A leading regulator has rejected the suggestion that innovative business structures present a greater risk of financial failure. SRA executive director Crispin Passmore told a conference yesterday that alternative business structures listed on the stock exchange or attracting private equity investors were no more likely to be profit-hungry than any other kind of legal services provider.
Since the Legal Services Act allowed regulators to authorise alternative business structures, newer entrants such as Fairpoint plc and Parabis have folded, while Australian firm Slater and Gordon struggled to survive amid a tumbling share price and panicked investors.
Speaking at a Westminster Legal Policy Forum in London, Passmore said the nature of business structures, in terms of presenting a greater or lesser risk, was ‘utterly irrelevant’. He added: ‘It doesn’t really matter whether the profit seeking is done by a partner, LLP owners or someone on the stock market – we have to accept businesses will fail and that is the nature of innovation.’
Passmore said that if he could make one change to the existing framework it would be legislate to scrap the ‘unevenness’ that requires the SRA to treat alternative business structures differently to traditional firms.
Meanwhile at the same event, former lord chancellor Lord Falconer of Thoroton backed the government’s recent decision not to review the Legal Services Act. Falconer, who oversaw the enactment of the legislation while he was in the last Labour government, said it was wrong to be ‘obsessive’ about the structure of legal services regulation and divert attention from changing the culture in the profession.
‘I wholeheartedly agree with the Ministry of Justice in not making any substantial changes to [the Legal Services Act],’ he said. ‘The one thing absolutely clear is that the old model of a partnership of solicitors of a chambers of barristers is not going to be a model servicing all consumers or even the majority of consumers.
‘The major barrier to change is not the regulatory framework or money but the culture. The big thing that is going to determine what happens to the legal market is the extent to which there is sudden change in the culture… It will be the consumer not liking the way they are getting [a service] and the lawyer not liking the way they are delivering it.’