The Solicitors Regulation Authority must ensure that solicitors do not end up picking up the bill for inappropriate claims on the compensation fund made by alternative business structures, the Law Society chief executive said this week.

Desmond Hudson (pictured) also warned that the SRA’s proposed rules on who can run ABSs risk allowing the new structures to become a ‘magnet’ for organised crime.

The Law Society council will vote next week on whether to approve the SRA’s application to become an ABS regulator. The SRA is seeking to obtain the go-ahead from council, so that it may submit its application to the Legal Services Board in time to become an approved ABS regulator in October, when the first ABS licences will be granted.

However, the Society’s chief executive said it was more important to ‘get this right’ than to ‘meet a fabricated timetable’. He said Chancery Lane had ‘complex concerns’ over the SRA’s proposals relating to the ‘separate business rule’, particularly with regard to the compensation fund. He warned that claims that arise from the activities of one part of an ABS, which do not stem from work performed by solicitors, must not be allowed to draw on the fund.

Hudson added: ‘We must make sure that claims relating to an unregulated aspect of a business do not end up bouncing back to the compensation fund… We represent those who will pick up the bill.’

Chancery Lane is also pressing the SRA to tighten the rules on who may own an ABS. Hudson said: ‘We have concerns over the fitness to own test. If you look at the role that a solicitors’ firm – and an ABS – has, it is about being a banker. That could be a magnet for organised crime.’

However, Hudson added that it was ‘very important’ for the profession that the SRA should be an ABS regulator. He noted that ABSs were ‘going to happen’, and it would be ‘much worse for the profession’ if regulation was performed directly by the LSB in a way that might be more advantageous to ABSs than traditional law firms.

The Law Society will run a programme of national roadshows offering ABS-related advice and support in May and June, and will issue a practice note on ABSs in May. It will enhance the ABS guidance on its website in the coming weeks.

Richard Collins, director of policy and standards at the SRA, maintained its proposals for an ‘authorisation rules and suitability test’ mean applicants will need to demonstrate their suitability to own an ABS. He added: ‘These tough rules and procedures will provide rigorous safeguards against criminal ownership.’

Collins added that the new compensation fund rules will prevent payments being made from the fund in respect of work that is not regulated by the SRA. ‘In both areas, the risks have been identified and are addressed by the rules and procedures,’ he said.