SRA | Preparing to apply for authorisation as an ABS

Introduction

This guide explains the information you need to consider if you want to make an application for authorisation. Before reading this guide, you will need to know whether you need authorisation as an alternative business structure (ABS), and you are advised to read our guide Does your firm need to be authorised as an ABS? and relevant parts of the SRA Handbook to assist you.

Authorisation is governed by the SRA Handbook. Applicants will need to familiarise themselves with the

This guide is not intended to be a technical guide to the rules. It outlines our authorisation process and the information you need before you will be able to submit a fully completed application form.

Essential requirements for authorisation

All firms applying for authorisation must meet certain fundamental requirements. These are set out in rule 6.2 of the Rules. The firm must be capable of being authorised and in addition must meet the SRA's requirements in relation to

Information we require for authorisation

Organisation details
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Business practices
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Details of personnel
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Indemnity insurance
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Client money
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Suitability Test
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Application

Our questions are designed to collect basic information concerning the establishment of the applicant firm—its composition etc. We then ask questions about business practices, insurance arrangements, etc. The questions will enable us to assess the extent to which the firm is being set up with appropriate governance, systems and controls and personnel.

Application checklist	Summary of information	Points to consider if you are intending to apply for authorisation
Organisation details
Nature of the applicant body	We will need the name of the applicant firm, which must be a legal entity such as a company, unless it is a partnership. See rules 15.1 to 15.5 of the SRA Practice Framework Rules and chapter 8 of the SRA Code of Conduct.	What is the appropriate vehicle through which to deliver your legal services?
Previous applications for authorisation by the applicant body	Details of regulatory history	Do you intend to continue your authorisation with other regulators?
Services to be provided by the applicant firm	Details include the type of legal work to be carried out, referral arrangements, etc. Levels of qualified to non-qualified staff Details of other services if the firm is to be a multidisciplinary practice (MDP)	What will your business model be? How sustainable is that model? Will you be reliant on particular sources of business? How would the business cope if that source of business terminated? What types of legal work will the firm be carrying out? Will the firm be focused on particular types of work and are there any risks associated with this business model? How will those risks be mitigated? What level of fee earners to non-fee earners (and qualified to non-qualified staff) do you want to have? Is it sufficient to deliver a proper standard of service to your clients? If the firm is to be an MDP, what will the service offering be? What risks will clients be exposed to? Will clients understand how services are packaged and the extent to which they are protected by compensation arrangements, etc?
Decide on your office(s).	For every office, we will need the details about that office, including trading names, etc.
Decide who will undertake legal activities within the applicant body.	For offices in England and Wales and for offices outside England and Wales, we need the number of lawyer fee-earners who undertake each legal service, non-lawyer fee-earners who undertake each legal service. For the lawyer fee-earners, we need their profession. For all employees, regulated by any regulator in their individual capacity, we need details of that individual and their regulator. For each area of work type, we will need the percentage and what percentage of your work is publicly funded.
Calculate the applicant body's estimated turnover figure for the first 12 months.	Turnover is defined in Appendix 1 to the Fee Policy.	Have you prepared a business plan?
Decide whether you want the applicant body to become authorised to take trainee solicitors.	You need a suitable solicitor manager to be eligible to take trainees. You will need to make a separate application.

Application checklist

Summary of information

Points to consider if you are intending to apply for authorisation

Organisation details

Nature of the applicant body

We will need the name of the applicant firm, which must be a legal entity such as a company, unless it is a partnership. See rules 15.1 to 15.5 of the SRA Practice Framework Rules and chapter 8 of the SRA Code of Conduct.

What is the appropriate vehicle through which to deliver your legal services?

Previous applications for authorisation by the applicant body

Details of regulatory history

Do you intend to continue your authorisation with other regulators?

Services to be provided by the applicant firm

Details include the type of legal work to be carried out, referral arrangements, etc.

Levels of qualified to non-qualified staff

Details of other services if the firm is to be a multidisciplinary practice (MDP)

What will your business model be?

How sustainable is that model?

Will you be reliant on particular sources of business? How would the business cope if that source of business terminated?

What types of legal work will the firm be carrying out? Will the firm be focused on particular types of work and are there any risks associated with this business model? How will those risks be mitigated?

What level of fee earners to non-fee earners (and qualified to non-qualified staff) do you want to have? Is it sufficient to deliver a proper standard of service to your clients?

