As the UK launch of alternative business structures (ABSs) sparks the interest of legal services providers around the world, regulators will come under increasing pressure to uphold compliance in the market. Conscious of growing international involvement in the UK legal sector, ABS watchdog the Solicitors Regulation Authority (SRA) has already broadened its global outlook through a new set of internal guidelines, published in October.
On 8 November, though, the organisation opened up its inbox to the industry itself, to ask how its monitoring of international players should be developed. In this interview with NewLegal Review, SRA executive director for supervision, risk and standards Samantha Barrass discusses the group’s widening remit.
NLR: How do you think regulation should work to support, rather than restrict, the global legal services sector?
SB: The SRA has regulatory objectives that include the maintenance and raising of standards in the profession, and the protection of consumers in England and Wales. The fulfilment of these objectives will sometimes require us to regulate providers outside that jurisdiction – but we will aim to do so in a proportionate, risk-based way. In practice, this means that we will not seek to impose the full weight of the approach we would apply in England and Wales to practices overseas, but will simply ensure we have appropriate oversight of what business is being conducted, and an understanding of which risks it may pose.
That approach will help to support global legal business because it is designed to fit the contours of the businesses concerned, and to apply regulatory requirements and controls outside of England and Wales in a very risk-based way – eg, only where they are needed to fulfil our regulatory objectives. This contrasts with the historical approach, which has artificially carved up multinational legal businesses into parts that need to be authorised by the SRA and parts that don’t, with a very different application of rules to each part.
The new consultation indicates that the SRA is preparing for a transformational period. To what extent does the post-ABS era represent a watershed?
The post-ABS legal market will be very different world for the SRA, and it is one that we have been preparing for since the passage of the Legal Services Act in 2007. Our transformation to deliver proactive, risk-based regulation has been underway for some time, and includes not just the new Handbook, but significant changes to our functions, employees’ roles, IT systems and even location.
What does the SRA feel are the most pressing regulatory challenges that are likely to arise from greater international involvement in the UK legal sector?
The English and Welsh legal profession has been highly internationalised for some time, but the extent to which law firms of different sizes and practice areas are engaging overseas is growing all the time. This presents a challenge to the SRA, as we need to understand the new risks that may be introduced into the home market as a result of the range and scale of any individual firm’s overseas engagement.
An even bigger challenge – because it is more unknown – arises from potential international involvement in ABS. The advent of ABS has unleashed a new wave of interest from overseas in the home market and we anticipate that there will be ABS providers of legal services in England and Wales who have offshore operations, as well as legal services providers who may seek to adopt the ABS model, even though most of their business is not in England and Wales. We will need to apply appropriate regimes to providers in these different instances to ensure that consumers in England and Wales are adequately protected, and this will again require well-developed risk assessment.
In the consultation foreword, the SRA refers to an emphasis on ‘outcomes-based’ regulation. Could you explain how this would work in practical terms?
Outcomes-based regulation was introduced on 6 October and is an integral part of the move towards our new regulatory approach. There is increasing diversity in the delivery of legal services, and we need to regulate providers appropriately. The most sensible way to do this is to focus on the purpose of underlying rules, or the outcomes they are intended to achieve, rather than try to set out precisely what must be done under any particular circumstances. For example, we have an outcome under the new code of conduct that states:
‘you inform clients whether and how the services you provide are regulated and how this affects the protections available to the client’
Under previous versions of the Solicitors’ Code, this might have further specified how that information was to be provided – eg, by way of a client care letter at the start of each new matter. Under our new approach we do not specify how such an outcome should be achieved as circumstances may vary dramatically. It would not make sense, for example, for a large firm on the panel of a large plc to be required to send that company’s general counsel a letter at the start of every new matter. Under the new code, it is therefore now a matter for the solicitor’s judgement how he or she is to meet the required outcome.
Do you expect that the SRA will have to restructure and develop a larger overseas presence in order to support its wider remit?
It is not our intention to develop any overseas presence. We will not be regulating in detail on the ground in other jurisdictions; that is rightly the preserve of local regulators. If the proposals made in our consultation are accepted then we would need to reflect a greater international awareness in our risk-assessment and supervision activities – but this does not represent an extension of our current remit.
Has the SRA already established contact with regulators overseas?
There are around 160 legal regulators in other jurisdictions with whom we already have dealings to support the cross border movement of legal professionals and law firms. Over the past year, we have also developed our contacts in key jurisdictions at a more ‘political’ level and we want to ensure that we are working with other regulators to support the development of international business in the legal sector. We see enormous scope for much greater exchange of information and ideas between regulators than currently happens.
What about international legal services companies?
We have been in touch with all those who will be affected by our international proposals, including traditional law firms – whether from England and Wales or elsewhere – and those who are actively considering becoming ABSs. We look forward to hearing from any other type of legal services company that has an interest in our consultation.
How would the SRA react to the development of multilateral regulatory frameworks that will apply the same rules and guidelines to several countries at once?
We would welcome the opportunity for discussions aimed at developing multilateral rules, provided they were based around regulatory best practice and helped to support client and consumer protection as well as the evolution of an internationally competitive legal sector.
The SRA’s consultation is open until 15 February 2012. A PDF of the discussion paper can be downloaded here
For details of how to respond, click here