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Legal Services Act has not levelled the playing field

Lack of definition has been an inherent flaw in the system from the start, says Susanna Heley

It is very easy for the Legal Services Board to criticise the Solicitors Regulation Authority’s approach to authorising alternative business structures.

Given the SRA’s recently published commitment to work on the issues involved in authorising multi-disciplinary ABS firms, it would seem that parts of the criticism are not wholly misplaced.

While I agree that the process is frustrating and complex, it seems that the inherent flaw in the system is, and has always been, a failure by the legislature to define ‘legal services’.

Hybrid hotchpotch

Traditionally, there has been no need to define legal services. They were regulated by default because the professionals providing them were regulated. The reserved activities were the perks gifted to the profession by the-then government; effectively a reward for voluntarily adopting certain standards of behaviour.

When the Legal Services Act shifted the emphasis of regulation and raised the spectre of firms offering a mixture of legal services and other services, there should have been two choices: define legal services clearly, or limit the scope of regulation to reserved and regulated activities for all providers.

It did neither, instead steadfastly failing to address the fundamental issue and presenting a hybrid hotchpotch for regulators to argue over.

It is bizarre that an Act claiming that promoting competition is one of its key drivers can have been drafted and enacted with such little regard to the need to ensure a level playing field on which to base the competition – and that it should so adroitly avoid defining its own subject matter.

It seems that the LSB is now suggesting that, in fact, the frontline regulators have discretion to limit the scope of their regulatory activities; in effect, blaming frontline regulators for any confusion.

Of course, there is no acknowledgement that the lack of ‘legal services’ definition is a problem. Instead, the LSB is directing its criticisms of the SRA to processes, delays and the SRA’s perceived preference for ABSs that look traditional.

Minimum terms

It is easy to see why a risk-based regulator may have some concerns about multi-disciplinary practices. It is self-evident that both regulator and affected firm would need to understand the scope of the SRA’s jurisdiction, not to mention that insurers need to be aware to what extent professional indemnity cover is subject to the SRA’s minimum terms.

The Legal Ombudsman must be satisfied that clients are appropriately signposted and everyone needs to understand how much of the firm’s work attracts legal advice privilege and whether such privilege can be lost if, say, an accountant works on a file alongside a solicitor.

These problems are one side of the coin. They are a clear and direct result of a failure to define legal services.

On the other hand, of course, the LSB’s suggestion that the SRA’s process puts at risk the promotion of competition within the market taken with the evidence-based approach it espouses would tend to support an analysis that would see regulation scaled back and limited to those activities expressly reserved or regulated.

Is it the case that those in traditional firms in which all activities are regulated should bear a proportionately increased regulatory burden (with obviously attendant increases in costs), simply because all relevant owners and managers belong to the profession?

How does that promote fair competition and what damage does it do to the overall public interest if the profession is forced to find ways to mitigate the costs of regulatory compliance?

It is interesting that the Legal Ombudsman, the other creature of statute brought to us by the Legal Services Act, apparently believes it to be in the consumer interest to extend the scope of its jurisdiction. Consumers then have an effective system of redress, and complaints do not fall through the cracks because of the supplier’s identity.

It seems that this issue could also be mitigated if a sensible and workable definition of legal services could be agreed.

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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