Authorisation of firms

Introduction

Purpose and status of this guidance

This guidance is about how we satisfy ourselves that a firm we regulate is suitable to be authorised to provide reserved legal activities.1

This guidance should be read in the context of decision making at the SRA and other guidance. It is a living document and will be reviewed and updated as appropriate. It reflects our approach to our regulatory role. Any departure must be capable of justification on the individual facts of the case.

Why firm authorisation is required

The Legal Services Act 2007 (the Act) makes it an offence for any "person" to provide reserved legal activities unless authorised by a legal services regulator, such as the SRA, to do so.2 There are some limited statutory exemptions.3 Also, under the Administration of Justice Act 1985, we authorise firms as suitable to provide solicitor services.4

When we authorise a firm, this entitles them to provide reserved services and, in the case of solicitor's firms, to hold themselves out as such. 5 Our focus is on ensuring that they have in place sensible controls around business systems and governance and comply with a Code of Conduct that safeguards the competent and ethical delivery of those services.

When considering which "person" to authorise, the firm is the body that delivers legal services. It could be a sole practice, a partnership or a corporate entity. It might be part of a group or a subsidiary to another entity.

Eligibility for authorisation

Structural requirements

We authorise three different types of firm:

  • Recognised sole practices - the business of a self-employed individual, who is the sole principal
  • Recognised bodies - a firm in which all managers and owners6 are lawyers;7 and
  • Licensed bodies - a firm which has a mix of lawyers and non-lawyers as managers and owners.

Legislation and our rules prescribe requirements which must be met before we can authorise each type of firm. These are set out in the table below.

Authorisation type Summary of eligibility
Recognised sole practice This must have a sole principal which must either be a solicitor or Registered European Lawyer (REL).8  
Recognised body

This must be a legal services body9 which means:

  • a partnership, company or Limited Liability Partnership (LLP) in which all managers and owners are lawyers or legally qualified bodies;10 and
  • at least one manager of the body, or a legally qualified body manager, must be a solicitor or REL.
 
Licensed body (or ABS)

This must be a licensable body11 which means:

  • a partnership, company or LLP; and
  • at least one manager of the body must be a lawyer of England and Wales or a REL; and
  • at least one manager or interest holder must be a non-lawyer.
 

We continue to regulate existing legal disciplinary practices (LDPs). These are recognised bodies which have up to 25 percent non-lawyers as managers and interest holders. We no longer accept new applications for LDPs.

If an LDP wishes to exceed the 25 percent threshold it will have to apply for authorisation as a licensed body. However, an existing LDP (falling within that threshold) can elect to become a licensed body at any time by submitting an application to us. No separate authorisation decision is required.

Multi-disciplinary practices

Some licensed bodies offer only legal services to their clients. Others offer non-legal services and other professional services in addition to legal services. These are called 'multi-disciplinary practices' (MDPs).

We do not regulate non-legal work in any licensed body and we can also exercise our discretion to exclude, through a term on the firm’s licence, certain non-reserved legal work from our regulation. Any legal work that we consider integral to the provision of a reserved legal activity will always come under our regulation. The extent of what we may agree to exclude will depend on the circumstances.

For example, if the non-reserved work is regulated by another regulator (for example tax advice provided by accountants and regulated by the ICAEW) then, bearing in mind the comparability of that regulators regime, we would not seek also to apply our Code of Conduct to that work. This approach helps to facilitate the safe and effective practice of MDPs and to meet the regulatory objectives12 of improving access to justice, promoting competition and encouraging a diverse and effective legal profession.

Read more about our regulatory approach to MDPs in our MDP policy

Example 1

A large accountancy firm is regulated by the Institute for Chartered Accountants in England and Wales (ICAEW). The services it offers its clients will sometimes lead to reserved legal activity, such as court proceedings. Previously, they would have referred that work to a suitably authorised law firm. However, the client may prefer the accountancy firm to handle the whole matter from beginning to end.

If we decide to apply our MDP policy to the firm, through a term on its licence, non-reserved legal advice given by non-lawyers can remain only under ICAEW regulation. This would not otherwise be the case. SRA regulation will continue to apply to solicitors, RELs and RFLs in an individual capacity within the firm.

