News focus: Solicitors set free - but at what price?

Crispin Passmore, executive director of the Solicitors Regulation Authority, put it bluntly: ‘Unregulated legal service providers are stealing solicitors’ lunch money – it’s about time they joined them.’

So forms the basis for the proposal – given the green light last week by the regulator – that practitioners should be able to work in unauthorised entities.

According to research published last summer by oversight regulator the Legal Services Board (see table below), the unauthorised market represents 5.5% of cases in which consumers paid for advice or representation. That proportion is only expected to grow. In family law, unauthorised providers enjoy a market share of up to 13%: in wills, trust and probate it is between 7% and 9%.

The SRA believes freeing solicitors to sell their services under the umbrella of an unauthorised firm will give practitioners more choice of employer and increase competition in the legal services market. In turn, this will bring down costs and capture those consumers currently priced out of the sector altogether.

‘It will help to tackle the issue that too many people and businesses simply cannot afford to access the help of a solicitor when they have a legal problem,’ says chief executive Paul Philip. ‘Removing restrictions on where solicitors can work will give the public more choice, increasing access to high-quality legal services at a price they can afford.’

Not everyone agrees, not least the Law Society. It foresees a fracturing marketplace with fewer restrictions on providers, no mandatory indemnity insurance and consumers more confused than ever. According to a 2016 survey commissioned by the Society, 82% of solicitors fear such reforms would damage the solicitor brand – a brand that the Competition and Markets Authority has identified as synonymous with high-quality advice.

President Robert Bourns fails to see how allowing solicitors to work in unregulated entities – with the existing protections watered down – benefits consumers.

‘The SRA’s role is to regulate solicitors to ensure consumers are protected – yet here it is opening the door for some solicitors to work in unregulated entities, sweeping away long-standing rules referencing conflicts of interest, proper professional indemnity and access to the compensation fund, so if something does go wrong consumers could struggle to recover any losses,’ he warns.

‘Clients seek advice about deeply private and often sensitive issues – they must be able to rely on the exchanges with their solicitor being covered by legal professional privilege as they currently are for solicitors in regulated entities.’

Will consumers be left unprotected? The SRA stresses individuals will still be subject to regulation, while clients will also have access to redress through the Legal Ombudsman. The regulator expects reputable unregulated providers to have indemnity insurance as a matter of course – even if it is not mandatory.

The SRA says fears that the reform will create a ‘wild west’, with solicitors running wild, are unfounded.

‘Clients can already go and access legal services in unregulated businesses,’ Passmore told a press conference last week. ‘All we are doing is adding a solicitor into that. If anybody thinks that is going to make things worse they clearly have less trust in solicitors than I have.’

The change is one of a number of reforms put forward by the SRA last week, although none is likely to come into force before autumn 2018 as further consultations are held on the details.

One thing at least appears certain: the SRA Handbook is set to shrink.

The handbook currently has a 30-page code of conduct and more than 400 pages of rules. The draft code of conduct extends to six pages. The SRA believes the current system is ‘long, complex, onerous and costly to apply’ and there is support for simplification. The revised rules and principles are subject to further consultation this autumn, but the emphasis is on a less inflexible form of regulation and on putting greater trust in professional judgement.

The SRA said: ‘Our view is that solicitors and firms do not need pages and pages of detailed and prescriptive rules to do the right thing.

‘Our focus is on principles and what matters – maintaining the high, consistent professional standards that the public expect. They also provide the clear basis for us to take action where solicitors do not meet their responsibilities and fall short of these standards.’

The wording of certain principles will be amended. For example, the obligation ‘not to allow your independence to be compromised’ is amended to the obligation to ‘act with independence’. Acting with honesty and with integrity – terms that one High Court judge recently said were synonymous – are included in the same principle, but can be pleaded separately in disciplinary action against a solicitor or firm.

The other proposed principles are to: uphold the rule of law and the proper administration of justice; act in a way that upholds public trust and confidence in the solicitors’ profession and in legal services provided by authorised persons; act in a way that encourages equality, diversity and inclusion; and act in the best interests of each client.

The principles concerned with running a business are effectively dropped, being deemed to have only tenuous relevance for in-house lawyers or solicitors working in unregulated entities.

The change with potentially the biggest effect on high-street firms was almost relegated to an afterthought. Accounts rules are set for substantial reform to allow greater use of third parties for handling client money. According to the SRA, potential providers have already expressed interest in offering this service.

Firms will have to show due diligence in choosing a service provider, satisfying the requirement to act in the client’s best interests and safeguard client money – although solicitors will not be responsible for monies held in the third-party account.

The definition of client money and client liability is also set to change. Under the proposals, firms that do not wish to operate a client account can create an exemption from doing so, where the only client money they hold is in relation to fees and disbursements for expenses incurred on the client’s behalf.