A new system of regulation for the legal profession has been introduced. In a move away from a rules based approach, outcomes focused regulation (OFR) is the Solicitors Regulation Authority’s (SRA) new approach.

The SRA will be implementing OFR from 6 October 2011. It claims to be outcomes focused and risk based, and aims to provide clients with services that are tailored to their particular needs. OFR means that firms and practitioners will have greater flexibility in establishing how they can achieve the best outcomes for their clients. The SRA has published a handbook which underpins the regulation of solicitors, law firms and alternative business structures (ABS). It brings together all of the SRA’s regulatory requirements into a single structure and underpins the regulation of solicitors, law firms and ABS. It sets out ethical standards that the SRA expects of law firms and practitioners, and the outcomes that it expects practitioners to achieve for their clients.

The SRA claims that OFR in practice means a different way of thinking and operating. There are ten principles. Most of these are similar to the core duties contained in the current Code of Conduct, but there are some new ones. They now stand alone at the beginning of the handbook and underpin all of the regulatory requirements. The SRA say that whenever a regulatory issue is to be considered the first point of reference should always be the principles. They apply to everyone the SRA regulate, not just solicitors in traditional firms and in-house practice but also, in due course, to new entrants to the legal services market such as non-lawyer managers of ABS.

So far so good. But what has really ruffled feathers are allegations that customers who go to law firms are too often left in ignorance about progress in their case, then burdened with a huge bill at the end of proceeedings. According to the ‘Guardian’, at the launch of OFR the chief executive of the SRA, Antony Townsend, said there were instances of gross overcharging, and that consumers needed to be given more information about costs. In their research the key concerns that had come from consumers were to do with information. He said: “The biggest worries were lack of clear expectations and a lack of clarity about charging. Clients feel they don’t know what’s going on, there are delays that are unexplained and they are handed a huge bill at the end…There are some cases of gross overcharging and we do take action, but we are not a price regulator. Where someone has been grossly exploited we will take action.” When asked if a double-dip recession would trigger a fresh outbreak of embezzlement cases among lawyers he replied: “Yes. Small firms are operating in a very difficult environment. In desperate times solicitors may borrow money from the clients’ account and it goes from bad to worse.”

If comments posted on the Linkedin website are typical then there is acceptance that this is a great opportunity to explain to the public the level of service they can expect from a solicitor. But there is resentment that the solicitors’ own regulatory authority should portray the profession as a bunch of overcharging embezzlers. Rather the authority should be highlighting the good practice of so many in the legal profession.

6 October was the date on which the first alternative business structures (ABS) should have been able to open for business in the legal services market place in England and Wales. But now there has been a delay, and it will probably be at least the end of the year before non-lawyers can fully own and invest in law firms.

An ABS is a firm where a non-lawyer is a manager of the firm, or has an ownership-type interest in the firm. A firm may also be an ABS where another body is a manager of the firm, or has an ownership-type interest in the firm and at least 10 per cent of that body is controlled by non-lawyers. Under the proposed rules, ABS are not limited in the services that they can offer to the public. The Act is designed to liberalise the £23bn UK legal market by allowing companies to provide legal services, and will permit firms to float on the stock market or seek external capital. The expressed belief is that ABS will bring benefits to consumers through increased competition, the development of new services and ways of delivering them and the integration of the delivery of legal services with other related services.

The Ministry of Justice has informed the Solicitors Regulation Authority (SRA) that parliamentary approval processes will not be completed in time for the SRA to be a designated licensing authority for alternative business structures (ABS) on 6 October, as originally planned. According to LegalWeek, parliament needs to approve the appeals process before allowing the SRA to start licensing ABSs. Provisions must also be made to enable the SRA to check spent convictions of potential owners of law firms.

On their website SRA Chief Executive Antony Townsend said: “We were on track to license ABS from 6 October, so it is disappointing to learn that we will not be able to do so. We will work with the Ministry of Justice to do all we can to speed up the process. But we are in the hands of the parliamentary timetable. It seems unlikely that we will be able to license ABS much before the end of the year, and we shall make further announcements as soon as we have more certainty.”

ABS is the tipping point for the commercial future of the legal profession. The difference is, perhaps for the first time, we will see how non-lawyers will seek to change the way law is practiced in England. The battleground will be online and the future belongs to anyone who uses it well.

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Articles of clerkship, now transformed into two year training contracts, have long been the basis of qualifying as a solicitor. While most who have gone through it consider it to be a reasonable introduction to the profession, the drawback is the lack of any assessment, and therefore no guarantee of the competence of trainees when admitted to the solicitors’ roll. Then there is the problem that there are not enough training contracts for the number of students who pass the legal practice course (LPC).

