ABS kick-off

So justice minister Jonathan Djanogly has ended months of speculation by finally giving the green light to alternative business structures, as planned, on 6 October 2011. Pre-election comments from Conservatives had raised doubts as to whether a new government might delay or mothball the new business structures but Djanogly gave unequivocal support to the timetable.

The government had been under some pressure from its solicitor backbenchers and constituents, who feared that the new competition from ABSs would exacerbate the squeeze already being felt by traditional firms. However, it seems the government has found it difficult to turn down measures designed to stimulate and grow the £25bn legal services sector.

Handbooks at dawn

The SRA is due to publish the latest consultation paper on its new handbook later this month. The profession may well not be holding its collective breath in anticipation, but quite a sea change in regulation is in prospect. The current code of conduct will go, and be replaced by ten broad principles and 'outcomes' which firms are expected to achieve. Everything else in the handbook will revolve around indicative behaviours and guidance and will not be mandatory.

The pervading concept of this so-called 'outcomes-focused regulation' (OFR) has been borrowed from the Financial Services Authority, which for all its shortcomings is viewed as the template regulator. However, given the widespread need for improved management processes in law firms, the SRA seems strangely reluctant to embrace the FSA's treating clients fairly (TCF) initiative, which provides the business context for the implementation of FSA rules and takes as its starting point the assumption that any inefficiency may potentially be injurious to clients' interests.

Significantly, the adoption of a version of TCF for solicitors was specifically recommended by the consumer panel of the Legal Services Board in its response to the SRA consultation. The new handbook is expected to be published in its final form by April 2011, and the forthcoming consultation paper will be the first detailed look at what is proposed. Most solicitors are seemingly unaware of the scale of change and will find that if they don't engage with the SRA now they will be told that their chance to object has come and gone.

Ten in a bed

The Legal Services Board has now granted 'approved regulator' status to ten professional bodies, including two accountancy bodies '“ the ACCA and ICAS. Passengers on the proverbial Clapham omnibus might have expected that these bodies would now be able to get on with licensing new ABSs, but if so they would be mistaken.

The bodies which have been licensed now have to go through another application process before the LSB designates them as 'licensing authorities'. It is thus unclear how many of the ten approved regulators will become licensing authorities. The SRA and the Council for Licensed Conveyancers will proceed to licensor status, but the Bar, given its initial filibustering over the implementation of the Act, will presumably not. The LSB, with its curious commitment to regulatory arbitrage, seems keen for there to be as many licensing authorities as possible.

RIP LDP

LDPs will be superseded by ABSs, but it is worth noting the surprise of both the SRA and the LSB that this business model has proved to be a non-event in terms of solicitors' practice development. Only a handful of firms out of over 280 which have opted for LDP status have taken into their folds providers of non-legal client services. The great majority have simply elevated members of their administrative staff. Perhaps members of other professions are not over-enamoured at the prospect of being subordinated to solicitors' uncertain management skills.

The LSB wants to see lots of innovation when ABSs get off the ground as it views the Legal Services Act as economic reform as much as legal reform. However, it may be that the initiative will come from outside the profession, and some of the likely players may now be encouraged to show their hand, given the SRA's promise to review its controversial ban on pre-ABS agreements between law firms and those who want to buy a stake in them. The LSB is thought to have been critical of the hard line taken by the SRA, which obliged Capita to unscramble its deal with Optima.

Donald where're your investors

Meanwhile, in Scotland, the implementation of tartan ABS is taking a tortuous route.

Following a grass-roots rebellion earlier in the year, the council of the Law Society of Scotland adopted a compromise whereby ABSs would only be permitted where 51 per cent ownership resided in the hands of solicitors or 'other regulated professionals' (a term which is likely to be narrowly defined, and may be confined to accountants and surveyors).

This has the effect of eliminating the threat of 'Tesco law' to the solicitor estate agency firms which dominate the legal landscape north of the border. The compromise has now been incorporated into the Scots' legal services bill, which begins stage 3 of its progression through the Scottish parliament this month. More amendments to the bill can be expected before it becomes law, probably in 2011.

Anti-ABS solicitors had a final fling at a special general meeting on 24 September, but their attempt to introduce a limit of 25 per cent on non-solicitor ownership of ABS was defeated.

Copyright & permissions