It is important for accountancy firms and their clients that legal advice they could previously give under ICAEW regulation (such as tax advice) is not unnecessarily impacted by their SRA regulation. The public interest is not harmed as we have assessed that compliance by the firm with ICAEW regulation is equivalent to complying with the SRA Principles 2011.

Other minimum requirements

In addition to the structural requirements above, we can only grant an application for authorisation13 if we are satisfied that the authorised body will comply with the following requirements in our Handbook:

  • that the name of the firm will not be misleading. We will check this against our records of other authorised law firms to ensure that there is no duplication or confusion
  • that the firm must have appropriate indemnity insurance. We will need to see evidence that insurance will be in place, in the form of a policy or quote prior to authorisation
  • that owners, managers and compliance officers will be approved
  • around how the entity is formed (and it meets the eligibility requirements), as well as rules relating to its registered office and its practising address
  • that there is a least one manager that is a person who is "qualified to supervise".14

In making a decision whether to authorise a firm, we will take into account all of the information and circumstances which we consider relevant.15

Further information about approval of role holders is provided in our separate guidance. As highlighted above, if a candidate for a key role is not approved, that may prevent the firm receiving authorisation unless there is an alternative candidate for the role. A key role is one that will affect the eligibility of the firm to be authorised, for example:

  • the only lawyer manager who is qualified to supervise. A firm must have a manager that meets the relevant criteria
  • the only non-lawyer manager or interest holder in a licensed body. The body may be eligible to re-apply for recognised body status if its non-lawyer(s) could not be approved, but its application for licensed body status would fail
  • the Compliance Officer for Legal Practice (COLP) or the Compliance Officer for Finance and Administration (COFA).16  

Firms have an ongoing obligation to keep the information provided to us as part of the application process updated. This includes any change to the information declared by the role holders in seeking approval.

Waivers

As part of an application for authorisation, a firm may sometimes request a waiver from a specific rule or requirement in our Handbook.

How we reach our decision to authorise a firm

Basic information and initial screening

The person completing the form must ensure the firm is eligible to be authorised. If a firm is not eligible and/or the application is incomplete, we will reject it.17  

A complete application is one where we have received all:

  • forms
  • supporting documents
  • any additional information requested by us
  • payment (where required).18

Until the application is complete, the timeline for reaching a decision does not commence . During the decision period, we may still require information as part of our consideration of the application. As we must make a decision before the end of the decision period, if requested information is not provided or is insufficient then we may refuse the application.

It is particularly important that a decision is made before the end of the decision period. Although in some circumstances the law will deem authorisation to be granted if it is not decided within the decision period, the Authorisation Rules put in place different arrangements. If a decision is not made before the end of the decision period, then the applicant will be able to appeal against our failure to do so. It will then be imperative that we ensure we have sufficient information to make a decision and that we do so before the end of the decision period.

Investigating areas of risk

Once we have considered whether the basic eligibility requirements have been met, we will go on to assess if the applicant, its governance or business model pose a risk that we think requires further investigation.

In particular, we may decide to refuse an application if one of the grounds set out in our rules is met,21 namely if we are not satisfied that:

  • the firm's managers and interest holders are suitable, as a group (or the sole principal is suitable) to operate or control a business providing regulated legal services
  • the firm's management or governance arrangements are adequate to safeguard the regulatory objectives
  • the firm will comply with our regulatory arrangements
  • the firm has provided accurate information in its application and in its response to any requests by us for information
  • the firm has notified us of any changes in the information provided in the application; and
  • it is not against the public interest or otherwise inconsistent with the regulatory objectives to grant authorisation.

These factors inevitably overlap. In summary, the key factors we need to consider include those discussed below.

Management competence and governance

As part of our consideration of the overall suitability of the firm, we consider the governance of the firm globally, as well as the suitability of individuals to take on specific roles. (See further information on how we approach the latter in our guidance on approval of role holders. We will also consider any risk posed by any person that may have influence over the way in which a role holder will exercise their role22 and therefore the business of the firm will be conducted. That influence may come through their relationship, affiliation or other agreement to act together.

