The consumer watchdog has warned the SRA to be 'realistic' about how full an understanding people are likely to have of the risks associated with further measures to free up the legal services market. 

Responding in a blog to the SRA's decision to allow solicitors to practise within unregulated firms, Dr Jane Martin, chair of the Legal Services Consumer Panel, said the move has the potential to increase competition and flexibility in the market.

But while praising the regulator for pursuing a 'pragmatic solution' to the issue of access to justice, Martin cautioned that consumers will be exposed to greater risk of detriment in exchange for increased flexibility and wider access.

The SRA has conceded that clients of solicitors in unregulated firms will not have access to the compensation fund, while there will be no requirement to have indemnity insurance. There are also doubts about whether work carried out in unregulated firms would come under the remit of the legal ombudsman.

Martin said the SRA needs to come forward with evidence to justify any major reduction in consumer protection.

'The widening of access proposed by the SRA comes with substantial risk to consumers,' she said. 'Consumers can suffer significant financial loss as a consequence of errors, omissions, negligence and fraud. The requirement for solicitors to have PII, and to contribute to a compensation fund offers crucial reassurance and peace of mind to consumers.'

Martin said the SRA's impact assessment was 'thin on economic analysis and consumer research' and skips over whether the reduction in protection is justifiable in the first place.

So-called 'information remedies', where consumers are given advice on what protections their legal services provider can offer, have limitations, said Martin, and the SRA should be realistic about about the risks that consumers can understand and manage.

She added that the regulator appeared to rely on backing from consumer groups that had not been forthcoming. Martin said the SRA had claimed its proposal was 'widely supported' by these groups at a focus group meeting.

She quoted words of caution from Citizens Advice and urged the SRA to 'take heed' of concerns about lower consumer protection.

The SRA has said it will reveal more details about the proposal next month and expects to implement a change in the rules from autumn 2018.