The Solicitors Regulation Authority is not up to the job of regulating corporate law firms and needs to be fundamentally restructured to equip it for the task.

That is the key conclusion of Nick Smedley, the former senior civil servant commissioned by the Law Society to review whether big City and other large corporate law firms need to be regulated differently from the bulk of the profession.

Smedley’s report, a sub-strand of the Society-commissioned Hunt review of regulation, is published today. It recommends the creation of a new Corporate Regulation Group (CRG) at the SRA, headed by a ‘very senior and highly experienced lawyer with a corporate and commercial background’. That person should be appointed by November 2009, enabling the new regime to take effect from Easter 2010 at the latest.

The director would have considerable autonomy under the Law Society umbrella, with control of recruitment, staffing levels and pay packages. Smedley says the SRA ‘has not paid staff at rates which would attract individuals with the highly specialised experience who it absolutely must recruit to operate effectively in this sector’.

Because the SRA’s location in Redditch and Leamington Spa ‘inhibits active engagement and contact with the large firms’ the group would have to be run from London, he says.

The new CRG, costing up to £3m a year, would meet corporate law firms ‘on equal terms’, the report says. It would ‘ask the right probing questions, ensure firms are actively managing for success in ethics, integrity [and] duty to the client’, and ‘demand levels of investment in systems and governance that may be uncomfortable for the firms but necessary for the reputation of the profession’. This would be a ‘very different approach from today’, Smedley stresses.

Smedley has rejected the much more radical option of a completely separate regulator for corporate firms. But he warns: ‘If my recommendations are not accepted and implemented in a timely fashion, then this may become the de facto solution.’

He told the Gazette: ‘If the SRA cannot make these changes quickly there will really have been no progress since I began my review. One of the premises of that review was that the big corporate firms were considering setting up their own regulator. If the SRA does not pick up the ball and run with it we’ll have to go back to [that option].’

If the SRA chooses not to adopt his recommendations, Smedley recommends that the Law Society should itself consult on whether to a establish a standalone regulator for corporate firms.

Smedley considered recommending a continuation of the status quo, but concluded that the SRA has a ‘mountain of a task’ in addressing the concerns of City firms through its change programme. ‘The pace of change envisaged is likely to be too slow to address the reasonable concerns of firms, who are trying to remain competitive in international markets during the worst world recession since the 1930s,’ he stresses. ‘I am sure it would help considerably if the [SRA] board used the occasion of this review to become more engaged with this matter. There is otherwise a danger that the organisation, as it comes under pressure to solve the problems, will turn inwards and lose confidence. The leadership team has an opportunity now to inject positive directional change, so that the regulator can retain credibility and win back the trust of the corporate firms and, crucially, of the corporate firms’ clients.’