The Solicitors Regulation Authority may have put traditional law firms at a competitive disadvantage by granting so many compliance waivers to alternative business structures, the Legal Services Board alleges today.

In a report on legal business ownership restrictions, the super-regulator notes that some 17% of ABS licence holders, as well as four ‘recognised body’ law firms, have been granted waivers from the ‘separate business rule’.

One notable recent example was the successful ABS application of Big Four accountancy giant KPMG, which was granted a string of waivers that pushed its application over the line earlier this month. 

These included ‘a waiver from the requirements of Outcomes 12.1 and 12.2 to Chapter 12 of the SRA Code of Conduct 2011 as it applies to the connected separate business of KPMG Al Fozan & Al Sadhan’. Other waivers granted to KPMG related to indemnity insurance cover, compensation fund rules and training arrangements.

The SRA disclosed last month that it plans to radically reform or abolish the separate business rule, a move which the LSB ‘strongly supports’. 

The solicitors’ regulator imposes the most restrictive rules regarding businesses connected to law firms – rules that do not appear to be ‘proportionate, consistent or targeted’, the LSB says. The report adds: ‘There is little evidence that [these] restrictions achieve their goals.’

While consumers remain confused about the scope of legal regulation and mistakenly assume that all legal services are regulated, the LSB concedes that it may be legitimate to impose additional regulatory requirements on lawyers with connected businesses.

This could include additional disclosure requirements. However, the board stresses that ‘blanket bans are likely to be disproportionate and cause more harm than good by deterring innovation’.

LSB chief executive Chris Kenny (pictured) said: ‘This report is a timely contribution to the ongoing debate over burdensome regulation in the legal sector. 

‘It is clear that there are some regulations in place that are not needed and should not be there. Saying that, we strongly support the work that the SRA is doing to review the separate business rule and hope that this thematic review assists with this exercise.’