Closed Consultation
4. Full ABS regime
8 August 2019
This consultation is now closed.
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- Introduction
- Part 1
- Part 2
- Part 3
- Part 4
- Submit comments
4.1
Predicting the timetable for the delivery of the new licensing regime to permit ABSs is more difficult and may depend on the priorities set by the LSB. Currently, the LSB is unlikely to be empowered before spring 2010, but the Board members will be appointed and able to do some preliminary work before then. However, ABSs may not be possible until 2011 or 2012.
4.2
The definition of an ABS ("licensable body") is broad. It is any body which provides reserved legal services to "the public or a section of the public" (to be defined in rules) and which has a "non-authorised person" (non-lawyer) as a manager (partner, director or member of an LLP) or with an interest in the body. A person has an interest in a body if they hold shares or exercise or control the exercise of voting rights in the body.
4.3
This allows for a wide range of different types of ABS, such as multidisciplinary professional partnerships providing a mixed range of professional services including reserved legal services. It also permits equity ownership, in whole or part, by non-lawyers, such as investors, and commercial organisations setting up or acquiring a legal practice.
4.4
Schedule 13 of the Act contains detailed provisions about the ownership of licensed bodies. In particular, it provides that non-lawyers who have a material or controlled interest in an ABS may be subject to special approval requirements. The approval requirements, to be set out in rules, are that the person with the interest must not compromise the regulatory objectives, is fit and proper, and must comply with any other matter specified in licensing rules.
4.5
On the whole, it will be for regulators, such as the SRA, to set out these requirements in rules when applying to the LSB to become a licensing authority. The requirements will be subject to consultation, and we do not know yet what view the LSB will take on such a key issue. Therefore, it is difficult to predict with certainly whether and what limitations may be placed on ownership.
4.6
Also, regulators, such as the SRA, will need to consider, and consult on, whether certain types of commercial entities have a conflict and, thus, are not able to provide particular descriptions of legal services. That may result in some commercial bodies which are currently expressing an interest in becoming ABSs not being able to do so, or in their only being able to provide a more limited range of services.
4.7
It is clear that the Act is of interest to many commercial organisations and investment groups who would want to own or invest in law firms. Some are making preliminary soundings of existing firms, and others are, we believe, making firm proposals. Except for the limited transitional provision allowing up to 25 per cent non-lawyer managers in an LDP, nothing will change in law or regulation to allow further change until permitted through the ABS licensing regime. The public policy underlying the Act is that only when an appropriate and detailed regulatory regime is in place is it in the public interest and consumers' interests to allow such external interests in the provision of legal services.
4.8
Until the new regime is in place, solicitors must take care to comply with the Code of Conduct, in particular the core duties, rule 12 (Framework of practice) and rule 8 (Fee sharing). Rule 8 (Fee sharing) was changed in 2004 to allow solicitors' firms to access a wider range of investment. However, the core duties and rule 8 still require solicitors' firms to be independent—and the purpose of any fee sharing arrangement must be solely to facilitate the introduction of capital and/or the provision of services to your firm. The SRA's view is that contractual arrangements which include provision for the future sale of an ownership interest in a firm, in return for investment or services now, could breach the fee sharing rule and compromise independence.
The SRA would therefore urge solicitors to be particularly cautious if approached by others with a view to committing to changes in business structures predicated on assumptions that have not yet been established about what type of ABSs will be permitted in the future.
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