Closed Consultation

Legal Services Act: New forms of practice and regulation

20 June 2008

Legal Services Act: New forms of practice and regulation
Consultation papers 2, 3 and 4

A set of three consultations on changes to rules and regulatory processes to enable new forms of practice and regulation

The deadline for submission of responses to consultation papers 2, 3 and 4 on the Legal Services Act was 21 April 2008.

Consultation outputs — including reports, recommendations and proposed rule changes — were submitted to the SRA Board for consideration in mid-June 2008:

Changes to rules and regulations to enable LDPs and implement other changes made by the Legal Services Act – Overview paper
- Annex 1 – Design principles
- Annex 2 – Equality impact assessment

Legal Services Act 2007 – Amendments to the Solicitors' Code of Conduct 2007 – Report of the Firm-Based Regulation Group
- Annex 1 – Solicitors' Code of Conduct 2007 changes
- Supplemental paper – Annex 1A (replaces Annex 1)

Legal Services Act 2007 – Proposed changes to the Solicitors' Accounts Rules 1998

The information that appears below is for reference purposes only.

Overview and summary of consultations

Introduction

1.

In November 2007, the SRA published a strategic paper, Legal Services Act: New forms of practice and regulation, which took a high-level look at the changes to the structure and regulation of legal practices that will be enabled or required by the Legal Services Act ( "the Act" ).

2.

We have received a number of valuable responses to that paper, broadly supportive of the strategic direction of travel, but also raising some concerns on certain aspects which we have taken into account in developing a number of more detailed consultation papers. The present overview paper introduces consultations on draft rule changes, and explains what consultations will follow shortly.

3.

In the strategic paper, we said that we aimed to be in a position to enable new forms of practice (legal disciplinary practices, LDPs, with some non-lawyer "managers" ) by about March 2009. These consultations deal only with the new forms of practice that can be enabled through changes to our rules and regulations. They do not deal with alternative business structures (ABSs), which are unlikely to be enabled until 2012. Even so, we recognise that there are many changes that we need to consult on, and a real danger of "consultation overload". We hope that, by setting out here what consultations will follow, we will help all consultees to plan for and, if necessary, prioritise their responses.

4.

We explained in the strategic paper that the Act enables these first changes by making amendments to our statutory powers of regulation contained (largely) in the Solicitors Act 1974 and the Administration of Justice Act 1985 (AJA). In summary, those amendments

expand the recognised body scheme in the AJA to cover all partnerships, companies and LLPs, i.e. all firms except sole practitioners;
extend the recognised body scheme to allow firms to have other "authorised persons" as "managers" or owners and to allow up to 25 per cent of "managers" to be non-lawyers;
require the SRA to make rules requiring sole practitioners to have a "sole solicitor" endorsement on their practising certificates. We refer to such sole practitioners as "recognised sole practitioners".

5.

In Annex A to this overview paper, we set out the key sections of the Solicitors Act and AJA as they will be amended by the Legal Services Act, when the relevant Commencement Orders have been made. At the time of commencement, all our rules and regulations will need to reflect these amendments to our statutory powers. As indicated in our November 2007 strategic paper, some changes will simply implement the amendments required by the Act. Others allow for some choice or discretion, and it is on these aspects in particular that we need to consult.

6.

All consultation papers are aimed at

anyone with an interest in the delivery of legal services, including consumers and bodies representing consumers;
anyone working or wishing to work in legal practices; and
those who procure legal services.

Consultations

7.

The consultation papers available to download below deal with proposed rule changes; each should be treated as a separate consultation paper . We recognise that not all of the papers will have the same interest or significance to all consultees.

8.

In order to meet the timescale we have set ourselves, we need to make significant changes to those part of the Code of Conduct that deal with the framework of practice — in particular, to rule 12 and rule 14, which currently deal with the composition and structure of a firm and incorporated practice but must be changed to encompass new-style recognised bodies in the form of partnerships and LDPs with some non-lawyer managers. Changes to other parts of the Code of Conduct are largely consequential but raise a few new policy issues. Important changes are also required to the Solicitors' Accounts Rules.

9.

