Paul Rogerson talks to SRA chief executive Antony Townsend (pictured) about the implementation of outcomes-focused regulation in a rapidly changing legal services market.

PR: With OFR launching this month, what are your impressions of how well prepared solicitors are for the new compliance regime?

AT: In terms of preparation of the infrastructure for OFR, we are very pleased with how well that has gone. The new Code of Conduct and Handbook we think are pretty clear and focus on the right things. We are particularly pleased that the debate with the profession has moved on from understandable scepticism regarding what OFR stands for, let alone means, to much more practical questions about how we are going to make it work. In the last series of roadshows the overwhelming flavour of the events was ‘this is happening and we can make it work’.

A very big part of this programme is about the transformation of the SRA as an organisation: from getting the IT in, to a major redeployment of staff (a third of whom have been put at risk redundancy). That process has to be mirrored in the profession, which needs to know its way around the new code and handbook. They will need to do some practical things, like for example appointing a Compliance Officer for Legal Practice and a Compliance officer for finance and administration.

In a profession as a large and diverse as this, I think it would be naïve to suppose that everyone is going to have given a lot of thought to what 6 October means for them. Some will have done it very conscientiously and some will have buried their heads in the sand. Part of our task will be to make sure than when people do engage with us we are sensitive to that and help them along.

There will be a lot of learning and it is up to us to facilitate that.

Being cautiously optimistic, the pilots we have done on relationship management at a wide range of solicitors’ firms have been pretty much universally well received. Of course those firms self-selected, but if we can replicate that in all our dealings with the entire profession that would be great.

PR: You mentioned at an earlier briefing you were looking at having teams of your people dealing with particular groups of firms. How has that work progressed?

AT: We’ve done some division along those lines and we will be rolling it out incrementally. It would be great to say for every single firm, we have got this person dedicated to them, but we can’t do that in one go. What we will do is start rolling out group by group relationship management with firms where we think there is particular need for attention. That doesn’t mean we think they are badly run; for example they might be new or have a very innovative business model. We will be writing to all firms to tell them about that. We are anxious why everyone understands why or why we are not relationship managing; we don’t want firms that are being managed to think they have got a kind of "black mark" against them.

PR: Will these groups be differentiated by size?

AT: Principally by size. We will be applying the same principles irrespective of size, but very different issues arise for sole practitioners compared with City firms. The people doing the relationship management need to have the kind of knowledge that’s going to be helpful to a particular category.

PR: One great unknown of course is how many alternative business structures there are going to be for you to supervise…

AT: We need to be flexible, and to be able to move people around without a major crisis. If we end up with 10 ABSs that’s one thing; if we end up with 100 that’s very different.

PR: What level of interest is there in ABSs at this point?

AT: We’ve had over 50 expressions of serious interest in making an early application, as opposed to those who’ve just ‘picked up the leaflet’, so to speak. They range from the likes of Co-op at one end right down to the traditional family firm that just wants a bit more flexibility. ABSs should not be thought of as something for high-street multiple chains; in fact it’s a very flexible model that can be applied to a tiny firm too.

PR: Fifty does not seem a huge number when there are 10,000 law firms.

AT: That’s right, though of course we’ve been hamstrung by parliamentary process. When we are able to announce a date [for licensing ABSs, expected around the turn of the year], I expect that will flush out a few more. It’s quite unpredictable.

PR: So what still has to happen for you to license ABSs, given the much-publicised delay?

AT: It’s an Order that has go before parliament for affirmative resolution, which is why it takes longer. It has to join the queue to be debated. Everything in that order is completed. I know the MoJ is doing it’s best to see this through.

PR: You mention in the booklet that accompanies the launch of OFR your intention to be the regulator ‘of choice’. But there are going to be competing regulators, with the Council of Licensed Conveyancers already making capital from being first. But you’re confident that you can dominate the market notwithstanding?

