A helping hand: making it easier to set up a law firm
Jonathan Rees sheds light on the difficulties facing those wanting to set up their own firm
Lawyers wanting to set up on their own have for too long been faced with a wall of bureaucracy and paperwork, not to mention real problems in obtaining the necessary insurance cover. That is why last year in its new three-year strategy CILEx Regulation Limited (CRL) committed to exploring whether we could help. We already regulate over 70 law firms and are aware that many entrepreneurial legal professionals are daunted by what they need to do to set up their firm. Yet, there is ample evidence that smaller firms can be more in touch with their local communities and are willing to innovate and do things differently.
To understand the issues further we commissioned research last summer. In that research we discovered that many found setting up their own firm difficult and half of those interviewed had concerns about the time they spend on regulatory and compliance issues.
Responses were obtained from 86 legal professionals including sole practitioners, those that have recently set up a law firm, and those considering establishing a law firm soon.
Our survey did reveal there is clear interest in the proposals as a general concept, particularly from recently set up law firms and those considering launching a firm or becoming a freelancer.
Strikingly nine out of 10 (90 per cent) of those considering setting up a firm thought that the proposals would be useful and over six out of 10 (62 per cent) of those who recently established a law firm. Overall, just over half (56 per cent) of those interviewed think that the proposals would be useful.
However, when respondents were asked about their experiences of the regulatory process, or their concerns ahead of setting up a law firm, the main concern across all of those surveyed was the cost of professional indemnity insurance (PII). PII is a particular concern for those thinking about setting up a firm, with 70 per cent of respondents highlighting this – mentioning not only the costs, and increasing costs, but also worries about if they would be able to obtain PII.
A clear majority of recently set up firms and potential firms mentioned they would also find support with policies/procedures templates useful. The main reasons given by both groups was that it would provide confidence that all the requirements have been covered correctly, plus it would save time. With almost four out of 10 (39 per cent) interviewees finding advice on the Transparency Rules useful, this may support a more prescriptive approach for smaller firms.
Suggestions on ways that a regulator could better support law firms and sole practitioners were led by calls for better communications, including clearer routes to the right contacts to talk to and quicker responses to questions raised.
Almost three-quarters (73 per cent) would consider the use of IT that facilitates ongoing oversight, for example removing the need for a manually completed annual return. Firms felt they were geared up to deal with this and this would result in significant resource efficiencies.
It’s clear that some frustrating barriers exist, which is why we have been developing plans to simplify the way people can start a law firm. Our ‘Law Firm in a Box’ concept is designed to help make things simpler for startup law firms and sole practitioners with limited resources and budgets to satisfy the compliance and regulatory requirements, supporting both CILEX professionals and others to set up a business.
Our view is that there is a real opportunity to promote competition and consumer interest, by encouraging and helping those ready to start their own firm to understand and comply with the regulatory requirements. As a regulator, we want to provide a helping hand. We also believe that it fits with our commitment to equality, diversity and inclusion as often those most reluctant to take the leap are from disadvantaged backgrounds.
We are seeking views in our recent consultation document on the future of regulation. In the light of the responses, we intend to come forward with substantive proposals in the coming months. In our view it’s essential that innovation is nurtured and individuals are guided through the necessary regulatory and insurance requirements.
Jonathan Rees is chair of CILEx Regulation Ltd