook had grown to 440 pages.

In April 2019 a new edition (version 21) was published. These revisions just keep on coming.

For a sole practitioner it is too much to try and keep on top of them.

When writing this piece, I tried to download the new SRA handbook from its website but, instead, got the error message “page not found error 404”.

However, the BSB only updates its handbook when there is a genuine need to do so. In July 2019, it issued version 4.1 of its handbook.

This is 255 pages and much easier to navigate. The BSB also has an app containing the handbook for easy reference – something the SRA has not even attempted.

This more concise rulebook means compliance is easier, takes less time and so frees up time for fee-earning.

As the BSB handbook is stable (unlike the ever-changing SRA one), once your firm has got its processes in place that are compliant, the need for incessant reviews and updates caused by the SRA disappears.

Fees and renewals

One of the troubles with the SRA is everything is due at the end of October. I am also admitted in New York and they manage their practicing certificate renewals much better.

They issue practising certificates for two years and renewals are due in the month you are born. This spreads the load evenly over 24 months.

The SRA’s approach means chaos at the end of every October when everyone logs on to mySRA seeking to renew.

The BSB authorisation year runs from 1 April. As a solicitor I still keep my SRA-issued practising certificate which does spread the load a little more evenly.

I sometimes have to explain to people that I have my feet in both camps.

The BSB charged me an application fee to be authorised of £260 and a further fee of £330 was due when my application was approved.

These fees have not gone up since I submitted my authorisation application in May 2016. After this, there’s an annual firm renewal fee of £365.

These fees are a little more where more people are involved in an entity – but even then, a small BSB-authorised firm of five fee earners would only have to pay an annual renewal fee of £1000.

This is fixed and not at all dependent on the firm’s turnover.

The SRA adopts the opposite approach: its fee policy for 2019 to 2020 gives the example of a firm with a turnover of £200,000.

The annual firm fee will be £987 – almost three times what the BSB charges.

Professional indemnity insurance

When the BSB starting authorising entities other than barristers, the Bar Mutual said it would provide professional indemnity insurance (PII) at the same rates as it offered barristers. It has stuck to its word.

Previously, I had PII with Novae Professional and was paying premiums of several thousand pounds a year before it withdrew from the market.

The Bar Mutual Fund is a mutual fund run for the benefit of its members. It is not there to make a profit which means PII cover is substantially cheaper.

This mutual cover used to be offered to all solicitors under the Solicitors Indemnity Fund (SIF).

The Law Society now restricts SIF only to run-off cover to firms refused cover on the open market which have ceased without successors (SIF will close completely on 30 September 2020).

Bar Mutual offers PII cover up to a limit of £2.5m. Firms requiring higher PII cover have to seek it on the open market but the first £2.5m is always provided by Bar Mutual at its beneficial member’s rates.

A small firm, especially one in its early years of trading, is unlikely to need excess layer insurance.

Bar Mutual publishes an annual rate card. Its PII premiums are solely related to turnover. Even where a claim has been made or notified, this is entirely disregarded every April when PII falls due for renewal.

The highest rate Bar Mutual charges is 6.5 per cent of turnover for those who practice in non-contentious tax law.

However, most of its rates are much lower with many in the 0.25 to 0.5 per cent band. Even in commercial and financial services, the PII rate is just 0.7 per cent of turnover.

Family lawyers benefit from the cheapest PII with the rate set at 0.15 per cent of turnover. A small firm specialising in personal injury work with a turnover of £100,000 would pay PII of £1,200 – and this would provide cover of up to £2.5m.

When I mention these PII rates to other solicitors – particularly sole practitioners and smaller firms – I can only offer them a tissue to mop away their tears.

Handling client money

It’s important to know that BSB-authorised firms cannot hold client money – but I make the proposition that this is an advantage to smaller firms.

A firm which switches over from SRA to BSB authorisation will no longer have to pay to the SRA its compulsory compensation fund levy which (for 2019 to 2020) is set at £1,150.

Instead, BSB-regulated firms have to hold clients’ money in escrow which has a number of features and benefits which mean client’s money is far more secure than it ever could be in a solicitor’s client account.

Initially, the Bar Council said barristers and regulated entities could have escrow accounts with its in-house provider, Barco, which has now ceased operating.

However, as the Barco door closed, a number of other escrow doors opened.

I looked at two providers. The first is Transpact which is likely to be of more interest to newer firms. It charges a flat-fee per transaction for setting up an escrow account.

A firm instructed on a high value conveyance, probate or commercial transaction can then charge the full escrow fee back to the client as a disbursement.

The second is Shield Pay. This is specifically geared up for the needs of growing firms with a regular need for holding money in escrow accounts.

Shield Pay charges the firm £150 a month for its services. There are then charges the client has to pay (either £25 or £35 depending on value) for withdrawals from escrow.

My personal view is the pricing structure is still not quite right for smaller law firms; and that the monthly payments should be lower, even if that means withdrawal fees are higher.

However, everything is negotiable and these charges should be compared with what an existing SRA-regulated firm pays its bank now for client account facilities.

When money is put into an escrow account by a client, then the firm does not hold client money (remember, BSB-regulated firms cannot hold client money).

Escrow accounts are much more secure than a solicitor’s client account because only the client can authorise a payment out of the escrow account – it is not possible for me to do this in my capacity of a lawyer acting for a client.

When this is explained to clients, it gives them a greater sense of security.

This has a further great advantage: it is the escrow provider which has to do the client verification for anti-money laundering purposes.

As a BSB firm is not holding client money, it does not have that obligation and can rely on the commercial escrow provider’s confirmation that these checks have been satisfactorily completed.

This leads me to a final advantage. The first letter a client receives from solicitors acting for them on a new residential conveyancing matter will usually be long, asking for various forms of identity and documents to prove address.

This usually, unhelpfully ends by saying nothing more will be done until all these proofs are on file. This is not a good way to start or build a good client relationship.

A BSB-regulated firm is in a different place. Its first letter can concentrate on confirming the retainer and setting out how it can help a client achieve its goals.

The cumbersome stuff can be left to the escrow provider –freeing up your time to concentrate on fee-earning activities and generate revenue.

David Bowden is a solicitor-advocate at David Bowden Law davidbowdenlaw.co.uk