Two weeks ago we saw the publication of the Solicitors Regulation Authority’s consultation on the ‘architecture of change’: the SRA’s new handbook. A lot of the debate up until now has been about the pros and cons of outcomes-focused regulation (OFR) coinciding with the introduction of alternative business structures (ABSs). The SRA’s consultation moves the debate forward to issues surrounding regulation.

Whatever your opinion on the changes planned from October 2011, they will stand or fall on the basis of whether we continue to provide the level of exceptional service already offered by solicitors, and whether or not the SRA can regain the confidence of the profession as well as mortgage lenders and others in their approach to regulation. This will depend on how successfully and in what spirit the new codes are operated.

The Law Society will be responding fully, but the handbook’s publication has made me think very deeply about the sort of questions the profession needs to ask – and have answered – during the consultation process.

Fundamental shiftThe Law Society policy is that principles-based regulation, if implemented properly and employed proportionately and effectively, could provide a mechanism for more cost-effective, efficient and less prescriptive regulation of the profession as we now know it. It is, however, no secret that OFR will necessitate a fundamental cultural change in how the SRA regulates legal practices. A shift in the regulatory focus to ‘outcomes’, rather than a process or set of standards driven by rule breach, means that legal practices might adopt different routes to any outcome. The SRA will need to be flexible and proportionate in its approach and take on board the differences among practices. The SRA has indicated that there will be limited guidance and no ‘safe harbour advice’. This leaves enormous scope for discretion with the regulator, and demands a new and unprecedented level of trust.

The final drafts will be available in April 2011, leaving just six months for practitioners to become familiar with the code, and for the SRA to fully develop new systems now being built to assess risk and be satisfied that the system and its rollout are robust and fit for purpose.

The Law Society has for many years supported the proposition that solicitors should be free to provide legal services to the public through any type of structure or entity, provided that the necessary consumer and public protections are maintained. The LSB has made clear that it wishes to see models enabled next year that would extend shareholdings to investors who have no active role in the business. The Law Society does not regard such wholesale reform to the English and Welsh legal system as an experiment that can be implemented without serious thought being given to the short- and longer-term consequences for the profession or the public. If the new codes are not thoroughly debated and the problems teased out, the risks to solicitors and their clients remain high.

Do we or the SRA want to gamble with the interests of the clients who depend on the expertise, independence, integrity and accessibility of their solicitor? Clearly not and, therefore, we must ensure that the necessary safeguards are in place. I am very aware that these are people’s lives we are talking about, and we cannot allow any risk to the public, who rely on our services and will rely also on the services offered by new types of competitors.

SafeguardsWhat safeguards are there if things go wrong? What is the Plan B if smaller practices or sole practitioners are disproportionately affected by any additional regulatory burden or cost and, as a result, are driven out of the market as a multiple or national legal juggernaut rolls down their high street offering a restricted cut-price ‘one size fits all’ menu of commoditised products?

What consideration will be given to protection against companies who offer their legal services as a loss leader? After all, the economic context today is very different to that when Sir David Clementi started his review which led to the Legal Services Act in 2007. The act provides that licensing authorities must publish rules and they must, in considering applications for licences to operate ABS, take account of the objective of improving access to justice. We must ensure that the SRA takes full and proper account of this provision when exercising a licensing function that it would have as a regulator of ABSs.

Equally, how can future regulation also ensure that new legal firms are run in accordance with the long-standing and well-understood principles about putting the rule of law and clients’ interests first? Last week a journalist (not from the legal press) asked me how non-lawyers would impact upon the management of a legal practice. ‘After all’, she said to me, ‘they are only interested in profit and they have no reputation to lose, unlike solicitors’.

The worst-case scenario is that a number of lawyers or non-lawyers handling claims may end up sitting around a table under pressure from financial partners to settle cases or claims to a timetable in order to meet targets and predict cashflow. That might work for financial models, but people’s lives don’t tend to fit quite so easily. To counter this threat, the SRA must ensure, in the case of ABSs that it licenses, both that the ‘Fitness to Own’ processes are sufficiently comprehensive, and that the head of legal practice is enabled to provide a robust and credible defence to improper pressure from non-lawyer owners.

Looking to the future, what would be the trigger to act if competition among law firms is reduced or denied to people living in pockets across the country? Some regulators may have the appetite to regulate riskier models and that is a matter we need to consider carefully in order to maintain the reputation of the profession.

This is not about fear of competition on the high street. Law firms have always had to compete for business, and the most innovative and customer-focused firms have always come out on top. It is about ensuring a level regulatory playing field in the public interest without any firms being disproportionately impacted by either cost or regulation.

These are questions that deserve to be answered. Not because we want to be difficult but because we have the public interest, as well as the profession’s interest, at heart. Greater scrutiny, based on evidence, at an earlier stage will help prevent distress or cost later down the line. It is not too much to ask that these questions are given serious consideration and the answers arrived at are well thought out and fair, and not just convenient.

Linda Lee is president of the Law Society