One of the freedoms introduced by the Legal Services Act 2007 is the ability for a law firm to switch regulator. As long as the regulator is listed in Schedule 4 of the Act and is authorised to regulate the reserved activities that the firm undertakes, then ostensibly the firm can move to them. The Act provides for new regulators, and newcomers have joined the list. So for example, the Institute of Chartered Accountants can now regulate probate activities.
This has started to become a competitive activity. In particular, the Council for Licensed Conveyancers – established in 1985, so not a newbie to the fray – has actively encouraged solicitors’ practices dealing with conveyancing and probate to switch regulator. Its website offers claims as to why the CLC would be better, for example simpler regulation: ‘We do not simply police the community that we regulate, we support them in achieving compliance: we want them to thrive.’ No direct comparisons are made; cynics might say that none is needed. But surely this compares apples with pears: the SRA regulates a much wider range of firms.
The ICAEW’s policy statement clarifies that the opportunity to be ICAEW-regulated is really directed at accountancy-led firms. They aren’t actively seeking conversions. The BSB concentrates on advocacy (no surprises there). Although the emphasis is on barristers, it concedes that it might attract ‘other advocacy focused lawyers’. But again, there’s no wholesale bid for SRA desertions.
So why would a firm want to change regulator? It would be very confusing for the public to have a firm where everyone in it is a Solicitor and subject to SRA regulation but the firm is regulated by the CLC with a Licensed Conveyancer manager (who can also be a Solicitor). But that is what the Act allows. Some might like the CLC’s self-admitted ‘light touch’ regulatory approach, others might consider that their business model is better suited to a different regulatory regime. Cheaper insurance is also an attraction: at present the CLC offers a master policy. It’s hard to imagine a firm of probate solicitors wanting ICAEW regulation, but again it’s horses for courses.
A big disincentive to change, so far, has been the SRA’s insistence that a firm leaving its regime must take out run off cover. This is under the Indemnity Insurance Rules and the Participating Insurers Agreement, and it’s a huge cost. The SRA has launched a consultation on this: it wants to remove this requirement, in the interests of an open and competitive market. They say that the LSB is responsible for ensuring a cohesive insurance requirement that adequately protects consumers and that it’s not the SRA’s mandate to enforce this. Plus, they don’t want the job of ensuring equivalence of new insurance through a different regulator with their own minimum terms. That’s perhaps as well, as the BSB minimum requirement is £500,000 rather than the SRA’s £2m (for an unincorporated firm). This, of course, is yet another indication of the SRA becoming a focused macro regulator rather than a micro-manager. The closing date for this consultation is the 16th July.
And the CLC opened a consultation of its own, on changing its own arrangements from a master policy to an open market approach with a Participating Insurers Agreement. Insurers would have to provide six years run off for no additional cost, limited to £2m claims in aggregate. Aggressive or what? – but is this amount enough?
Somehow I don’t see a flood of applicants. Maybe a trickle. But you could see a small property practice, partners close to retirement, tempted to switch if it meant that they didn’t have to fork out 2 – 3 times their last premium for run-off. The CLC says that aggregate claims paid have not exceeded £100K per practice. That sounds incredibly low, considering costs awards also. If I were that retiring partner, I’d be a bit nervous.
In the meantime I’m rather enjoying the regulatory bunfight.
Enderley Consulting Limited