“The question is, how will ABS impact on you as some people have some very exciting plans …. Where is the competition?”
Charles Plant, Chair of the SRA 17th October 2011

This was the thoughtful challenge set by Charles Plant near the close of his address to the Sussex Law Society conference. He mentioned two headline examples of how ABS is guiding large businesses, confirming that the Co-op will almost certainly be a certified ABS in January 2012 and that Irwin Mitchell was close to securing £50m of external investment. It would be very easy to assume that this has nothing to do with the average high street firm until these businesses open up an office next to yours. 

The SRA Chair made the valid point that organisations like the Co-op will only do the work they can do commercially. They will cherry-pick conveyancing, wills and any work that is easily commoditisable and has a low cost of entry. This affects all firms directly. If clients are more attracted by the offering of the Co-op and their ilk, high street firms will see the profitable basis of their practice leeching away and not available any longer to support the other work that they do.

“The profession needs to adapt. There is a market and the regulator cannot impose on it”. In other words, the SRA cannot force the Co-Op to take on the less commercial work that legal firms currently do as a quid pro quo for getting their hands on the profitable stuff. All the SRA can so is ensure that all ABS firms are subject to the same regulatory rules as law firms, thus enabling a totally level playing field.

Mr Plant gave the delegates a good outline of the new outcome focused regulatory framework and urged everyone to get to grips with it a little faster than they currently are. Again he seemed to echo in tone the underlying feeling that solicitors aren’t moving fast enough on any front. He made the point that OFR is a deliberate move away from a totally prescriptive approach, whilst acknowledging in some areas (notably the Solicitors Accounts Rules) this was still essential. He stated twice that there would be “no more nitpicking by the SRA”, commenting that lawyers are an intelligent profession and it isn’t for the SRA to tell them exactly how to manage risk within their firms.

photo courtesy of Mike Quinn’s Profile on geograph.or.uk

“You cannot override market forces …. We cannot secure your future for you, you must secure your own future.”
John Wotton, Law Society President, 17th October 2011

With these words, John Wotton made it very clear that the profession needs to start taking responsibility for itself in the business arena. Speaking at the Sussex Law Society Annual Conference, he said that many solicitors are very worried about the fundamental changes they are now facing and that he doesn’t have a crystal ball. “It would be wrong to say that everything will be fine”. He confirmed that times could be very difficult for small high street firms who will particularly be in the eye of the oncoming storm. ABS is a driver of change and it isn’t the only one. Reduced availability of legal aid and the changed expectations of both clients and younger lawyers will also drive that change.

It was clear from his address that the Law Society is has a better understanding than many of its members of the challenges firms are facing now. Indeed it seemed at times as if both he and his co-speaker, the Chair of the SRA, were trying very hard to wake the legal profession up. There is a real fear amongst observers of the profession that it will sleep walk its way into a very avoidable disaster.

John Wotton advised delegates that a big issue is now risk management, which is why outcome focused regulation has been introduced by the SRA. Whilst he didn’t put it in these terms, it is clear that solicitors must understand the fact that risk management starts with having a plan for the survival of their firm in face of the oncoming commercial storm.

The President reminded delegates that risk management is important to clients – 47% indicated exactly that in the latest survey figures available to the Law Society. And he invited lawyers to consider this in positive terms. He pointed out that lawyers have an enviable reputation for the level of their training. They offer great guarantees of service through their regulatory structures, their Code of Ethics, indemnity insurance, the SRA and the ombudsman. These are all huge selling points in the new marketplace that is opening up.

The clear message is that ABS is the game changer. It offers much wider business opportunities than law firms have had before and it may well dilute our current perception of what a law firm actually is. Those opportunities though are the point for a well managed and entrepreneurial firm. Investment, partners from other professions and an opportunity to create a more commercially adept business is there for the taking now. He made a particular point of highlighting how the use of a good, well informed website will provide many ways of breaking down a client’s reluctance to instruct a solicitors firm.

The other clear message is that firms need to act now, a message echoed very strongly by the individual presidents of the local law societies who had come together for this conference. There is a gap opening up between the firms who have grasped the opportunity, as well as the challenge, in front of them, and those who are building their own self-fulfilling doom prophecies by doing nothing.

photo courtesy of Mike Quinn’s Profile on geograph.or.uk

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.

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

The Solicitors Regulation Authority (SRA) regulates more than 100,000 solicitors in England and Wales. “Our purpose is to protect the public by ensuring that solicitors meet high standards, and by acting when risks are identified. We are the independent regulatory body of the Law Society of England and Wales.” But there have been repeated complaints that black and minority ethnic (BME) firms have been disproportionately targeted for interventions, and that complaints and disciplinary proceedings have been handled in a discriminatory way. Lord Ouseley, former head of the Commission for Racial Equality, was jointly commissioned by the SRA and the Society of Black Lawyers to conduct an independent investigation into the SRA’s treatment of BME solicitors and firms.

His report has just been published and it makes very uncomfortable reading for the SRA. Lord Ouseley says “it is the issue of disproportionality that has focused the concerns of BME solicitors.” Why are they over-represented in all aspects of regulation as depicted in the statistics produced by the SRA? He highlights two areas of concern in that BME solicitors are more subject to forensic investigations than white solicitors and, as a consequence, are disadvantaged considerably through the non-disclosure of information about allegations made about them. He finds that “not sufficient leadership emphasis has been given to the values of equality and diversity (which) leaves the SRA open to the charge of institutional racism.”

One of his more damning conclusions is the “level of prejudice and bias which exists among personnel” and the “evidence of some stereotyping being applied.” He cites case evidence of BME solicitors who are often assumed to be guilty of complaints or allegations made against them. They are more vulnerable as sole practitioners or practising in firms with four or fewer partners, firms which tend to score higher in the SRA’s risk assessment and therefore feature more in regulatory work. Another reported disadvantage is the failure to deal effectively and independently with complaints made by BME solicitors and staff of alleged discrimination in the way they have been treated by the SRA. “The processes applied seemed designed to ensure that the outcomes are virtually always against the complainer.”

Lord Ouseley makes 40 specific recommendations and “urgent, active and swift implementation is the most important.” The full text of the 106 page report can be found at:
http://www.sra.org.uk/documents/SRA/equality-diversity/ouseley-report.pdf