Please note that, in order to meet the timescale, we are concentrating on only making those amendments that are required by the Act to enable new forms of practice and regulation. Amendments to our statutory powers will enable us to make other changes in future (for example, in relation to the deposit interest provisions of the Accounts Rules), but to tackle those changes now would not allow us to enable the new forms of practice within the timescale we have set. Please note that these papers contain both a commentary, raising consultation questions, and a set of the relevant rules in revision form; therefore, they are lengthy.

There are three consultation papers on rule changes:

Amendments to the "Framework of Practice" rules in the Code of Conduct – Legal Services Act: Consultation Paper 2
These amendments provide for LDPs with non-lawyer managers, and provide for firm-based regulation. Issues for consultation include whether the rules make reasonable provision for unforeseen changes in partnership etc which take a practice outside the sort of practice allowed by the Act.
Amendments to other parts of the Code of Conduct – Legal Services Act: Consultation Paper 3
There are a number of consequential changes to other parts of the Code — in particular, to make them applicable to non-lawyer partners. Key issues are raised in relation to publicity, and regarding who, in new types of firm, will be "qualified to supervise".
Amendments to the Accounts Rules – Legal Services Act: Consultation Paper 4
One of the key issues raised in this consultation is the question of non-lawyer managers being able to authorise withdrawals etc. from client account. The consultation paper also explains that the Act now enables controlled trust money to be treated in the same way as other client and trust money, and the concept of a controlled trust is removed from the Act.

The deadline for submission of responses to these three consultations was 21 April 2008 .

Future consultations

Changes in regulatory processes for firms and individuals

10.

We also must review the key authorisation processes that apply to recognised bodies and practising certificate holders in the light of amendments that will be made to our statutory powers including amendments relating to the regulation of sole practitioners. In the November 2007 strategic paper, we discussed moving to an annual process for the renewal of recognition for all recognised bodies, and a possible move to online practising certificate renewal by individual practising-certificate holders. A paper, which will shortly be published, consults in more detail on the options for change to these processes and will be of particular interest to practice managers and those who administer the current processes.

( Note: A paper on changes to regulatory processes for firms and individuals was published on 3 March 2008 as Legal Services Act: Consultation paper 8. The consultation period ends on 30 April 2008.)

Information requirements – 2009 and beyond

11.

In our November 2007 strategic paper, we also said that we would need to develop new information requirements to improve our ability to regulate on the basis of risk, and also to support the move to firm-based regulation. While that paper indicated that new information requirements are likely to be developed in detail for 2010, there will need to be some change to the information requirements introduced in 2009. A further consultation paper will shortly be published containing our proposals for the information that we will probably require from firms in 2009; it discusses future options and seeks your views.

( Note: The paper on information requirements was published on 20 February 2008 as Legal Services Act: Consultation paper 7. The consultation period ends on 30 April 2008.)

Recognised Body Regulations

12.

The Solicitors Recognised Body Regulations 2007 need significant change to encompass partnerships and LDPs with non-lawyer partners.

( Note: The paper on changes to the Recognised Bodies Regulations was published on 25 February 2008 as Legal Services Act: Consultation paper 5. The consultation period ended on 21 April 2008.)

Indemnity Insurance and Compensation Fund changes

13.

The indemnity insurance rules are already firm based, but they need to be adapted in the light of amendments to our statutory powers, and these are currently being considered by the SRA's Financial Protection Committee, which oversees both indemnity insurance and the Compensation Fund. After initial discussions with insurers, the committee will consult on any changes to both schemes that will need to be made for the introduction of LDPs with non-lawyer partners by March 2009.

( Note: A paper on the development of client financial protection policies was published on 27 February 2008 as Legal Services Act: Consultation paper 6. The consultation period ends on 23 April 2008.)

Fee structures – 2009 and beyond

14.

In the November 2007 strategic paper, we indicated that the move to firm-based regulation enabled us to consider new ways of allocating the cost of regulation between firms and individuals. That paper indicated that there may need to be a two-stage process with minimal changes being made in 2009, and with further consultation on more significant changes. This paper will look at what the position might be in 2009 and seek views on specific proposals for the fee structures, including Compensation Fund contributions in 2009, as well as indicating how we will go about the process to consult on the more significant changes for 2010.

Downloadable document(s)

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