When authorising a firm, we consider the suitability of the managers 'as a group' to fulfil the management role. We will take into account any past experience as a manager and any information in the application (for example, business plans) which demonstrates awareness and understanding of the role of a manager and the obligations attached to that role.

We will consider that in the context of the business model itself, and the nature of the arrangements that need to be put in place to ensure safe and effective practice and compliance with our requirements. For example:

  • the size of the firm, the volume of business and amount of turnover it generates/client money the firm holds
  • the work areas to be undertaken (for example, whether this covers a niche area with corporate clients, or a wide variety of areas with a large proportion of individual or vulnerable clients)
  • connected separate businesses or referral arrangements
  • confidentiality risks (for example, whether there will be shared premises or staff, and will there be information sharing with other persons)
  • linked insolvency events (for example, where the authorisation will be of a new firm to take over from another firm in, or going into, administration).

We will also take into account any relevant regulatory history of the owners and managers.

If none of the proposed managers (or the sole practitioner) has experience and the evidence does not satisfy us that the managers understand their role, we may ask for further documentary evidence that they are aware of their responsibilities. This evidence may include:

  • copies of core policies the firm should keep, eg complaints procedure, compliance officer reporting procedure
  • copies of key documents, eg client care letter.

In particular, we will want to assure ourselves that they have a good understanding of our regulatory arrangements including the SRA Principles and Code of Conduct.

Sometimes, the new body seeking authorisation may simply be the result of an existing firm deciding to change its legal entity. For example, where a partnership becomes a limited company. We will only need to re-assess the suitability of the management as a group in such firms if there is a significant change which potentially affects the ability of the managers to comply with their obligations.

Example 2

Firm A is a two person partnership comprised of one experienced solicitor and one newly qualified solicitor. We authorised that firm on the basis that one of them had management experience and knowledge. Shortly afterwards, they wish for the firm to become a limited company and submit an application for us to authorise that company.

If both partners will be directors of the new company, we will not reassess whether they can competently manage a firm unless something specific has happened since the original authorisation to suggest they potentially cannot (for example, an investigation into the firm's operations). However, if the experienced partner is leaving and the firm will have only the newly qualified solicitor as a manager, we will check that individual has sufficient knowledge to adequately manage the firm alone.

Compliance with our regulatory arrangements

A number of factors may lead us to be concerned about whether a firm can comply with its obligation to meet our regulatory requirements. Examples of such factors include:

  • evidence that the firm or a key individual within it has been practising without authorisation prior to making their application
  • responses to our enquiries that indicate the sole practitioner or managers of the firm do not understand our requirements, or why a risk or issue exists or needs to be mitigated (for example, see example 3)
  • evidence that information or an event should have been disclosed to us and has not been
  • an ongoing investigation into the conduct of a firm or a key individual connected to the current application
  • regulatory history of the firm's owners, managers or any successor business.

Example 3

The managers of a firm that has entered administration wish to buy that firm under a 'pre pack' administration arrangement. If the collapse of the former firm was a one-off and due to market conditions, we would probably authorise the firm under that management. However, our decision may be different if there have been prior administrations or the evidence suggests poor decisions were made by the managers and that these led to the collapse. We will expect to see evidence of what the new ownership is now doing to prevent repetition of the failure. If we are not satisfied that this is unlikely, we may decide that, as a group, they are unsuitable to be managers of the new firm.

How we decide the outcome of a firm application

We can decide to authorise the firm free from conditions, with conditions, or refuse authorisation altogether, although this last one is rare. We will only refuse if we decide there is no suitable alternative, such as imposing conditions on the way the firm can practise to manage the risks we have identified through the authorisation process.

Authorisation

We will authorise the firm if we are satisfied that all the requirements set out above are met and no factors exist which justify a refusal or suggest that there is a risk that needs to be managed by imposing conditions.

Authorisation with conditions

All firms we regulate are subject to conditions which require them to put in place arrangements to comply with our regulatory arrangements.23  

However, there will be occasions where a firm meets the minimum requirements to be authorised but where we consider that extra conditions are needed to mitigate a risk we have identified during the authorisation process.

