Appendix A - correspondence with the Solicitors
Regulation Authority, the Bar Standards Board and the Legal Services
Board
Letter dated 13th June 2013 from
the Clerk of the Justice Committee to Charles W Plant, Chair of
the SRA Board
I am writing to request information from the Solicitors
Regulation Authority in relation to regulatory matters related
to the Ministry of Justice's Consultation paper,
The Committee has received numerous representations
from organisations and individual practitioners regarding the
possible timetable for implementation of the price competitive
tendering proposals, and the need for many of the suggested structural
changes to be approved by the SRA. The Committee would like to
know answers to the following questions:
1. If the proposed timetable is adhered to, is the
SRA in a position to grant the necessary approvals for changes
to business structures, such as the creation of ABSs or merges
between firms, either by the time contracts are awarded in June
2014 or the service commences in September 2014?
2. What is the latest date by which you would need
new providers to apply for approval of their new business structures,
in order to meet the June or September 2014 proposed dates?
3. Given the resources available to the SRA, is there
a limit to the number of applications you would be able to process
within the proposed timetable?
4. Have you received any expressions of interest
or requests for advice from current or potential criminal legal
aid providers on business structures related to the proposed changes?
The Committee would be obliged if you could provide
answers to these questions by Tuesday 25 June 2013.
I am writing in similar terms to the Chairs of the
Legal Services Board and Bar Standards Board.
Letter dated 25th June 2013 from
Charles W Plant, Chair of the SRA Board, to the Clerk of the Justice
Committee
Thank you for your letter of 13 June 2013.
In response to your specific questions, our view
is as follows.
1 and 2 If the current timetable is adhered to,
and the issues identified above are addressed by applicants, ABS
applications of the type we would expect for this exercise should
be capable of being processed within three months and applications
for new traditional law firms (recognised bodies) processed within
one month.
3 Given the information we have available about
the size of the current market, the planned exercise and the number
of likely contract awards, we would not expect resources to be
a constraint in dealing with approval applications. The SRA is
a risk based regulator and used to adjusting resources within
the organisation to meet priority needs.
4 We have not received expressions of interest
from potential ABS specifically directed at this proposed exercise.
There have been a small number of enquiries from existing regulated
providers of criminal legal aid services about the proposals.
However, these have been within the context of our normal supervisory
engagement with firms.
These answers must be accompanied by the caveat that
the approval process is necessarily an interaction between the
SRA and the applicant body. We have numerous examples of applications
that have taken a considerable period to approve because applicants
have not given us the information we need to complete the process.
It may be helpful if I explain the context. The issues
you raise cover both the recognition of firms of solicitors and
the licensing of alternative business structures. The SRA requirements
applicable to both types of entity are set out in the SRA Handbook.
The most significant, practical difference between the two types
of body arises from the provisions of the Legal Services Act 2007
which contains some detailed and specific requirements about the
conditions under which we may license ABS. In particular, Schedule
13 of the Act sets out detailed requirements regarding the identification
and approval of those with a material interest in ABS, which can,
in some circumstances, result in a more complicated and lengthy
approval process.
The SRA has been a licensing authority for ABS since
the beginning of 2012 and we have now issued over 150 licences.
At the end of 2012 and beginning of 2013, we reviewed
and revised the licensing process, in the light of our growing
experience of the process and our desire to eliminate unnecessary
delays, and issued new information for applicant bodies. As a
result of this work, the approval process is becoming simpler,
less resource intensive and speedier whilst maintaining the necessary
public interest and consumer safeguards required by the Act and
our Handbook.
Finally, it is clear from our experience that applications
involving very complex ownership or business structures, foreign
ownership, complex financing structures and financing through
private equity vehicles can take longer to approve than applications
where these elements are not present. Primarily this is because
of the specific requirements of Schedule 13 of the 2007 Act which
provide specific provisions regarding the positive approval by
the SRA of all those holding a material interest in licensed bodies
and the associated, relatively broad, definition of "material
interests". Having said that, our assessment of the particular
market you are inquiring into, and the nature of the majority
of any associated applications for approval that we are likely
to receive is that we believe it is relatively unlikely that these
factors will exist within applications. Our view is that the majority
of applications are likely to arise from the restructuring of
entities currently providing these services.