So the Solicitors Regulation Authority (SRA), which regulates more than 120,000 solicitors in England and Wales, and is the independent regulatory body of the Law Society of England and Wales, has been piloting a system of work based learning (WBL). The scheme was initiated in September 2008 with the aim of developing a consistent and reliable method of assessment, and testing a different route to qualification which did not depend on the candidate securing a training contract. Seventy nine students took part in the pilot, of whom 70 passed following completion of the course in December 2010. The candidates were either nominated by legal firms who had already agreed to take them on for training as solicitors, or candidates who volunteered for the scheme and who were already employed in legal firms or in-house legal departments in legal roles which would not otherwise have led to qualification. In both cases they were assessed either internally by their employer or by an external provider against a set of eight learning outcomes involving practical legal experience.

The SRA has published a report on the results of the two year pilot scheme. The Middlesex Evaluation Report, produced by The Institute for Work Based Learning at Middlesex University, found that “the WBL framework demonstrated a level of success in providing the legal profession with a learning and development approach to the vocational stage of qualification that assures quality in assessment, and that can be monitored and contribute to enhancing standards across all set ups.” The report made several recommendations. These include further work to set out the skills and attributes for qualifying as a solicitor and the learning outcomes necessary to demonstrate competence. Key professionals should be trained in coaching and assessing within a WBL framework, and there should be an accredited learning scheme for prior learning.

Writing in the ‘Guardian’, Neil Rose, editor of LegalFutures.co.uk, notes that WBL offers a route to qualification for paralegals who have completed the LPC and are doing training contract-type work, though not within a training contract. But he adds: “WBL is not the silver bullet to sort out diversity issues in the solicitors’ profession, although the research indicates it can help break down socio/educational barriers to entry…For example, there is an increasing focus on having work done by the right level of fee-earner, which in many cases need not be a fully qualified lawyer. This will only increase when alternative business structures are allowed later this year and new players look to re-engineer the way legal services are delivered.”

To see either the full WBL report, or a summary of the report, go to: http://www.sra.org.uk/sra/news/press/learning-pilots-results.page?ref=search                      and follow the links.

Lord Hunt of Wirral was commissioned by the Law Society in October 2008 to advise on what was needed to establish best modern practice in the regulation of solicitors. His terms of reference were:

‘In light of current and forthcoming changes in the Legal Services market, the differing needs of different types of client, current regulatory debates and the need to promote equality and diversity, to consider the appropriate regulatory rules, monitoring and enforcement regime to ensure high standards of integrity and professionalism for solicitors and their firms in all sectors, and to make recommendations.’

This week the Law Society published his report. In his ‘Welcome’ to the report, Lord Hunt acknowledged that the legal sector is undergoing a radical transformation. Alternative Business Structures will have to be assimilated into the legal regulatory system, the ever changing demands of clients will need to be satisfied, and English and Welsh law must maintain the high international reputation which provides so many business benefits for the UK. “For these, and many other reasons, it is critically important that the regulatory system is constantly revaluated to ensure it is fit to meet both new challenges, and long standing regulatory needs”.

Lord Hunt makes 88 specific recommendations, and there are four main themes in the report. He stresses that all firms must be regulated to the same standard, by a knowledgeable and credible regulator and in accordance with the well-established BRE principles of better regulation. But this does not mean that every firm should be treated in the same way. He advocates a system which he describes as Authorised Internal Regulation (AIR). AIR will be available to all firms, not just those concentrating on corporate work, who demonstrate their willingness and ability to set up internal governance standards that are robust enough to secure compliance. Secondly he recommends the extension of the regulatory net to include will writing, claims management companies and all of probate, as these are complex matters with potentially far reaching consequences.

Lord Hunt recommends that legal professionalism should be translated into regulatory principles. He says it is essential to base any regulatory system in a strong and transparent theoretical framework, ensuring that it has the necessary resilience and flexibility to adapt to the changing world in which it operates. His view is that legal professionalism, rooted firmly in the concept of the rule of law, provides a sound base for the regulator to build on. The fourth theme concerns the regulation of Alternative Business Structures (ABS). He does not oppose the 2011 launch date, as proposed by the Legal Services Board, but stresses the importance of getting it right. It is crucial that appropriate public and consumer safeguards are put in place. Regulators must be clear about the information they require, the scrutiny they intend to undertake, and how they will deal with regulatory breaches. He recommends that ABS should be subject to the same regulatory requirements that govern other law firms.

Bob Heslett, President of the Law Society, welcomed the report and said “Lord Hunt has set out an imaginative and thought provoking blueprint which I am confident will be invaluable to the SRA [Solicitors Regulatory Authority] as it charts its way forward for the future. We look forward to working closely with the SRA as it develops its approach.”
The full text of Lord Hunt’s report can be found at:

http://www.legalregulationreview.com/files/Legal%20Regulation%20Report%20FINAL.pdf