If the firm is to be an MDP, what will the service offering be? What risks will clients be exposed to? Will clients understand how services are packaged and the extent to which they are protected by compensation arrangements, etc?

Decide on your office(s).

For every office, we will need the details about that office, including trading names, etc.

Decide who will undertake legal activities within the applicant body.

For offices in England and Wales and for offices outside England and Wales, we need the number of

lawyer fee-earners who undertake each legal service,
non-lawyer fee-earners who undertake each legal service.

For the lawyer fee-earners, we need their profession. For all employees, regulated by any regulator in their individual capacity, we need details of that individual and their regulator.

For each area of work type, we will need the percentage and what percentage of your work is publicly funded.

Calculate the applicant body's estimated turnover figure for the first 12 months.

Turnover is defined in Appendix 1 to the Fee Policy.

Have you prepared a business plan?

Decide whether you want the applicant body to become authorised to take trainee solicitors.

You need a suitable solicitor manager to be eligible to take trainees. You will need to make a separate application.

Business practices
Determine the systems and controls necessary to both support the firm's activities and comply with the relevant Rules, Principles and SRA Code of Conduct.	The applicant body will need to demonstrate that it will have in place appropriate policies and procedures to ensure that it can deliver the outcomes in the SRA Principles, Code of Conduct, Accounts Rules and the Handbook requirements.	What policies and procedures will you have in place to ensure compliance with the Handbook? Will these need to be written policies? What training will be required? How will the firm ensure that compliance standards are maintained and policies are effective? What mechanism will the applicant body use to record and report on breaches and material breaches?
Consider how the applicant body will meet the regulatory objectives in part 1 section 1(1) of the LSA.	The applicant body needs to consider the regulatory objectives and how its proposal will be compatible with the regulatory objectives.	Are there any risks to the regulatory objectives associated with the application? If so, how do these arise and how can they be removed or mitigated? What positive impact will the new firm have in terms of the regulatory objectives?
We require from all applicant bodies: (1) the balance sheet projected over a 12 month period following authorisation, on a monthly basis; (2) the monthly cash flow projected over 12 months following authorisation; and (3) the monthly profit and loss forecast for the first 12 months after authorisation.	Details from the projected profit and loss account	See our comments above regarding a business plan. How sustainable is the business? What risks have been identified through the business planning process?
Governance structure	The governance structure needs to include the position of the COLP and COFA within that structure. There will be a facility for you to upload a PDF document in the online application process.
Outsourcing	Relevant information will include the types of processes, whether outsourcing is off-shore and, if so, whether the countries comply with appropriate data legislation. (See chapter 7 of the SRA Code of Conduct.)	How critical to the delivery of legal services and your operations will the outsourcing be? What contracts will you have in place and how will you manage this relationship to ensure that you receive the right quality of service?
Sources of finance	For every source of finance, we need the name of the source, amount of capital invested or borrowed, percentage interest, date of loan, repayment terms and date of renewal.	See above our comments regarding business plans.
Referral arrangements	By details we mean information about each arrangement (See chapter 9 of the SRA Code of Conduct.)	See above our comments on reliance on referral arrangements.
Decide whether the applicant body intends to undertake insurance mediation activities.	We will need the insurance mediation activities and the applicant body's FSA compliance officer.	Is the firm intending to conduct exempt financial services activities or does it need to be dual authorised by the SRA and FSA?
Prohibited separate businesses	You cannot offer "mainstream legal services" through a separate business. (See chapter 12 of the SRA Code of Conduct.)	How is the applicant firm connected to other firms that provide legal services?
Permitted separate businesses	As clients of a permitted separate business do not have the same statutory protections as clients of an authorised body, it is important that this is made clear to clients.(See chapter 12 of the SRA Code of Conduct.) You will need to identify any permitted separate business and, if the permitted separate business is an appointed representative, details of the independent financial advisor.	How will clients of a permitted separate business be protected? What does your marketing material need to cover to explain the relationship between the firms? What systems and controls do you need to put in place to ensure there is a proper separation of the two firms?
Ultimate beneficial owner(s)	We will expect applicant bodies to know who the ultimate beneficial owner of the body is going to be at authorisation. There are exceptions to this where it is not reasonable to expect the applicant body to know this information, for example in the case of an initial public offering (IPO).

Business practices

Determine the systems and controls necessary to both support the firm's activities and comply with the relevant Rules, Principles and SRA Code of Conduct.

