Radical growth of ABSs is coming, says SRA chief

The number of alternative business structures (ABSs)is expected to rise over the coming years as businesses become more innovative, the chief executive of the Solicitors Regulation Authority (SRA) has said.

Speaking at London Law Expo 2015, Paul Philip said: 'Although there has only been 400 in the last five years, I suspect that that we will see that increase radically in the next two or three years to actually see much more genuine professional services, rather than law firms.'

He added: 'Three of the largest accountancy firms are regulated by the SRA. That's the beginning of the change that will have echoes in the next five to ten years. We're seeing businesses that are actually quite creative and genuinely multi-disciplinary in the services they offer.'

Philip went on to say that the negative attitudes to ABSs following the enactment of the Legal Services Act 2007 have been dispelled.

'The key issue was that you couldn't trust a non-lawyer to run a law firm. Now we are five years on and some of the most innovative businesses that are around are actually adopting an ABS model and there is absolutely zero evidence that there is any trust or integrity issue associated with people who run those businesses.

'ABS's are not a significant risk factor. Go back five years, there was a lot of discussion that it was a big risk to integrity, to the standing of the profession, but that has been proven not to be the case.'

With 429 licensed ABSs currently providing legal services, Philip said that around 350 of these were normal firms which have adopted a new business structure to incentivise management accounts and accommodate working partners.

The SRA chief recognised the market was changing radically and that law firms are evolving, citing the floating of shares on the London Stock Exchange by Gateley as an example.

Philip also acknowledged that the SRA's lack of licensing had prevented new ABSs from bringing much needed innovation to the market.

'In terms of firms needing freedom and development to grow, that's essentially a bleak reference that the SRA wasn't very good at licensing ABS's to introduce innovation to the market,' he admitted.

'We knew what to do but we probably didn't mandate the staff in the organisation to look at the types of exotic structures, structures that look very different to traditional ownership models, and therefore the we tied up in knots, particularly who owns the business and how much we need to go into the background of the character of those individuals.'

Philip said he believed the regulator was 'pass that now', adding 'we have some really innovative businesses that have been licensed as ABSs'.

Speaking on a panel discussion later in the day, Philip remarked: 'We are underselling [ABSs]. There should be thousands, not hundreds. There is a massive business opportunity for SME's in law to expand.'

Matthew Rogers is an editorial assistant at Solicitors Journal @sportslawmatt matthew.rogers@solicitorsjournal.co.uk