Separation of powers

Next month sees a potentially historic vote in the Law Society Council on whether the SRA should be allowed to tout itself as a licensing authority for alternative business structures (ABSs).

So I was intrigued to read the recent comments of the Law Society president, Linda Lee, on why the SRA might not be a shoe-in.

The Legal Services Act (LSA) requires the appointment of frontline ABS regulators so that the Legal Services Board (LSB), as the watchdogs' watchdog, can avoid getting its hands dirty in day-to-day matters. It has always been trailed that the SRA would 'probably' want to be a licensing authority, and, given that it currently watches in the region of 120,000 solicitors, has responsibility for more lawyers than the other professional legal bodies combined. For the SRA not to be a licensing authority seems incredible, yet clearly we should not take it for granted.

The fear of reputation damage and claims on the compensation fund to the SRA, and, by extension, the Law Society, seems to be the main reason why Lee thinks the SRA should not be a licensing authority. But why should the Law Society fear reputational damage from the SRA acting as a frontline regulator? Is it more than just a distaste of all those nasty businessmen entering the profession?

I don't think so. The Law Society has been in favour of reform ever since the time of the Clementi report. The regulation of ABSs does provide a huge challenge, especially when the final rules and regulations governing ABSs have not been formulated and there is only eight months to go before they come into being.

Born free

There is another reason as well. In case you'd forgotten (as I had) the SRA, billed as the independent regulatory arm of the Law Society, is in fact a committee of the Law Society Council. It is therefore rather less than arms length from the Law Society. This seems to me to be unsatisfactory and less than transparent, especially in the prevailing climate of distrust of professionals and regulatory bodies.

The SRA ought to be entirely independent of the Law Society and free to make decisions about whom it regulates without needing the Law Society's input. That would reduce the risk of reputational damage to the Law Society as well and provide a demonstrable 'separation of powers'.

Undermined position

It seems inconceivable that the SRA will not be a frontline regulator of ABS for another reason. The LSA allows for 'regulator shopping', so that if a firm of solicitors practiced only conveyancing and probate it might decide to be regulated by the Council of Licensed Conveyancers if it thought the CLC regulatory regime was more to its liking.

Conceivably a firm of solicitor criminal practitioners might prefer to be regulated by the Bar Standards Board if it felt it more appropriate (and always assuming that these bodies put themselves forward as frontline regulators as well).

What about firms that have more mixed practices? Where would they go if the SRA was not available as a regulator of ABSs? The only other option would be for the LSB to act as a frontline regulator, which is not what was originally intended but would almost certainly become reality if the SRA does not step forward.

The SRA is currently the only regulator that covers all of the reserved legal activities '“ save for notarial activities '“ that are governed by the Act. For the SRA not to be a frontline regulator of ABS would both undermine its own position and leave it facing a future as the regulator of a rump (albeit probably a large one) of solicitors' firms that don't convert to ABSs.

Rocky relations

But is there something more Machiavellian afoot in Chancery Lane? The relationship between the existing regulators and the LSB has not been a happy one over the last few months. Both the SRA and BSB have severely criticised the LSB over its plans on advocacy and training in the profession.

The SRA derided the LSB's proposals over publication of all referral fees and there was a very unpleasant row over the number of lay members on the council of each of the SRA and the BSB. The LSB has got its hands more than full at the moment and taking on the role of frontline regulator for ABS might just stretch it past breaking point, especially as ABSs are supposed to be with us from October.

There is good reason to fear that the introduction of ABSs could lead to serious flack from consumers and the media. The SRA and the Law Society may feel it safer to sit smugly on the sidelines while the LSB takes a kicking, but it's a dangerous game and could just consign the SRA to a much-reduced role in the future of the profession.