The SRA’s chief executive tells Paul Rogerson how the regulator is engaging with solicitors to win respect and improve the way it works.
If regulators are a breed, then Paul Philip is an archetype: sober, spare of demeanour and studied in his language.
But if the chief executive of the Solicitors Regulation Authority is understated, he lacks neither passion nor candour in outlining the challenges facing the organisation 20 months after he took over from inaugural CEO Antony Townsend.
‘Shall I just talk and you can stop me and ask questions?’ the trained barrister begins, quietly taking charge of our exchange.
It is soon clear why he wants to have the first word. Philip is all too aware that the Birmingham-based regulator’s formative years have been dogged by its strained relationship with Chancery Lane. He immediately strikes a conciliatory note.
‘There has been a fairly robust relationship between the representative arm of the Law Society and the regulatory arm,’ he concedes. ‘The time is right to try and develop better working relationships. Someone once said to me that it’s difficult to regulate a profession without that profession’s tacit respect. They are never going to like you, but they need to recognise that your perspective is legitimate. In the past that hasn’t been the case.’
‘Fairly robust’ is nicely euphemistic. As recently as November last year, SRA chair Charles Plant laid in to what he described as the ‘flat-earthers’ of Chancery Lane who were opposed to ‘full operational divorce’ between the two constituents of the Law Society group created in statute by the Legal Services Act 2007.
For his part, retiring Law Society chief executive Desmond Hudson told me a year ago that the SRA seemed more exercised about demonstrating its independence from its parent ‘than actually being a highly efficient regulator’.
Perhaps a changing of the guard was required. Plant has also retired and new Chancery Lane chief Catherine Dixon has stressed that it is perfectly possible to challenge the regulator while sustaining a good working relationship.
‘I arrived in an organisation that was struggling to find its identity as a regulator,’ Philip continues. ‘It alienated itself from the Law Society and the profession.
‘If you look at how we describe ourselves, we talk about “authorisation”, “enforcement” and “supervision”. That type of language comes from financial services and it is not language that I like.’
Quibbling with semantics is surely otiose though: what precisely needs to change? ‘We’re trying to do a variety of things,’ Philip says. ‘First, improve the way the organisation works. That means improving the timeliness and appropriateness of our decisions, and the explanations that we give for our decisions to both the profession and the public. That cuts across all our functions, from authorising someone to be a solicitor, to dealing with someone who is out of pocket because of an intervention.
‘Second, we need to be more transparent and accountable in the way we work. Certainly, my current chairman [Enid Rowlands] is pushing that agenda hard.’
That could mean holding more of the board’s discussions in open session: ‘A lot of decisions that are presently made in private could be made in public, and we’re trying to push more on to the open agenda.’
No one likes being ‘taxed’ to pay for their regulation, Philip stresses, so he has also pared the regulator’s spending. The full-time-equivalent headcount is now around 600, down from a peak of 650, and the practising certificate fee is stable this year, which he attributes to a cut in the SRA’s budget.
Philip has been a professional regulator long enough not to expect any credit for his administrative nous, however. And while whistle-stop tours of local law societies will foster empathy and understanding, it is on the organisation’s high-profile policy decisions that he is judged. So what successes can he point to?
‘The outcome of our consultation on consumer credit was a good one,’ he says. This is an allusion to the SRA’s decision last month to allow solicitors to continue carrying out certain consumer credit activities under the wing of the SRA – a year after the regulator proposed dropping that responsibility altogether. There had been fears that markets watchdog the Financial Conduct Authority would have been required to authorise basic credit arrangements such as allowing clients to pay by instalments, potentially encompassing a majority of all firms and increasing compliance costs.
‘It’s an example of how engaging with the profession in a mature and adult way, as opposed to slinging mud at each other, was to everyone’s benefit,’ Philip reflects.
He is also intent on redoubling the SRA’s efforts to cut red tape. ‘We can be quite bureaucratic,’ he admits. ‘We have a Handbook that is something like 470 pages long – we’ll be reducing the size of that. Lawyers like rules – I prefer principles.’
To that end, a raft of changes was unveiled on 9 September focusing on eight areas of the Handbook, ranging from simplifying compliance officer approval to streamlining the process for authorising alternative business structures.
Another bureaucratic bugbear for Philip is technical breaches of the Accounts Rules: ‘The Accounts Rules are there for a good reason – to ensure solicitors deal with client money in a timely and appropriate fashion. But when one in two accountants’ reports is qualified just because the solicitor put the money in an hour late, for example, that’s just pathetic. We have to accept that we should be about the spirit and principle of the law, not the letter of the law.’