We will maintain a close contact with the development
of this issue including liaising directly with the Law Society,
Legal Aid Agency and Ministry of Justice. This will be in order
to ensure that we have good notice of any regulatory impact of
the proposals and any impact on the planning of our workloads;
including on our approvals processes. We will publish information
to assist potential applicants for licences or for new recognitions
arising from any process that results from the current consultation.
Should the planned process proceed we will, as a public interest
regulator, make every effort to ensure that those firms requiring
new approvals in order to undertake this important area of work
are able to receive them in time to do so.
Letter dated 25th June 2013 from
Ewen Macleod, Head of Professional Practice, to the Clerk of the
Justice Committee
Thank you for your email to Baroness Deech dated
14 June 2013 regarding the Transforming Legal Aid consultation.
I will address each of your questions in turn.
Q 1 If the proposed timetable is adhered to,
is the BSB in a position to grant the necessary approvals for
changes to business structures, such as the creation of ABSs or
mergers between firms, either by the time contracts are awarded
in June 2014 or the service commences in September 2014?
The Bar Standards Board would distinguish between
the regulation of Alternative Business Structures (ABS), which
has a specific statutory meaning in the Legal Services Act 2007
(the 2007 Act) and the regulation of entities more generally.
The BSB is currently preparing to seek approval from the Legal
Services Board (LSB) to be a regulator of entities that are owned
and managed by lawyers ('authorised persons' under the 2007 Act).
We hope that this can be achieved by the end of 2013 or early
2014 at the latest.
It may be possible to get authorisation from the
LSB earlier than this, but there are some outstanding issues that
we are seeking to clarify. For example, it is possible that we
may need an order under s69 of the 2007 Act to put beyond doubt
some of the powers that we will need to regulate entities. This
would both delay our application to the LSB and potentially delay
the coming into force of our new entity regulation regime. If
we do need a s69 order, we expect this will take at least 9 months
(depending on Parliamentary time to approve the statutory instrument)
so it is unlikely that we would be able to start authorising entities
until April 2014 at the earliest. If this is not necessary, we
would hope to be approved to authorise entities by the beginning
of 2014.
We would anticipate needing at least 3-6 months to
approve any new entities, possibly more if we receive a significant
number of complex applications (although we would seek to prioritise
applications from criminal legal aid entities).
We will also apply to the LSB for designation as
a licensing authority for ABSs. This process will take considerably
longer (due to the statutory steps required), but we would anticipate
being able to authorise ABSs by the end of 2014.
In summary, we may be able to answer more definitively
in the near future, but there are significant risks in assuming
that we could authorise entities by the deadline of June 2014.
If we determine that a s69 order is needed, even September 2014
may be challenging. It would however be possible for barristers
to seek authorisation via another approved regulator such as the
Solicitors Regulation Authority.
Q 2 What is the latest date by which you would
need new providers to apply for approval of their new business
structures, in order to meet the June or September 2014 proposed
dates?
We would need at least 3-6 months to be reasonably
confident of authorising entities ahead of the deadlines stated.
This does not take account of possible appeal processes if we
reject potential applicants at the authorisation stage, but we
would seek to work constructively with applicants to avoid the
need for appeals.
Q 3 Given the resources available to the BSB,
is there a limit to the number of applications you would be able
to process within the proposed timetable?
We will put in place systems to prioritise this area
of work if we receive an unexpectedly high volume of applications.
Q 4 Have you received any expressions of interest
or requests for advice from current or potential criminal legal
aid providers on business structures related to the proposed changes?
Our intelligence is patchy at the moment, but we
would anticipate a number of applications from criminal practitioners
to form entities. It should be noted that the Legal Aid Agency's
proposals do not envisage tendering for advocacy services. Nevertheless,
once the new BSB Handbook is introduced (expected January 2014,
subject to LSB approval) all. barristers will be able to seek
authorisation to conduct litigation. In any case, barristers may
wish to form entities with solicitors to tender for
litigation services.
A recent survey of the profession (albeit on a relatively
small sample) suggested that around a third of criminal practitioners
were considering forming an entity but relatively few of those
had definitely decided to do so at the time of asking. We are
currently conducting a more in-depth survey of the Bar to provide
further evidence of likely demand for entity regulation.
