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SRA attacked from all sides over ABS delay

External capital 'cannot wait three or four months', Pannone partner says

12 September 2011

The SRA has found itself at the centre of unprecedented criticism over a delay of at least three months before it begins licensing ABS firms.

The first licenses were due to be issued on 6 October 2011, but, as Solicitors Journal first reported, this will not now happen before January or February 2012.

Andrew Morton, head of Pannone Affinity Solutions, which could be converted into an ABS, described the delay as “galling”.

“I don’t care whose fault it is,” Morton said. “The point is that the very first step into this brave new world has faltered.

“The powers that be have been saying to solicitors ‘you must be more businesslike’ and what do we get? They can’t meet their deadlines. Everyone has been saying 6 October, but now they’re not and they can’t tell us when.

“Capital investment cannot wait for three or four months. That’s not how business works. A lot of planning goes into making things happen and not to use money for three or four months is a significant issue.”

Morton said external investors, who came hesitantly to the solicitor’s profession because they thought it was heavily regulated and unbusinesslike, would find the delay “off-putting”.

Morton said the delay “probably would not” affect Pannone because it was not planning to open an ABS for business on 6 October, but he could understand the point of view of solicitors in the “handful” of firms, like Irwin Mitchell, which were planning to start on that date.

Ajaz Ahmed, a co-founder of Freeserve who has been working with Yorkshire firm Last Cawthra Feather on LEGAL365.com, said: “I was looking forward to other people announcing what they are going to do. Now we will have to wait.”

Ahmed said the delay would not make any difference to the firm’s plans, so long as a further delay was not announced in November or December.

He said LEGAL365, which is currently owned by the law firm, would open a store in Leeds city centre by the end of the year, but could only raise additional capital for expansion if it became an ABS.

Professor Stephen Mayson, director of the College of Law’s Legal Services Institute, last week described the delay in the licensing of ABS firms by the SRA as “something of a shambles”.

Speaking at a Westminster Legal Policy Forum debate, Professor Mayson said law firms and external investors with time-sensitive plans to set up ABSs “had been failed” by the regulators.

“Some of the market initiatives waiting in the wings for ABS implementation will have taken years to prepare. Some of them cannot happen overnight; they are not short-term projects and need detailed planning and preparation.

“Some of them are commercially sensitive and some are similarly sensitive to timing.”

“At this point, the implementation of ABS has become, and I say this with deep regret, something of a shambles.”

Professor Mayson said the final Clementi report was published seven years ago and the Legal Services Act four years ago.

He said the market was expecting change, the process “had hardly been rushed” and the failure of the SRA even to start regulation on time had damaged the credibility of the new system.

“If a week is a long time in politics, three months is an age in the world of business.”

Michael Napier, chairman of Irwin Mitchell, later tried and failed to extract a fixed ABS implementation date from Antony Townsend, chief executive of the SRA. Irwin Mitchell announced plans earlier this year to restructure itself to make room for an ABS.

Napier asked whether parliamentary approval of the SRA’s licensing application was in the “in-tray” of parliament or of the SRA.

Townsend replied that, in terms of an in-tray, it was with the Ministry of Justice.

“We are in the hands of the parliamentary timetable and in the hands of the material being prepared by the MoJ,” he said.

“We’re doing our best but the SRA, despite its ambitions, is not yet in control of parliament.”

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