As part of revised changes announced last month, the SRA will also seek to amend the Accounts Rules over the next six months to issue a fully revised format for the accountant’s report and change the circumstances in which reports become qualified.
JOBS deputy chief executive and director of standards and fitness to practise, General Medical Council (2001-2012); deputy chief executive and chief operating officer, GMC (Nov 2012–Feb 2014); chief executive, Solicitors Regulation Authority Feb 2014 –; Philip is also a former regional director (London) at the Legal Services Commission (1998-2001)
KNOWN FOR second chief executive of the SRA, succeeding Antony Townsend
The client account remains in its sights too, with the regulator consulting on extending the use of third-party managed accounts. Given the proportion of prosecutions before the Solicitors Disciplinary Tribunal that involve the misuse of client money, I joke that Philip is at risk of putting himself out of a job.
He smiles but retorts: ‘No – what does happen is that the cost of professional indemnity insurance drops like a stone and you become more competitive.
‘But the real issue about alternatives to in-house client accounts is whether there is a real market, so that the transaction cost falls to a degree that it’s worth your while. At the moment Barco [the bar-run escrow provider] is the only game in town and it’s probably too expensive.
‘If [others] came into the market and it was in a solicitor’s interest to outsource it, why wouldn’t they? Big businesses outsource all sorts of things – payroll, pensions and so on.’
Another ‘known unknown’ for solicitors is the future of client protection more broadly. It is a soft market for PII and that market is not broken, yet there is to be another review. Why?
‘Let’s put the record straight,’ Philip says. ‘Last year we consulted on two proposals: one to reduce the minimum cover to £500,000; the other to put a bespoke requirement on a solicitor to assess the level of cover they actually need, because most need more than that. The Legal Services Board agreed with the latter. It basically said we lacked the evidence to pursue the former, but added that we should seek that evidence.
‘So, we decided to take a longer run at it. We have consulted on general principles and will come up with further suggestions early next year. We haven’t made any further proposals on PII at all yet.’
One difficulty, he says, is obtaining the claims data to buttress any recommendations that do eventually emerge. That information belongs to the commercial sector and the SRA is in talks with insurers and brokers to get it. ‘In the good old days, when we had the master policy, there was ready access to that data,’ he points out.
Warming to his theme of liberalisation and simplification, Philip moves on to ABSs and the surprisingly limited appeal of new ownership vehicles to date.
‘Why have we got only 400 ABSs, and not 40,000?’ he asks. ‘Because our rules prohibited fully fledged multidisciplinary practices. But we changed those rules so that ABSs can own separate businesses – and accountancy firms can own legal businesses.’
To what extent, then, does Philip expect ABS applications to increase following relaxation of the separate business rule? ‘If you were starting a business today, lawyer or non-lawyer, you would choose a business structure that enables you to be more nimble. It allows you to introduce different types of profit-sharing for other types of professional, such as your finance director.’
He adds: ‘Most of the ABSs we’ve seen so far are just traditional law firms where a spouse has been invited on to the board, or they’ve decided they want to incentivise the financial controller by giving them a share in the business.
‘Where the action is – or where it might be – is when large entities, be they insurers, claims management companies or accountancy firms, decide they want to enter the market as an ABS. That would change the competitive nature of the market in the longer term. [The legal arms of Big Four accountants] PwC and KPMG are already licensed with us. I think it will happen.’
On the high street, conversely, ‘why would you not want a one-stop shop for commercial businesses?’ Philip asks. ‘By cross-selling into the different businesses, you would be able to appeal to a much wider client base. You would compete with the accountants, and the accountants would compete with the solicitors.’
‘It’s difficult to regulate a profession without its tacit respect. They’re never going to like you’
‘We can be quite bureaucratic. The Handbook is something like 470 pages long’
‘The SRA should be about the spirit of the law, not the letter of the law’
‘If it was in a solicitor’s interest to outsource [the client account], why wouldn’t they?’
‘Why have we got only 400 ABSs? Because our rules prohibited fully fledged multidisciplinary practices’
‘I think it is a bit strange that a lawyer can pick who their regulator is’
‘We regulate 85% of the market. What if we were to open our doors, so [you could have an] SRA-regulated licensed conveyancer?’
‘Our whole model is based on one size fits all. So if you’re Clifford Chance you have to do the same thing as “Snooks & Co”. That can’t be right’
The cross-fertilisation of the professions will inevitably create boundary disputes, which Philip describes as ‘solvable’. An altogether different issue is that of regulatory arbitrage, effectively sanctioned by the 2007 act but described as ‘highly undesirable’ by the SRA (albeit in a different context).