Our rules24 provide that we can impose conditions if it is necessary to limit, restrict or control one or more of the following:

  1. an activity which is likely to put at risk clients' or others interests
  2. if we consider a person unsuitable to undertake a particular activity
  3. business agreements, associations or practices which are considered a risk to clients or others
  4. insolvency events including bankruptcy and individual voluntary arrangements
  5. if we have concerns over compliance with the regulatory arrangements
  6. if we consider there are risks to the way in which legal activity will be carried on
  7. a risk to compliance with the regulatory objectives.

Conditions can be imposed on initial authorisation, or later, if a risk emerges that requires it.

Example 4

A solicitor applied for authorisation of a new limited company as a recognised body. She was the sole owner and manager as well as the proposed COLP and COFA. She was setting this firm up as her former partnership was being wound down following the departure of the only other partner. She had no regulatory history of concern.

However, at the time of the application, we were investigating her former firm which had money missing from client account. The solicitor told us that everything to do with the accounts was overseen by her former partner, who was also the COFA.

It was noted that the solicitor had personally replaced the missing money within three months of it being identified by us. It was also confirmed that she had relied on her partner, the COFA, to deal with all accounting issues. She denied she had benefitted from the shortage. Finally, the solicitor was proactive in undertaking a number of courses to improve her knowledge of her regulatory obligations, in particular the accounts rules. This reduced the risk posed by the new firm but, until the outcome of the investigation was known, we could not be sure the extent to which the solicitor was personally responsible for the breaches. Authorising her firm at that stage raised the risk that the same issues may occur and adversely affect future clients.

We therefore considered whether there was a condition that would allow us to authorise the firm but manage the risk posed. It was decided that a condition on the authorisation requiring the firm to report to us quarterly on the client account and provide reconciliation statements would allow us to monitor the firm and quickly become aware if there were any issues in the new firm. The solicitor agreed to the condition and the firm was authorised on that basis.

Example 5

A solicitor applied for authorisation of an existing limited company he owned to provide litigation and probate services. He was the sole manager and owner.

As part of the application, the solicitor provided details about his past work. It appeared from this information that he may have been providing reserved legal services to the public and other firms under the name of his non-authorised company.

Concerns were raised with the solicitor about this. The solicitor saw nothing wrong in his arrangements to date and considered his own authorisation as a practising solicitor allowed him to offer such services. Checks verified he had no sole practitioner authorisation and was not employed by any other authorised firm. When asked why he now sought authorisation of the firm, if he considered what he was currently doing was permitted, he could not provide an answer.

The solicitor refused to respond to the questions as to the basis for his view or evidence to support it. The evidence he provided only highlighted that services had been provided under the name of the company.

We were satisfied that the solicitor had been practising from a non-authorised entity, with reserved legal services being offered in the name of that entity.

Had the solicitor accepted that he was not complying with the regulations but was seeking to rectify that, we may have been able to consider authorisation with conditions.

However, as the solicitor either could not identify a problem or was not prepared to admit it, we considered a number of grounds for refusal were met. We decided that there was no condition that could adequately mitigate the risk that he either did not understand the law and the regulations or that he was not concerned with compliance with them. We therefore refused the application on the basis we were not satisfied that:

  • the solicitor was suitable to operate and control an authorised firm;
  • the firm would comply with our regulatory arrangements; and
  • it was in the public interest to grant authorisation.

Our concerns about the solicitor practising from a non-authorised firm were referred for further investigation.

Appeals

A right of appeal exists where authorisation is refused or granted subject to a condition. 

Publication

We keep a register of all authorised firms which contains specific information relating to the firm's authorisation, such as trading names, practising address, details of its managers, etc.25 We will also publish details of any conditions imposed on the authorisation.

Temporary Emergency Authorisation (TEA) of a firm

Death of a partner or partnership split

We may grant TEA to a new partnership or a new sole practitioner firm that is formed following certain events. Those are where a partnership ceases due to the death of the only other partner or a partnership split.

Where we agree to grant this authorisation, we will grant the approval from the date of the event giving rise to the application (ie the death or partnership split).

We will only grant TEA if the firm meets strict criteria.26 An applicant is eligible to apply for TEA if they:

  1. notify us within 7 days of the death or partnership split; and
  2. where the applicant will be a sole practitioner, they are a solicitor or REL.

