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How far should regulation extend?

Susanna Heley considers the SRA’s proposals to relax the separate business rule

The SRA’s recent consultation on the separate business rule, which closed on 12 February, throws up a number of interesting questions about the nature and purpose of regulation and how far it needs to intrude beyond the four corners of our professional lives.

It has long been accepted that criminal conduct, dishonesty and offences or activities which call one’s character into question are issues which the SRA should be interested in, whether they take place in one’s personal sphere or in the course of practice. Bad character is bad character. There’s no logical reason why a solicitor who indulges in shoplifting, for example, should be treated any differently than one who steals from client accounts.

Other areas of regulation are much harder to reconcile. Should the SRA take an interest in what you put on your personal social media accounts, for example? What if your social media page doesn’t describe you as a solicitor or name your place of work? Will that remedy any potential damage to the profession if you publish inappropriate comments? What about freedom of speech, expression and thought? At what point should the profession start to censure its members for expressing themselves?

These issues are not easily reconcilable, and the emergence of significant grey areas starts to become evident. Of course, there are extremes at both ends of the spectrum which will tend to argue one way or the other towards a specific outcome; for the rest, we must rely on the judgement and integrity of fellow professionals.

Separate businesses

So, what is the problem with separate businesses? Does it matter if, for the sake of argument, a solicitor gives his son £50,000 in equity to set up a plumbing business or has an interest in his cousin’s dental practice? Should the SRA prevent the solicitor from doing this, or hear a complaint against the solicitor if the plumbing business is badly managed and collapses?

Turning the question around, if the Ministry of Justice has said that there is no need for will writing to be made a regulated activity, does the SRA have any business in investigating complaints relating to will writing? Should it be the case that the SRA sets minimum standards for reserved activities and takes no further interest in what the profession does? Would it then be the Law Society in its representative capacity taking up the banner for best practice, the Rolls-Royce service, which exceeds basic statutory protections?

Blurred lines

We’d all agree that there is no real harm in a solicitor owning shares in a large publicly quoted company, as there is little chance of that investment affecting the solicitor’s decision-making process. Similarly, investments in private companies which have no connection to legal services are not controversial. Where the lines become blurred is where there is a form of captive referral to connected companies, or hiving off of unregulated work without informing the client that in opting to have work conducted through a separate business, he is depriving himself of key regulatory protections.

In line with the prevailing trends of regulation, the SRA’s consultation suggests the replacement of the current rules relating to separate businesses with new outcomes, which are a great deal shorter and should avoid some of the complexity and uncertainty of the rule in its current form.

The LSB’s position seems to be that client choice and consumer empowerment is key. It is fine for clients to use unregulated providers if they understand the risk that they run by doing so. So, are those resisting a relaxation of the separate business rule being excessively protectionist? Is it not enough to say that solicitors must always act with integrity, in the best interests of their clients and so on? Why should a solicitor, uniquely, not be in a position to say to a client, “You know, you could get these services cheaper through provider x if you (in effect) waive these rights…”

Could it be argued that it is in the best interests of clients to be in a position to make an informed decision as to how they want their services to be provided? Or, in a world where a significant number of clients would not understand the potential ramifications of waiving those rights, is that just asking for trouble?

Susanna Heley


This article was first published by Solicitors Journal and is reproduced by kind permission. You can read the original article by clicking here.


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