Accountants are the new lawyers for corporate clients
By Sr Duran-Corretjer Duran-Corretjer
LSB recommends ICAEW becomes approved legal regulator across all reserved areas
The line between law firms and accountancy practices is set to blur further following a recommendation by the Legal Services Board this morning that the Institute of Chartered Accountants in England and Wales should become an approved legal services regulator and licensing authority for alternative business structures.
The ICAEW already has a licence to authorise firms to provide probate services but in a letter to the Lord Chancellor, interim LSB chair Helen Phillips said the largest accountancy watchdog should be allowed to become a regulator and licensing body across all six reserved areas. This will include the conduct of litigation, rights of audience, and reserved instruments – although only with respect to taxation services.
Peter James, head of regulatory policy at ICAEW, clarified that this would not include conveyancing, while litigation and advocacy would be in the lower courts only – not the High Court – and only where there is ‘a clear link with tax matters’.
But much as the ICAEW’s application relates mostly to taxation services at this stage, the prospect of the ICAEW becoming a legal regulator would be a significant milestone in the liberalisation of legal services. And for the solicitor profession, it would raise critical challenges across the spectrum.
The first is the prospect of regulator shopping, with lawyers qualifying with – and firms practising under – the least cumbersome regime. This could become a disaster for the SRA. The solicitors’ regulator would still approve individual solicitors but it could end up overseeing a dwindling number of law firms, becoming a mere conduit for individual qualification and supervision.
For solicitors and law firms, the dangers are even greater, with solicitors subsumed into a subset of professionals employed outside firms. And how will law firms differentiate themselves from accountancy practices? Moreover, how long will the solicitor badge remain a valuable one?
Current restrictions on ICAEW-regulated firms suggest business clients will most likely gain from competition at that level. Private client services are unlikely to be affected, at least for the time being, but with accountants already counting high-net-worth individuals among their customers, it may only be a matter of time before they venture into the more general consumer end of the market.
ICAEW’s response to concerns raised by the Lord Chief Justice, a statutory consultee under the Legal Service Act, lifts a corner of the curtain on their possible plans. At present, the intention is for the institute to regulate entities while relying on individual lawyers to meet professional requirements with their respective regulator. However, it has already been in discussion with a training provider to deliver its own qualifications. The institute’s bid for a slice of the legal services sector began three years ago, in August 2014, when it became the first non-legal organisation authorised to license ABSs and regulate probate services. At the time, the accountants’ main regulator, said 250 firms had expressed interest in the new opportunity. To date, 280 firms have been licensed under existing powers.
Current rules authorising ICAEW to regulate probate services contain several restrictions, with regulated firms only authorised to offer probate advice in uncontested matters. In practice, this relates to advice in relation to trusts and trust deeds. At this stage, James told Solicitors Journal, authorisation to conduct litigation would be unlikely to include probate litigation, although this was an aspect the regulator was still unclear about and would be considering.
Unlike the SRA and Bar Standards Board, the ICAEW is a unitary organisation, being both a representative body and a regulator. ‘This has caused some consternation,’ James said, ‘but the ICAEW Regulatory Board (IRB) operates at arms’ length, and this arrangement complies with the requirements of the Legal Services Act and the LSB rules.’
These concerns were specifically raised by the Legal Services Consumer Panel in its response to the ICAEW consultation. In addition to explaining its regulatory arrangement, the ICAEW’s application even argues that it has advantages. The technical exchange between the membership and regulatory functions leads to ‘quicker assessment and robust advice to the practitioner’, and the regulatory arm is ‘better able to influence the educational agenda’.
The application also dismissed panel concerns over the identification of consumer and the effectiveness of remedies. Most clients would be businesses, the ICAEW responded, many of whom would have a long-standing relationship with the same accountancy firms and were ‘sufficiently sophisticated consumers’.
Similarly, the ICAEW answered panel queries about the adequacy of client money regulations saying safeguards currently in place, which were approved by the panel in respect of the probate application, would ‘continue to be adequate’.
David Edmonds, the first LSB chair, made no secret of his desire for accountants to regulate reserved activities and break the SRA’s monopoly. As far back as December 2013, he blamed legacy legal regulatory bodies for imposing a greater regulatory burden on the professions, saying self-regulation cost more to clients because it was a restriction on competition.
With this ICEAW application, the Edmonds fox has truly entered the solicitors’ coop.
Jean-Yves Gilg is editor-in-chief of Solicitors Journal