2015 will see competition for business intensify, but it will also bring countless opportunities.
2014 was billed as the year of enforcement – although this did not materialise – but this time around we are forecasting a year of competition as a precursor to consolidation.
The setback of 2013’s Prudential case is beginning to seem a distant memory as the accountancy profession continues its assault on lawyers’ monopoly of certain professional services. Three of the big four accountancy firms – Ernst & Young, KPMG and PwC – have been licensed by the SRA as ABSs and the Institute of Chartered Accountants in England and Wales (ICAEW) is now accepting its own licensing applications from those firms looking to offer probate services through an ABS.
With more accountants willing to discuss fixed fee services, this development is likely to intensify competition, for probate services in particular, and begin to erode lawyers’ market share.
A watershed moment for the Bar
When it reopened for business on 5 January, the Bar Standards Board (BSB) confirmed that it was accepting applications from lawyers wishing to establish BSB-regulated entities. A significant cultural departure for traditionally self-employed barristers, ‘entity regulation’ will provide enhanced opportunities for Chambers or groups of barristers to design more flexible and fluid structures involving solicitors and other lawyers (although these individuals will remain subject to the professional rules of their own regulator too).
According to the BSB, ‘dozens of applicants’ have already registered an interest, but quite how popular the new option will be remains to be seen. And this will also depend partly on how efficiently the BSB processes applications!
As far as pre-emptive entities are concerned, we imagine that some individual barristers with a niche practice may be keen to incorporate for tax reasons and others may explore more novel structures offering direct access and involving solicitors to assist with litigation. Some may simply view an entity as more marketable. Others may convert as part of succession planning and as a means of retaining goodwill attached to the brand.
Not only should this development – coupled with the ability to conduct litigation and provide direct access - enable the bar to compete more effectively with solicitors, it should pave the way for BSB-regulated entities with non-lawyer involvement, namely ABSs. We doubt whether we will see the first BSB-regulated ABS in 2015, but you never know!
Despite representing approximately 20% of the solicitor population in England and Wales, in-house lawyers have, for the most part, managed to avoid regulator scrutiny for some time now, mainly due to the fact that they enjoy certain carve-outs from the SRA Handbook. With no requirement for a COLP and COFA or PII, they have managed to escape many of the issues which have plagued lawyers since the introduction of outcomes-focused regulation just over three years ago.
However, the SRA is now taking interest in the sector and this comes as no surprise when you consider that the number of in-house lawyers has doubled since the millennium. Recent high-profile scandals involving lawyers from News International and Wonga, as well as positives like the first local authority ABS, have put in-house lawyers back on the map and this is a space worth watching.
Consumer credit regulation
This is a complete minefield! Since regulation of consumer credit activities moved from the Office of Fair Trading to the Financial Conduct Authority (FCA) and the SRA proposed the discontinuation of the designated professional body regime under the Financial Services and Markets Act 2000, lawyers have been scratching their heads trying to decide whether or not they must be FCA-authorised going forward.
Guidance on the subject is unclear and we are concerned that a proper impact assessment was not undertaken before these proposals were laid out. It is possible that firms will become dual-regulated to be on the safe side, but perhaps more likely that firms will stop carrying out consumer credit work for fear of infringing FCA regulation. Plainly, neither scenario is desirable for competition or access for justice.
SRA handbook 2.0
In order to address the issues posed by many of the developments above, the SRA is proposing wholesale changes – including removal of the separate business rules, allowing solicitors’ firms to conduct accountancy work and also a review of the accounts rules – and has also indicated that the Handbook may be completely re-written. But lawyers shouldn’t think that all these changes are designed for their benefit – don’t forget that the SRA is also proposing an increase in its internal fining powers from £2,000 to £10,000!
Overall, it seems likely that these changes will provide countless opportunities for our profession, but also stimulate competition between practitioners and regulators alike. Either way, here’s to a happy new year for your business.
Michelle Garlick is a partner and head of Weightmans’ Compli service. Adam Entwistle is one of Compli’s compliance consultants.