Letter dated 25th June 2013 from
David Edmonds, Chairman, Legal Services Board, to the Clerk of
the Justice Committee
I am replying to your letter enclosing a request
for information to the Chairman of the Solicitors Regulatory Authority
(SRA), Charles Plant. The Committee may find it helpful to have
some information on what the LSB has been doing in relation to
the SRA's performance in the matter of alternative business structure
(ABS) licences and some information about other potential regulators.
As you may be aware, there has been a lot of public
discussion about the speed in which the SRA was handling applications
for ABS licences and the complexity of the process. As the body
responsible for overseeing regulation in the legal services sector,
we have been closely monitoring the SRA's performance in this
area. We have used our formal information gathering powers to
require the SRA to provide us with information on the progress
of ABS applications and to detail their plans to improve the process
and deal with the backlog of applications. Since then, my Board
has received detailed reports on the SRA's performance at each
meeting.
The SRA's early priorities were to deal with the
backlog that had developed, to improve the process so that it
was more risk based and to improve the quality of data collected
and reported to the SRA Board (including the creation of meaningful
performance indicators). They have made some clear progress on
their priorities. They are managing their application process
in a much improved fashion; they will be getting rid of the two
stage application process and introducing a single application
form; and, they will be reporting publically on their performance
against their key performance indicators. We consider that the
process improvements and increased focus by the SRA are beginning
to achieve a more stable, speedy and simple ABS authorisation
process. They have adopted a KPI to approve 100% of completed
medium/high risk ABS applications within 6 months of receipt;
and 90% of simpler applications in 30 days of receipt of a complete
application. These KPI's show a commitment to moving authorisation
at an appropriate pace for market participants and should enable
the SRA to meet the timings that you detail in your letter.
Of all the ABS applications that have been granted
so far it has taken an average of 7 months for the ABS licence
to be granted following the submission of the second stage application
and the average age of their work in progress, according to our
analysis, is 4.5 months. 45% of current licence holders were granted
their licence within 6 months of submitting the second stage application.
We expect these figures to continue to improve as greater numbers
of applicants are approved using the new simplified process. However,
we and the SRA recognise that continued focus is needed to ensure
that the previous situation of a substantial number of ABS applicants
waiting well over 9 months for a decision is not repeated. My
Board will continue our monitoring for as long as is necessary.
In terms of business models, the SRA rules allow
them to authorise firms that do not employ any solicitors, provided
they have appropriate other authorised persons, for instance a
barrister or legal executive. Indeed, the SRA have recently granted
an ABS licence to a barristers chambers that does not employ any
solicitors, Richmond Chambers.
The Bar Standards Board (BSB) has also announced
its intention to apply to become a licensing authority, and so
be able to authorise and regulate ABS. The BSB has not yet submitted
its application to the LSB. When the BSB does so we are required
not only to carefully consider the application but also required
to consult with the OFT, the Lord Chief Justice, the Legal Services
Consumer Panel and any others we feel appropriate.
The Legal Services Act provides the LSB with 12 months
(extendable to 16) to complete the statutory process of consideration
of a licensing authority application and to make a recommendation
to the Lord Chancellor, however we do try to complete the statutory
process in 6 months. Although there are a lot of variables (submission
by the BSB, LSB consideration, Ministry of Justice review of the
LSB recommendation and Parliamentary proceedings) it may be that
the BSB will also be a licensing authority in time to meet the
proposed timetable for changes to legal aid. We understand that
we can expect to receive an application from the BSB in September
or October 2013.
The Chartered Institute of Legal Executives also
has ambitions to extend the reserved legal activities it regulates
and to regulate entities and eventually ABS. However, it is currently
focused on extending its regulation and regulating entities owned
and managed by authorised people. Therefore we do not expect that
it will submit any licensing authority application to regulate
ABS in the areas of advocacy and litigation in time for the proposed
changes to legal aid. Other regulators in the market, and any
potential new entrants that we are aware of, do not appear to
be interested in regulating the reserved legal activities that
would be necessary to regulate providers of legal aid.
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