Transforming Legal Aid: evidence taken by the Committee - Justice Committee Contents

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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Prepared 18 July 2013