The applicant body will need to demonstrate that it will have in place appropriate policies and procedures to ensure that it can deliver the outcomes in the SRA Principles, Code of Conduct, Accounts Rules and the Handbook requirements.

What policies and procedures will you have in place to ensure compliance with the Handbook? Will these need to be written policies? What training will be required?

How will the firm ensure that compliance standards are maintained and policies are effective?

What mechanism will the applicant body use to record and report on breaches and material breaches?

Consider how the applicant body will meet the regulatory objectives in part 1 section 1(1) of the LSA.

The applicant body needs to consider the regulatory objectives and how its proposal will be compatible with the regulatory objectives.

Are there any risks to the regulatory objectives associated with the application? If so, how do these arise and how can they be removed or mitigated?

What positive impact will the new firm have in terms of the regulatory objectives?

We require from all applicant bodies:

(1) the balance sheet projected over a 12 month period following authorisation, on a monthly basis;
(2) the monthly cash flow projected over 12 months following authorisation; and
(3) the monthly profit and loss forecast for the first 12 months after authorisation.

Details from the projected profit and loss account

See our comments above regarding a business plan. How sustainable is the business? What risks have been identified through the business planning process?

Governance structure

The governance structure needs to include the position of the COLP and COFA within that structure. There will be a facility for you to upload a PDF document in the online application process.

Outsourcing

Relevant information will include the types of processes, whether outsourcing is off-shore and, if so, whether the countries comply with appropriate data legislation. (See chapter 7 of the SRA Code of Conduct.)

How critical to the delivery of legal services and your operations will the outsourcing be? What contracts will you have in place and how will you manage this relationship to ensure that you receive the right quality of service?

Sources of finance

For every source of finance, we need the name of the source, amount of capital invested or borrowed, percentage interest, date of loan, repayment terms and date of renewal.

See above our comments regarding business plans.

Referral arrangements

By details we mean information about each arrangement (See chapter 9 of the SRA Code of Conduct.)

See above our comments on reliance on referral arrangements.

Decide whether the applicant body intends to undertake insurance mediation activities.

We will need the insurance mediation activities and the applicant body's FSA compliance officer.

Is the firm intending to conduct exempt financial services activities or does it need to be dual authorised by the SRA and FSA?

Prohibited separate businesses

You cannot offer "mainstream legal services" through a separate business. (See chapter 12 of the SRA Code of Conduct.)

How is the applicant firm connected to other firms that provide legal services?

Permitted separate businesses

As clients of a permitted separate business do not have the same statutory protections as clients of an authorised body, it is important that this is made clear to clients.(See chapter 12 of the SRA Code of Conduct.) You will need to identify any permitted separate business and, if the permitted separate business is an appointed representative, details of the independent financial advisor.

How will clients of a permitted separate business be protected? What does your marketing material need to cover to explain the relationship between the firms? What systems and controls do you need to put in place to ensure there is a proper separation of the two firms?

Ultimate beneficial owner(s)

We will expect applicant bodies to know who the ultimate beneficial owner of the body is going to be at authorisation. There are exceptions to this where it is not reasonable to expect the applicant body to know this information, for example in the case of an initial public offering (IPO).

Managers, shareowners with a material interest, compliance officers for legal practice (COLP) and compliance officers for finance and administration (COFA)
Shareholders and managers of the applicant body who will need specific approval Information about the COLP and the COFA and all shareholders and managers who require specific approval	We need details of the respective interest holding of each of the shareholders. Our information requirements cover work history, regulatory history, etc. The shareholders, managers, COLP and COFA will need to be approved by the SRA as fit and proper. Part 4 of the SRA Authorisation Rules provides for the approval application, process, criteria and effect of approval. The criteria includes the SRA Suitability Test. Solicitors with current practising certificates and authorised bodies will be deemed approved as suitable to be shareholders and managers provided the conditions in rule 13.2 of the SRA Authorisation Rules are met. As part of the SRA Suitability Test, we need details of criminal offences, behaviour not compatible with that of an authorised role holder, assessment offences, financial behaviour and regulatory history and, if appropriate, details of rehabilitation. If disclosure is made, then we need relevant evidence.	Shareholders, managers and the COLP and COFA need to be approved by the SRA. This means they will have to pass our SRA Suitability Test. Firms will need to consider very carefully which individuals have the rights skills and ethical qualities to be an shareholder, manager and COLP and COFA.
Governance and systems and controls to support the COLP and COFA	Both the COLP and COFA will have sight of the applicant body's fully completed application and will need to complete a separate application. Having completed their individual applications, they will need to make a specific declaration regarding the accuracy of all of the information both in the main application and in their individual application.	How will the COLP and COFA operate within your business structure? What systems are needed to support those roles? Do you need to change your governance and reporting lines to empower the COLP and COFA? How will management review the effectiveness of the COLP and COFA?
Employees of the applicant firm.	Consider rule 8.6(c) of the SRA Authorisation Rules in respect of each employee.

