LEGAL UPDATE by Jessica Zama 15.4.2013
Alternative Business Structures (“ABS”) were introduced in the United Kingdom by the Legal Services Act 2007, as an unconventional structure for law firms.
An ABS is a professional organisation, made up of lawyers as well as non–lawyer members (for example, accountants, insurers, financial advisors), which provides legal services to clients, as a whole or part of its business. The ABS differs from a traditional law firm in that all members, whether lawyers or non-lawyers, can have roles in management (for example as partners) or as owners (for example as investors or shareholders). An organisation must obtain a licence from one of the approved regulators, in order to be approved as an ABS.
The Solicitors Regulation Authority (“SRA”), the independent regulatory body of the Law Society, became a licencing ABS authority in 2007 and started accepting applications for ABS licences from 3rd January 2012. Applicant firms must demonstrate that they meet the following requirements in order for a licence to be approved:
- At least one member at management level who is not a lawyer (an ABS cannot be made up of lawyer members only);
- One named lawyer member reports to the SRA or other Regulator about the ABS’ activities (also called the Head of Legal Practice or “COLP”);
- One member is appointed an head of finances and administration (known as “COFA”);
- The firm must deliver at least one of the following six “reserved legal activities”, as part of its services:
- Rights of Audience
- Litigation
- Probate
- Reserved instrument Activities (for example conveyancing)
- Notarial
- Administrations of Oaths.
The ABS must obtain specific licences for each of the reserved legal activities services listed above; members can offer accountancy advice and general legal advice but cannot provide these specific services, unless a licence from the one of the regulators has been obtained. The SRA is able to regulate all of the named “reserved legal activities” except for Notarial activities, which have to be undertaken by a qualified Notary. The only other regulator at present is the Council for Licenced Conveyancers, which is however only able to provide licences for Reserved Instrument Activities. The SRA will regulate the ABS and the Solicitors working within it. ABS licences, if granted, will have conditions attached to them, the essential condition being an obligation to thoroughly ensure compliance with all SRA regulations.
The introduction of these structures has not been without controversy, causing a fear of what was nicknamed “Tesco Law” by the English press. This was due to the fact that several big corporations in the UK, including supermarkets, are looking to expand into the legal sector, causing concerns that the ABS will pose a threat to the integrity of the profession and that small traditional law firms will suffer, not being able to compete with big name brands. On the other hand, there are also positive opinions that the ABS structure will provide greater investment opportunities (as a law firm can have external investors) and offer flexibility, innovation and change, as well as providing the consumer with more choice. It is however too soon to tell how these changes will affect the legal sector, if at all; it is, however, rumoured that there are over 300 applicants waiting for their licence approval, signifying that perhaps the change will become apparent before long.
