Professional Services

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SRA reveals regulatory shakeup

New standards and requirements have replaced the Solicitors Regulation Authority’s handbook, providing challenges and opportunities for law firms.

Last updated: 21 Jul 2020 7 min read

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  • Businesses such as accountants or insurers can now employ solicitors regulated individually by the SRA to carry out non-reserved legal work
  • This will create a gap between unregulated businesses and regulated law firms – indeed law firms may wish to rethink the regulation of some of their own activities
  • Although freelance solicitors cannot employ anyone, they may be able to contract with third parties, putting them in a position to  compete with direct access barristers

The new Solicitors Regulation Authority (SRA) Standards and Regulations came into effect on 25 November 2019 and are set to free up firms and individuals in the way that they offer legal services to consumers.

The regulations, which supersede the 2011 handbook, set out updated and new stipulations covering the code of conduct for individuals and firms, accounts rules, transparency rules, as well as details on how the SRA will enforce them. Overall, the new iteration aims to cut through what was perceived to be an overly bureaucratic regulatory model, which was sometimes counter-intuitive to a modern and evolving legal market.

But two critical new provisions have the potential to shake up the market over the coming years.

Non-reserved legal work in unregulated businesses

The first relates to solicitors now being allowed to carry out non-reserved legal work, such as will writing, most employment law and providing legal advice from within a business not regulated by a legal services regulator.

Viv Williams, leading consultant at Symphony Legal, which provides advice to law firms on strategy management, practice, business development and marketing, says: “What the regulator is trying to do is encourage other businesses to employ solicitors that are regulated individually by the SRA, while the business itself is unregulated.

“For example, accountants, insurance companies and independent financial advisers will be employing solicitors to do non-reserved activities, but it will be the individual that is regulated, not the business. This creates an uneven playing field. Take an insurance company wanting to deliver legal services alongside its other products; there is a significant opportunity there for the firm to deliver those non-reserved activities without the burden of regulation.”

Jessica Clay, senior associate at law firm Kingsley Napley’s regulatory practice, says: “Clearly, this type of business could provide some threat to traditional law firms, of which those firms will need to be aware. But the threat will be more real to law firms specialising in just one area of law and less of a threat, one would anticipate, for multi-service law firms.”

Unauthorised businesses will have to bear in mind important considerations when they employ solicitors, as the individual solicitor will be bound by ethical and professional obligations under the SRA’s new Standards and Regulations, which the business itself will not be bound by.

Unregulated businesses will still need to be highly aware of those obligations; particularly in relation to conflict of interests, confidentiality, complaints handling and signposting and making sure their clients are aware of the regulatory protections available to them. However, it will be the responsibility of the solicitor to highlight the difference in arrangements compared with a solicitor working in a regulated law firm.

What are the opportunities for traditional firms?

On the flip side, there are new possibilities for law firms too. Williams says: “How many law firms and the work that they do, actually needs to be regulated for the activities they have? I would question that when you look at the amounts of activities some firms do, maybe anywhere between 70% and 90% of the work would not necessarily fall in the regulated sector.

“In which case the question I have for some law firms is, do you need to have that section of business regulated by the SRA? Are there ways of taking a proportion of that business and putting it into a separate limited company that’s not regulated at all, you might have the impact of reducing professional indemnity.” Such a move, Williams argues, could reduce the cost of regulation overall.

“What the regulator is trying to do is encourage other businesses to employ solicitors that are regulated individually by the SRA, while the business itself is unregulated”Viv Williams, leading consultant, Symphony Legal

Clay adds: “While this might seem attractive on the face of it, it would be a logistical nightmare and difficult to sell to clients positively. In reality, it is unlikely to be an attractive option.”

The draw of a traditional law firm is the range of expertise in many different areas of the law and the number of protections available to clients should things go wrong. These might include access to the SRA Compensation Fund, insurance policies that are compliant with the SRA’s Minimum Terms and Conditions requirements, as well as clear signposting for complaints handling.

Clay says: “These firms, more often than not, also have layers of expertise and solicitors practising at different levels. So clients most certainly have the benefit of a collaborative team approach where the bulk of work can be done at lower rates, with oversight and input from an expert as and when needed.”

Nonetheless, Clay believes that traditional firms will need to adapt to make sure they offer the flexibility and potentially more favourable fee-structuring options so they don’t lose clients to other types of business model offering a one-stop shop.

Is this the dawn of freelance solicitors?

The second new provision that could affect legal businesses is around solicitors providing reserved legal services on a freelance basis.

So to what extent could this threaten traditional firms?

Samantha Palmer, partner at Pinsent Masons, says: “The threat to traditional law firms, we think is very small, because the key requirement of being a freelancer, providing reserved legal action in an unregulated entity, is that the individual cannot be employing another single person. So as a standalone individual we don’t think that as a service that’s going to be a significant threat to traditional law firms.

“For example, if you thought about the consumers who might purchase on that very small basis, such as conveyancing, none of the lender exchange panels, Conveyancing Quality Scheme [the Law Society’s accreditation], would accept that basis for home loan instruction. For somebody who might be involved in any litigation, again, I think there’s going to be minimal appetite to instruct somebody working in their back bedroom. If they had one court case on, how could a company manage another in terms of serving documents and so on? I think this is a limited area of work.”

However, there are new models of business that could work for individuals. Clay says: “There is certainly scope for freelance solicitors to look to offer their services from a Chambers-style set-up. In this way, they are more likely to compete with direct access barristers, as opposed to traditional law firms. These freelance solicitors will be self-employed, practising in their own name and directly engaged by their clients.”

Despite not being able to employ anyone, these individuals will be able to contract with third parties who then provide administrative support (akin to being in a serviced office setup).

Under the current Standards and Regulations, the industry would do well to pay close attention to some of the daring models that will undoubtedly be tested by the SRA’s new rules in years to come.

Ben Hubble, QC, who specialises in professional liability disciplinary and regulatory work at 4 New Square, says: “Traditional law practices can still offer a comprehensive range of legal services, which an individual cannot. Further, those services are provided in a fully regulated environment, including for instance as to the rules and safety nets in respect of handling client money. Traditional law practices need to trade on that security while ensuring that their levels and methods of charging are realistic and flexible.”

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