Tracey Calvert looks at the effect that the Legal Services Act has on in-house lawyers

The Legal Services Act 2007 has created a very different legal landscape to the one which most of us have grown up with. Regulators and lawyers have had no option but to respond to the changes that have been introduced by this legislation.

The response of the Solicitors Regulation Authority (SRA) is clear from the SRA Handbook which was launched on 6 October 2011. This introduces outcomes-focused and risk-based regulation, and a new emphasis on entities rather than individuals. It also enables the SRA to authorise and regulate the new breed of legal service providers, alternative business structures or ABSs, who can apply to be licensed by them to provide reserved legal activities to members of the public.

The Legal Services Act is of great significance to in-house lawyers. Traditionally, in-house lawyers - including those working in local and central government, for associations, commercial organisations and law centres and charities - have had a long-distance relationship with the SRA. This is no longer a safe course of action for either the regulator or the regulated individual.

Many of the Legal Services Act requirements focus on the provision of services to consumers and this has led to a renewed focus on the work of in-house solicitors, particularly when they are involved in providing reserved legal activities and pro-bono services to members of the public. This means that many in-house solicitors and their employers must reflect on their circumstances and consider whether they need to make changes, either in respect of what they do or how they do it.

The pivotal section of the Legal Services Act which in-house solicitors must consider is section 15(4):

‘P (the employer) does not carry on an activity (‘the relevant activity’) which is a reserved legal activity by virtue of E (the employee) carrying it on in E’s capacity as an employee of P, unless the provision of relevant services to the public or a section of the public (with or without a view to profit) is part of P’s business.’

The risk of being subject to this section and not making the right judgment call is made clear by section 14 of the Legal Services Act which makes it an offence to carry on a reserved legal activity if not entitled.

What constitutes a member of the public is at the crux of the issue. The SRA does not provide an answer and requires in-house lawyers to reach their own conclusions. However, the regulatory obligations - set out in the SRA Practice Framework Rules 2011 - make it clear at rule 4.1(b) that:

‘nothing in this rule permits any person to conduct reserved legal activities in circumstances where to do so would require authorisation under the LSA and you must satisfy yourself that any such authorisation is in place before conducting any such activity.’

Are in-house lawyers working for associations acting for members of the public when they provide services to their association members? The guidance notes to rule 4 make it clear that this may be the case, but that this is a judgment which will rest with the individuals concerned and not the SRA.

Similarly, are legal advice centre lawyers in a similar position? Lawyers working on commercial advice telephone lines? Local authority lawyers when they provide services to another authority?

The potential for this legislation to create massive change cannot therefore be underestimated. In-house lawyers wishing to continue to provide reserved legal activities to members of the public will only be able to do so if they provide such activities through an authorized law firm. This will mean that they are subject to full compliance with the SRA Handbook including the SRA Authorisation Rules. With the need to appoint compliance officers, they will need to consider the need for systems and controls to demonstrate compliance with key conduct requirements, and will need to have compulsory professional indemnity insurance in place in order to comply with the SRA Indemnity Insurance Rules.

The SRA has promised a review of regulatory requirements in the context of in-house solicitors and the Legal Services Board is urging that this is completed as soon as possible. This may create more certainty but in the meantime in-house solicitors, and their employers, ignore the changes at their peril.