Closed Consultation

In-house practice

3.2

 Firm-based regulation is not likely to affect lawyers working in local or central government or in-house lawyers who provide legal services mainly to their employer. Other in-house lawyers who currently provide services to the public as permitted in rule 13 of the Solicitors Code of Conduct 2007 may be affected, but not until the advent of the licensing regime for ABSs, when they may need to seek a licence and be regulated as an ABS.

3.4

The Act amends the "recognised body" regime in the Administration of Justice Act 1985 (AJA). Any solicitors' practice incorporated as a company or as a limited liability partnership is already a recognised body and, thus, is regulated as an entity. However, currently, the regulation of recognised bodies is fairly nominal, providing little by way of quality assurance or consumer protection.

3.9

To enable the introduction of the new LDP regime as soon as practical and to avoid unnecessary regulatory burdens, our current intention is to "passport" all existing partnerships into the recognised body regime rather than require all existing partnerships to make initial applications. However, we might introduce a requirement under which passported partnerships would be required, within a set period after passporting, to supply information that would have been required on an initial application.

3.10

All that those firms wishing to take on non-lawyer partners etc. will have to apply to register such persons and demonstrate that they are fit and proper before the application can be accepted. It may be unnecessary to apply such a process to other lawyers (authorised persons) who have already demonstrated that they are fit and proper to other approved legal regulators. We will consult on more-detailed proposals for the suitability requirements for non-lawyers and the extent to which other lawyers might need to meet any requirements. We would welcome any initial views.

Likely timetable for LDPs

3.11

It will not be possible to develop, consult on and make the necessary changes to rules, regulations and processes until some time between December 2008 and March 2009. That timetable will depend on the SRA having the necessary resources to implement the changes.

Sole practitioners and firm-based regulation

3.12

The Act provides for the firm-based regulation of unincorporated sole practitioner firms in a different way from that provided for "legal services bodies".

3.13

The Act provides in future that a sole practitioner will need to have his or her practising certificate endorsed with a "sole solicitor endorsement". In this way, sole practitioners (and sole registered European lawyers) will be regulated in broadly the same way as recognised bodies. New sole practitioners will be required to apply, pay fees and provide information in the same way as recognised bodies. We are likely, in rules, to refer to those with such endorsements as "recognised sole practitioners".

3.14

As with partnerships and the recognised body regime, we are considering whether we can "passport" existing sole practitioners into the new endorsement regime, rather than requiring all to make initial applications at a particular time. However, there may be a timescale within which passported sole practitioners will be required to supply information that would have been required on such an application.

Likely timetable for "sole practitioner endorsements"

3.15

We propose to prioritise the delivery of a framework to permit LDPs before introducing changes to the regulation of sole practitioners. However, it is likely that the requirement for sole practitioners to apply for a sole solicitor endorsement will be introduced during 2009.

What will happen to the current practising certificate exercise and the recognised bodies renewal process?

3.16

Currently, the SRA uses the practising certificate exercise to gather information annually about individuals and firms. The 1,500 or so existing "recognised bodies" also are required to apply for renewal of recognition every three years. The changes to enable LDPs and firm-based regulation are likely to mean that there will be one annual process for all firms, probably from 2009. It may be that the information required from firms will increase to enable the SRA to improve its ability to regulate according to risk. By moving away from cumbersome paper-based processes to online data collection, and by using improved information to concentrate our resources upon identified risks, we will be able to lessen the burden upon well-regulated firms.

3.17

This will also have an impact on the annual practising certificate exercise. That began as an individual exercise, but developed into a firm-based exercise for most firms—meaning that few solicitors ever see their practising certificate application, and also that firms are required to certify information about individuals. We are considering making the practising certificate exercise an individual one. We would aim to keep it simple, delivered mainly online, and not use it, as we do now, to collect information about the activities of firms or to ask firms, in effect, to certify information about individual solicitors.

3.18

These annual exercises for firms and individuals are also important for fee collection. There is likely to be an early consultation on how we will re-engineer these exercises. The re-engineering may involve changing the renewal date of some recognised bodies to bring all into line for what will be a new annual process for recognised bodies. In making changes, we will seek to make the procedures simple, efficient and not onerous; although that will require investment in IT processes, in particular to allow for online delivery.

Full entity-based regulation?

3.20

It is likely that the development of an appropriate and fair system of fee allocation and collection will take some time and be an important issue for consultation. The SRA's proposal to make these changes in an evolutionary way, where possible, means that it is unlikely to implement significant changes to the fee structure before 2010.

3.21

Any change in the way cost is allocated will not of itself increase the cost of regulation, but the Legal Services Act may increase the overall cost of regulation. The overall cost of regulation must be borne by the profession—whatever method of allocation is adopted. The Act provides for the setting-up of two new bodies, the Legal Services Board and the Office for Legal Complaints. The legal profession as a whole will bear the set-up costs of these organisations and their continuing costs. These will be collected by way of a levy from front-line regulators, who will in turn collect the levy from the regulated community. The Government estimates that the continuing costs should not be significantly higher than current costs.