Managers, shareowners with a material interest, compliance officers for legal practice (COLP) and compliance officers for finance and administration (COFA)

Shareholders and managers of the applicant body who will need specific approval

Information about the COLP and the COFA and all shareholders and managers who require specific approval

We need details of the respective interest holding of each of the shareholders.

Our information requirements cover work history, regulatory history, etc.

The shareholders, managers, COLP and COFA will need to be approved by the SRA as fit and proper. Part 4 of the SRA Authorisation Rules provides for the approval application, process, criteria and effect of approval. The criteria includes the SRA Suitability Test. Solicitors with current practising certificates and authorised bodies will be deemed approved as suitable to be shareholders and managers provided the conditions in rule 13.2 of the SRA Authorisation Rules are met.

As part of the SRA Suitability Test, we need details of criminal offences, behaviour not compatible with that of an authorised role holder, assessment offences, financial behaviour and regulatory history and, if appropriate, details of rehabilitation. If disclosure is made, then we need relevant evidence.

Shareholders, managers and the COLP and COFA need to be approved by the SRA. This means they will have to pass our SRA Suitability Test. Firms will need to consider very carefully which individuals have the rights skills and ethical qualities to be an shareholder, manager and COLP and COFA.

Governance and systems and controls to support the COLP and COFA

Both the COLP and COFA will have sight of the applicant body's fully completed application and will need to complete a separate application.

Having completed their individual applications, they will need to make a specific declaration regarding the accuracy of all of the information both in the main application and in their individual application.

How will the COLP and COFA operate within your business structure?

What systems are needed to support those roles?

Do you need to change your governance and reporting lines to empower the COLP and COFA?

How will management review the effectiveness of the COLP and COFA?

Employees of the applicant firm.

Consider rule 8.6(c) of the SRA Authorisation Rules in respect of each employee.

Professional indemnity insurance and client money
Professional indemnity insurance, unless you are exempt or partially exempt under the SRA Indemnity Insurance Rules	We will need details of the applicant body, and any shareholder or manager who has ever been refused professional indemnity insurance or indemnity insurance in the last five years. We need details of any other indemnity insurance cover held by the applicant body, including name of the insurer, and policy details.	What professional indemnity insurance do you require?

Professional indemnity insurance and client money

Professional indemnity insurance, unless you are exempt or partially exempt under the SRA Indemnity Insurance Rules

We will need details of the applicant body, and any shareholder or manager who has ever been refused professional indemnity insurance or indemnity insurance in the last five years. We need details of any other indemnity insurance cover held by the applicant body, including name of the insurer, and policy details.

What professional indemnity insurance do you require?

Client money
Client money arrangements	Details of how you will hold client money	What arrangements do you need to put in place to protect client money? Who will be able to sign on client account? If you are an MDP, how will you ensure proper segregation of client money from legal activities from other client money from non-legal services?

Client money

Client money arrangements

Details of how you will hold client money

What arrangements do you need to put in place to protect client money? Who will be able to sign on client account?

If you are an MDP, how will you ensure proper segregation of client money from legal activities from other client money from non-legal services?

Final declaration
Signatory	This signatory will need to be a lawyer manager.	It would be advisable for the lawyer manager to be in a position of sufficient responsibility to enable them to have access to all management systems and arrangements and other relevant information including client files and business information in order for them to sign the declaration.

Final declaration

Signatory

This signatory will need to be a lawyer manager.

It would be advisable for the lawyer manager to be in a position of sufficient responsibility to enable them to have access to all management systems and arrangements and other relevant information including client files and business information in order for them to sign the declaration.

Preparing to apply for authorisation as an ABS

Introduction

Essential requirements for authorisation

Information we require for authorisation

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