You may have heard that the SRA is proposing sweeping changes to the Handbook, which the Law Society believes could seriously damage the reputation of the profession. Here, Law Society policy adviser Marzena Lipman looks at the specific proposals which would allow solicitors to carry out non-reserved legal services from unregulated entities, and their potential impact on both solicitors and clients.
What is the SRA proposing in relation to solicitors delivering non-reserved activities from unregulated businesses?
The SRA’s consultation ‘Looking to the future: phase two of our Handbook reforms’ was published in September 2017. It is part of a wider programme of overhauling the Handbook, through which the SRA intends to change the way the profession is structured and practises.
In phase one of the consultation, the SRA proposed replacing the current Code of Conduct with two shorter, less detailed Codes – an individual solicitor code, and a firm code. The new Codes will not have the outcomes or indicative behaviours given in the present Code, with much of this detail expected to be moved to guidance. The changes will therefore require practitioners and firms to make more judgements about compliance in the absence of clear rules.
In phase one, the SRA also proposed to allow solicitors to deliver non-reserved legal activities to clients while working in non-authorised firms. Solicitors practising in unregulated firms would only need to abide by the new individual Code of Conduct for Solicitors.
In the second phase of consultation, the SRA proposed further changes. Key proposals include:
The SRA argues that the changes will provide solicitors with greater opportunities and freedoms to offer their services to clients and will increase choice for consumers.
What is the potential impact on solicitors and clients?
If the SRA proposals go ahead, the new Handbook rules will pave the way towards different tiers of the profession under one solicitor brand, but with different rules and protections applying to clients.
For example, solicitors practising in unregulated firms would not be required to pay into the compensation fund or hold professional indemnity insurance (PII). Also, the Legal Ombudsman may not be able to properly investigate complaints against solicitors working in unregulated firms, as currently the Ombudsman has no enforcement powers over unregulated providers.
Similarly, freelance solicitors delivering reserved activities will not be required to have PII to the minimum terms and conditions level, whereas freelance solicitors carrying out non-reserved work will not be required to have any insurance at all.
The proposed changes mean a significant shift from the status quo, where the title of ‘solicitor’ guarantees a consistent level of client protection by way of PII and compensation cover. In this new world, clients will be expected to tell the difference between the different ways solicitors can work as to whether they will benefit from a full set of regulatory protections. Given the legal services market is inherently complex, and most clients will be infrequent purchasers of legal services, it is far-fetched to expect clients to understand these fine distinctions. Rather than having useful choice, clients are likely to be put at risk.
For example, the Competition and Markets Authority report on legal services market study concluded that ‘consumers generally lack the experience and information they need to find their way around the legal services sector and to engage confidently with providers’.
Law Society research into the behaviour of consumers when considering and purchasing legal services, also found that clients do not have a sophisticated understanding or awareness of the nuances of regulation.
Inevitably, the changes will increase confusion for clients, and it will be left to solicitors to explain to their clients what protections they offer. The SRA consulted on new information requirements last year to make the information on price and quality of service more accessible to consumers, and will publish new rules this year.
What is the Law Society’s position?
The Law Society opposes these changes. More importantly, so does the profession and the public. For example, the Law Society members’ survey found that 81 per cent of respondents said all the work undertaken by solicitors should be conducted within a regulated firm or entity. 82 per cent considered these regulatory changes unnecessary. Similarly, a consumer survey we commissioned from Ipsos MORI found that 77 per cent of the public think that solicitor businesses should be regulated, and 86 per cent said that solicitor business should have PII cover.
We have serious concerns about the impact of these proposals on the profession and clients. We believe the proposed changes will erode vital client protections, lower standards, increase uncertainty for the profession and diminish the solicitor brand.
More fundamentally, we take the view that flexibility for solicitors should not come at the expense of clients.
We see no sufficient evidence of significant harm generated by the current system that would require such a systemic and radical reform. The SRA has not considered the impact of the proposals on both clients and the profession, despite the strong and compelling evidence presented by the Law Society and its members. The SRA needs to reconsider its proposals to ensure the Handbook reform will result in a regulatory framework that is fit for purpose, future-proof, protects the client, and provides the profession with certainty.
Full details of our position are set out in our response to the SRA consultation.
What are the timings / next steps for the SRA?
We expect the SRA to publish its decisions later this year, and don’t anticipate any of the changes to be implemented earlier than autumn 2018. Prior to implementation, the SRA will need to seek approval to rule changes from the Legal Services Board.
Is there anything members can be doing now?
We encouraged members to respond individually to the SRA Handbook consultation. We also engaged widely with the membership through the Law Society specialist committees and local law societies. The consultation is now closed.
Once the shape of the new regulatory framework is confirmed, we will provide further support and guidance for members. In the meantime, if you have any concerns or would like more information about the proposals, please get in touch with us at email@example.com.
Marzena Lipman is a policy adviser in the Regulatory Affairs unit at the Law Society.