Legal Business Blogs

Solicitors set to own non-regulated businesses after watchdog levels ‘the playing field’ with ABSs

The Solicitors Regulation Authority (SRA) has decided to relax the Separate Business Rule, allowing law firms to own outside businesses which are not regulated by the SRA and provide accounting services, and making it easier for them to compete with alternative business structures (ABSs).

Voted through at a board meeting this week (3 June), the changes will allow law firms ownership or connections with outside businesses that provide non-reserved legal services as long as solicitors only refer a client when it is in their best interest, make clear who the appropriate regulator is for the separate business and that the SRA is not regulating it. There will also be changes to what can be provided by law firms to include accounting and other professional services with the SRA stating a desire for law firms to provide a ‘one-stop shop for professional services’.

The move is designed to help law firms compete with the ABS regime which already allows non-legal organisations to own law firms such as insurer RSA’s joint venture with Parabis Law – RSA Law Limited.

The SRA’s chief executive Paul Philip said: ‘We are levelling the playing field for all types of law firms, encouraging innovation and growth, while ensuring appropriate consumer protection. This follows on from changes we made last year to open up the market to different business models and “one-stop shop” services.’

However, the overhaul will still not allow solicitors to actually practice within those unregulated businesses. Jo Riddick, compliance officer for legal practice at Macfarlanes, told Legal Business: ‘The anomaly is that the only people who can’t participate are the people best qualified to do so. That won’t change until the Practice Framework Rules are amended.’

But the rule change is an important step to seeing broader transformation. Riddick added: ‘If that does happen you could see City and big law firms hiving off as much as 80% of their work into the unregulated sector where they would operate on a hybrid basis, with the entity being self-regulated and the individuals practising in it subject to light touch SRA regulation.’

There are signs that this may come to pass with Philip adding at the end of his statement: ‘We are now looking into what more we should do to give solicitors even more flexibility in future.’

The Legal Services board still needs to sign off on the changes which, if it does, will come into effect on 5 November when the new SRA Handbook is published.

For more on the implications of the rule change see: The 2015 Risk Report – What lies beneath