There was an instructive example of the phenomenon last month. Two solicitors who opted to register their niche family practice as a Bar Standards Board entity said part of their motivation was the BSB’s ‘lighter regulatory touch’. Should lawyers really be shopping around for the watchdog with the fewest teeth?
‘It is a bit strange that a lawyer can pick their regulator,’ Philip says. ‘That is not a situation I have come across in other professions [Philip was previously deputy chief executive of the General Medical Council].
‘If you look at the Council for Licensed Conveyancers website, you’ll see that they advertise, saying: “If you’re a solicitor and you’re doing conveyancing, why not come to us? Our fees are less, blah blah.”
‘A former president of the Law Society wrote to me complaining that a local conveyancing firm of solicitors was CLC-regulated and had lower overheads, and that this was outrageous. I had to write back and say “it’s within the law’.”
A single legal regulator to replace the current nine-strong pack of approved watchdogs would change everything, of course. New lord chancellor Michael Gove has pledged to review the Legal Services Act 2007 within this parliament, suggesting there is currently a ‘danger of regulators falling over one another’s feet’.
Should the Ministry of Justice favour consolidation, Philip contends that a reformed SRA is plainly the best-placed candidate to extend its remit. ‘We regulate about 85% of the legal services market,’ he stresses.
‘What if we were to open our doors and have different forms of registration, so [you could have an] SRA-regulated licensed conveyancer, or an SRA-regulated legal executive? That’s not our position at the moment and we would need to think carefully about the solicitor brand before we do that. But if it were not any more costly, wouldn’t you want to be regulated by the SRA? I think a lot of people would. You would become a single regulator pretty quickly at that point.’
The future of the solicitor brand is also a consideration in proposals from the SRA to reform the process of qualification through the facilitation of different pathways to practice. That has been received with outright hostility in the Square Mile. Big City firms warn that allowing anyone with the right on-the-job training to call themselves a ‘solicitor’ will dilute the brand’s prestige – perhaps fatally.
Philip is unfazed. He points out that the ‘big boys’ would be free to make the straightforward ‘reputation and branding choice’ to continue putting people through the Legal Practice Course. And that would not subvert the SRA’s social mobility goals because most of those trainees are sponsored anyway.
‘The City firms can continue to take that option but it might not translate into the market in downtown Cardiff or Sheffield,’ he says.
At the practising profession’s opposite pole, meanwhile, the SRA is looking at ‘some of the basic tenets’ of how it regulates with a view to proposals that are likely to encounter a better reception.
‘At the moment, unless you work in-house you have to be in a regulated “entity”,’ Philip explains. ‘We are going to explore whether or not solicitors need to work within solicitors’ practices to practise law. And that would affect in-house too.’
I ask him to elaborate: ‘If you’re “Snooks & Co”, we regulate you first as Snooks & Co and then you personally as an individual. Why are we doubling up?
‘If Snooks & Co is owned by 17 different people, there’s your answer. But if it’s owned by Snooks alone, why do they have to be registered with us as an entity and a solicitor?’
So sole practitioners could end up paying only to be regulated as an individual, not an entity? ‘Possibly,’ he says. ‘But we’re a long way off making recommendations.’
Philip continues: ‘Something else worth mentioning is that in the past a lot of our attention was focused on the City and largest firms. I think that was right but our whole model is based on one size fits all. So if you’re Clifford Chance you have to do the same thing as Snooks & Co –and that can’t be right.
‘We’ve got a special team within supervision now that deals with small firms. We’re going out of our way to remove as much bureaucracy as possible [for that sector].’
As we wind up, I ask Philip to compare and contrast the regulation of doctors and solicitors.
‘Both professions come from a place of needing the public’s trust in both their competence and their intentions,’ he says. ‘Though I did used to say that there isn’t another profession in the world other than the medical where you end up taking your clothes off!
‘The differences come down to the fact that in law you’re essentially a business person first and a lawyer second, because you don’t get the opportunity to practise unless you can earn a crust from it.’
In health, by contrast, doctors are principally engaged in public sector work through the NHS, so financial considerations are not so determinative. Also, Philip says, ‘it’s about what people can expect of you, in terms of handling their money and issues in relation to putting the client first, as opposed to putting the rule of law first. In medicine they don’t have that conflict.’
He adds: ‘My basic premise is that professions are a good thing and bring a great deal of benefit to society. All a regulator needs to do is curb the excesses of those who degrade trust.’
Paul Rogerson is Gazette editor-in-chief