Alternate Business Structures [ABS] delay
Part 5 of the Legal Services Act 2007 permits alternate business structures to conduct business in the legal services marketplace in England and Wales. This means for the first time non – lawyers will be able to fully own and invest in law firms.√جª¬ø
√جª¬øAn ABS will need to have a license in order to operate. The SRA applied to the Legal Services Board to become a Licensing Authority for ABS. On 13th June 2011, the LSB approved the SRA’s application but the new provisions, that should have been available by October 6th have been delayed, much to the embarrassment of the SRA, who maintain that they are working ‘flat out with government’ to resolve the outstanding issues.
At a recent seminar conducted by the Westminster Legal Policy Forum on 6th September, Professor Stephen Mayson said that ‘Regulation of ABS has become somewhat of a shambles’ pointing out that the failure to start on time reduced credibility. He argued that full transparency as to the reason for the delay, was a minimum requirement from a body that regulates the conduct of other professionals.
Other speakers predicted that within 10 years, between 33% and 50% of all law firms will be ABS, as the advantages of introduction of external capital and the ability to reward non lawyer members of the firm become apparent. John Lleyellyn-Lloyd, head of mergers and acquisitions at Espirio Santo Investment bank explained that the present market is too fragmented to attract external investment, with over 60,000 providers of legal services. He felt that merger and firms leaving the market would result in the number of providers consolidating to a small number, as has happened in the Accountancy profession, where 4 main firms dominate the market.
The SRA website explains how those who wish to provide ‘reserved activities’ must meet minimum standards and requirements set out in the SRA Handbook. The ‘reserved activities’ are
– the exercise of a right of audient
– the conduct of litigation
– reserved instrument activities
– the administration of oaths
– the provision of immigration advice and services and
– notarial actives
Firms with at least one lawyer manager intending to have non-lawyer managers or interest holders will need to be authorised as an ABS. Applicants have to submit organisational details, business practices, details of personnel, indemnity insurance, client money and a suitability declaration. The emphasis is on appropriate governance, systems and controls, and personnel. The final declaration is that the ‘lawyer manager’ is in a position of sufficient responsibility to enable them to have access to all management systems and arrangements and other relevant information including client files and business information in order for them to sign a declaration’.
Once the application for authorisation has been submitted, the SRA will consider the plans with the compliance officer for legal practice [COLP] and the compliance officer for financial administration [COFA]. All firms applying to become an ABS are required to provide details of their owners including those who hold a ‘material interest’ by association. Guidance is given that owners who hold 3% or more need to be considered. Applications for waivers may be considered by those who are regulated by other regulators. ( eg accountancy firms). The essence of the regime is Risk Assessment, where the SRA will consider whether or not the firm should be authorised and if it is to be authorised, who the firm should be supervised in the future.
Originally posted 2011-09-28 00:00:00.