On 1st November the SRA amended Chapter 12 of the SRA Code of Conduct which is still referred to by its previous title of the Separate Business Rules. These rather opaque provisions are intended to stop solicitors' practices selling solicitor like services through an unregulated separate entity. The reason they existed was because members of the public might be confused into thinking they were dealing with a law firm when in fact it was an unregulated subsidiary meaning they had less protection than they thought. This still remains a concern of the Legal Services Consumer Panel.
However, the rules became a bit of a nonsense when ABSs came in. Some of the most eye catching new ABSs (Co-op, PwC, KPMG) already were seperate businesses so the rules had to be waived for them and it was only a matter of time before the playing field needed to be leveled in relation to existing law firms. So Chapter 12 will be much less limiting for law firms. This is described in more detail in the article by the Lawyers Defence Group highlighted below.
What no one knows is whether there is a group of entrepreneurial law firms out there anxious to restructure their existing business to take advantage of the relaxation of the rules by hiving off the work that does not need to be regulated in to an unregulated entity. The answer is probably not. By the time a new unregulated entity has been set up, there may not be much in the way of costs savings from keeping that part of the business within the existing regulated firm.
The more likely impact of the changes to Chapter 12 for existing businesses will be to provide greater flexibility to law firms when developing new areas of business. Where this new business does not need to be regulated they can now decide whether they should do that within the existing regulated business or separately. It will be interesting to see if there are any announcements in the coming months from firms that reflects this new freedom.
One limitation that remains in place is that solicitors working within the new unregulated entity cannot hold themselves out as solicitors because of Rule 1 of the SRA Practice Framework Rules. However, the SRA has signalled in its 26th November policy paper that it intends to allow the creation of new law firms that carry out unregulated legal services but nonetheless have regulated solicitors working within them. If one were setting up a new legal practice careful thought would need to be given as to whether the combination of the changes to the separate business rules and the removal of restrictions on how solicitors can practice make it more sensible to set up two businesses rather than one. One business would carry out the vast majority of legal work which is unregulated and would itself be unregulated. A smaller associated business would do litigation, advocacy, grants of probate and land transfers. This may be a better solution for a new business.
The announcement by the SRA that as of 1 November there will be fundamental changes to the operation of the separate business rule (SBR) has, at one single stroke, potentially revolutionised the way in which solicitors can deliver legal services to the public and has gone a substantial way towards levelling the regulatory playing field for traditional legal practices.