Closed Consultation
1. Changes enabled by the Act—an overview
8 August 2019
This consultation is now closed.
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What new forms of practice will be allowed?
1.1
The Act will permit two new forms of practice: legal disciplinary practices (LDPs) and alternative business structures (ABSs). Many of the commentaries in the press focus on provisions of the Act that allow for the development of ABSs—multidisciplinary practices and external ownership of solicitors' firms, whether by flotation of law firms on the Stock Exchange or by the setting-up or acquisition of law firms by commercial companies, among many other possibilities.
1.2
The Act sets up a Legal Services Board (LSB) to oversee the regulation of legal services. The changes to allow for ABSs are dependent on the setting-up and empowerment of the LSB, which has first to establish the requirements under which it will authorise regulatory bodies, such as the SRA, to become "licensing authorities" for the purpose of ABSs.
1.3
The SRA aspires to become a licensing authority for ABSs, but the ABS regime is unlikely to be available until at least 2011 or, more likely, 2012.
1.4
The Act also provides for LDPs. The Act provides for LDPs by amending, where necessary, the statutory powers of existing front-line regulators (such as the SRA, as the regulatory organisation of the Law Society, and the Council for Licensed Conveyancers) so that they can authorise firms to be owned and managed by a combination of different types of lawyers, including a minority of non-lawyers if the firm wishes.
1.5
The introduction of LDPs will not depend on the existence and empowerment of the LSB. Therefore, changes to enable LDPs can be made as soon as the relevant front-line regulators have completed the necessary consultations, changed regulations and rules, and put appropriate processes and procedures in place.
1.6
The Act provides that some LDPs may have a choice of regulator and, so, introduces the prospect of some competition among regulators. Therefore, anyone considering establishing an LDP should be aware of the requirements of other legal regulators, so as to understand what choices may be available to them. Some approved regulators will only be able to regulate firms providing a particular and, in some cases, limited range of legal services, depending on the scope of the regulators' authority. The enabling of different forms of LDPs will depend on changes made by other legal regulators such as the Bar Standards Board (BSB) and the Council for Licensed Conveyancers (CLC). For example:
- The BSB could change the rules that apply to barristers to enable them to become partners etc. in an LDP regulated by the SRA or the CLC.
- The BSB may in future change its rules to allow barristers to go into partnership with solicitors in an LDP regulated by the BSB.
- The CLC will be able to regulate firms including licensed conveyancers, solicitors and others—if the firms provide the kind of legal services that licensed conveyancers may provide.
1.7
Firm-based regulation means that the relevant regulator's rules will apply to the activities of all the lawyers and others in the firm. This is to provide clarity for consumers and to avoid conflict. For example, a licensed conveyancer partner in an SRA-regulated firm will need to comply with SRA rules on conflicts in conveyancing, and a solicitor in a CLC-regulated firm must comply with CLC rules. The firm's regulator will be able to apply its regulatory powers to all in the firm, but it is only the individual lawyer's regulator that will be able to take action to remove that individual's right to practise.
1.8
The SRA expects that the process of introducing the regulatory regime for LDPs will take between 15 months and 18 months from Royal Assent, but intends to prioritise the work and so permit LDPs as soon as the changes can properly be made. We will keep all those with an interest informed as detailed plans develop, including information on the likely timescale.
1.9
The original Bill defined the distinction between an ABS and an LDP as being that the existence of a non-lawyer as a partner, member, director or shareowner would require a practice to be regulated as an ABS.
1.10
However, late changes to the Bill adopted the view taken by Sir David Clementi that LDPs can safely include a minority of non-lawyer managers, if the practice is providing legal services and the non-lawyers are part of the delivery of such services (and so are subject to the same type of regulation as lawyers) and are not simply external investors. It now permits up to 25 per cent of managers (as defined in some detail) to be non-lawyers. This is for a transitional period only. When the ABS licensing scheme is in place, an LDP with any non-lawyer managers will need to become licensed as an ABS.
New ways of regulating the firms through which solicitors practise
1.11
Much of the existing regulatory framework governing most types of lawyers is based on the qualification, regulation and discipline of individual lawyers. However, the development of both LDPs and ABSs requires regulators to have the power to apply regulation to the firm that is providing services, as well as to individuals. The basis of the Act is that both the entities and the individuals providing reserved legal services must be authorised.
1.12
Therefore, schedules to the Act include a number of amendments to other statutes, giving regulators powers so that they can develop firm-based regulation in a way that also allows for the regulation of LDPs.
1.13
Firm-based regulation is not new. The Financial Services Authority's regulation is based on the authorisation of firms, and there are other examples. For historical reasons, this approach is not well developed in the regulation of professionals, but it is generally accepted as a more effective and proportionate method of regulation. Modern legal practices are increasingly complex organisations, in which standards of service and client protection can be regulated better at the level of the organisation, rather than through each solicitor in the firm.
1.14
Significant amendments will be made through the Act (Schedule 16) to the Solicitors Act 1974 and the Administration of Justice Act 1985, so that the SRA can regulate firms as well as individual solicitors.
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