AT: We are the only regulator in town that spans the totality of legal services. The licensed conveyancers only regulate a narrow, though important, field. That could of course change in the longer term. You’ve also got the Bar Standards Board, whose approach is rather different, seeking to be what you might call a ‘niche regulator‘. The interesting question there is will that be attractive or not? It could go either way.

PR: You mentioned briefly building relationships with the City firms. Is all sunny in that particular garden, after the rather heated debate about whether the City needed an entirely different type of regulation?

AT: Yes. All the feedback we’ve had has been very positive, City firms want to work with us and the talk that there was a couple of years back has gone completely into abeyance, which we’re very pleased about. We want to continue to work with them on emerging issues: for example, one forthcoming subject is what is the international reach of OFR? This is becoming an increasingly obvious weakness of the system that goes back many years. To what extent does the Code of Conduct apply to your Hong Kong office, if your Hong Kong office is only doing Hong Kong law? We are aiming very shortly to launch a discussion paper on that subject.

We are also very keen to improve international understanding of ABSs. Some foreign jurisdictions see them as the devil’s work; the end of the legal profession as we know it. They need to know we are regulating ABSs to very clear professional and ethical principles, and this is not a government-inspired means of undermining the legal profession.

PR: Which jurisdictions are most problematic?

AT: Most European jurisdictions are intrinsically suspicious of ABS. In the US there appears to be at least a growing consideration of the issue and some places like The Netherlands and Spain already have elements of ABSs, as of course does Australia. This gets mixed up not only in economics but also in the impression that the SRA is some kind of government agency when we’re not, - we’re an independent regulator.

PR: And of course this is critical for those firms that do have overseas offices, in that it could alienate those entities domestically.

AT: Exactly. We need to make sure ABS does not have knock-on effects for those international offices.

PR: You’ve been clear that OFR cannot incorporate any sort of ‘safe harbour’ for firms that engage with you, but still want to get involved more proactively at an earlier stage, where problems have arisen, or might arise. The object presumably is to stop matters getting as far as the SDT wherever possible [the number of SDT orders fell over 10% to 353 in 2010].

AT: Correct. To give a good example based on a recent case - a firm discovers a significant fraud being perpetrated by one of its senior managers and immediately gets on the phone to us: "We’ve got a problem; we want you to know about it; we’ll be sending you a full report; this is what we are proposing to do immediately to ensure we haven’t got a continuing risk". They will ask "are you content with that approach or do you think we should be doing something else?"

We’re very pleased that’s happening, since in that scenario we wouldn’t need to do any more than monitor that they were doing what they had proposed to do. We’re trying to mitigate and preferably eliminate a risk, not starting off from immediately thinking about the SDT. The tendency with a detailed rulebook and a less explicit approach to risk was for every interaction to feel almost like litigation from the start. That’s what we want to avoid.

PR: So one assumes that one measure of your success will be if the number of SDT orders continues to go down.

AT: Yes. For two reasons. One is that even where we need to take some sort of formal disciplinary action, much of that we can now do without an SDT hearing. We can fine or publicly reprimand, which is quicker, cheaper and easier. The other reason is, we would hope, that a lot could be dealt with by constructive engagement earlier on.

PR: Finally, a word on banning personal injury referral fees, which the government has said it is going to do without saying how. If it’s a regulatory matter, that is going to be quite a task for the SRA is it not?

AT: Yes. We told the MoJ that we will be very happy to discuss their proposals as soon as they are worked up, because the last thing we want is something impractical. Our preference would be that, if there is to be a ban, it should go wider than simply the legal services regulators, because the problem extends beyond lawyers. Putting all the responsibility on the lawyers would not be the most effective approach; insurers and claims managers also have fingers in this pie.

We want something that is sufficiently comprehensive to make it work. Our concern with all of this is making whatever is decided upon work in practice. The experience of the ban that formerly existed was it was easy to get round it; for example, you suddenly had people paying advertising fees instead of referral fees. The SRA board has not revisited this yet, but clearly if parliament comes up with a scheme we will play our part in operating it.