Where we grant TEA, it is for an initial period of 28 days from the date of commencement (ie the event giving rise to the application). By the end of that period, the applicant must either have ceased to practise or submitted a substantive application for authorisation.

Where we receive a substantive application before the initial 28 days expires, the TEA will be extended to the date of determination of that application.

Due to the temporary and emergency nature of such an authorisation, our checks will necessarily be limited. Any decision to grant TEA will not prejudice our ability to refuse, or impose conditions in respect of, the substantive application for authorisation.

We will only grant TEA if we are satisfied that:

  • the applicant could not reasonably have commenced an application for authorisation in advance of the event
  • the firm eligibility requirements are met27
  • the firm meets the requirements in respect of: formation, registered office, practising address, composition of an authorised body, and persons who must be "qualified to supervise"; 28 and
  • the firm will comply with SRA Indemnity Insurance Rules and requirements in respect of their name (ie that it is not misleading).

We may grant TEA free from conditions or subject to conditions. If we do impose conditions, it will be on the same grounds as we would for any new firm authorisation, as set out above.

Death of a sole practitioner

Where a sole practitioner dies, we may grant TEA for the recognised sole practice to another solicitor or REL who is:

  • the sole practitioner's executor
  • a practice manager appointed by the sole practitioner's personal representatives; or
  • an employee of the firm.

To be eligible for TEA in these circumstances, we must be informed of the death within seven days and the application must be made within 28 days of the date of death.

If TEA is granted, it will run from the date of death and will cease on the earlier of:

  • the winding up of the estate; or
  • 12 months from the date of death.

Notes

1. These are detailed at section 12 of the Legal Services Act 2007. The SRA is permitted to regulate: the exercise of a right of audience; the conduct of litigation; reserved instrument activities; probate activities; and the administration of oaths.

2. Section 14 Legal Services Act 2007.

3. Section 19 and Schedule 3 Legal Services Act 2007.

4. This is the case for bodies "recognised" under the Administration of Justice Act 1985.

5. Section 24 Solicitors Act 1974.

6. An owner is a partner in a partnership or any person holding a material interest in an authorised body as defined by Schedule 13 Legal Services Act 2007.

7. In this guidance, lawyer means a lawyer of England and Wales, a Registered European Lawyer, a Registered Foreign Lawyer or an Exempt European Lawyer.

8. Full eligibility is detailed at Rule 13.3 SRA Practice Framework Rules 2011.

9. Full eligibility is detailed at Rule 13.1 SRA Practice Framework Rules 2011.

10. means, in summary, a body authorised by the SRA or another Legal Services Board approved regulator which has over 90% lawyer ownership (SRA Glossary 2012).

11. Full eligibility is detailed at Rule 14 SRA Practice Framework Rules 2011.

12. The regulatory objectives are set out in section 1 of the Legal Services Act 2007 and include: (a) protecting and promoting the public interest; (b) supporting the constitutional principle of the rule of law; (c) improving access to justice; (d) protecting and promoting the interests of consumers; (e) promoting competition in the provision of legal services; (f) encouraging an independent, strong, diverse and effective legal profession; (g) increasing public understanding of the citizen's legal rights and duties; and (h) promoting and maintaining adherence to specified key professional principles.

13. Rule 6.2 SRA Authorisation Rules 2011.

14. Rule 12 SRA Practice Framework Rules 2011.

15. Rule 6.4 SRA Authorisation Rules 2011.

16. COLPs and COFAs are responsible for maintaining regulatory compliance by the firm, its employees and managers. COFAs are responsible for ensuring compliance with the SRA Accounts Rules 2011, while COLPs are responsible for ensuring compliance with all other areas of the SRA Handbook 2011.

17. Rule 2.1 SRA Authorisation Rules 2011.

18. There is no charge for an LDP that meets the requirements to elect to be licensed.

19. We are required under our rules (and, in relation to licensed bodies, the Legal Services Act 2007) to make a decision within 6 months of receiving a complete application (extendable to 9 months).

20. Regulations 19(5) and (6) of the Provision of Services Regulations 2009.

21. Rule 6.3 SRA Authorisation Rules 2011.

22. Rule 6.4(a)(ii) SRA Authorisation Rules 2011.

23. Rule 8 of the SRA Authorisation Rules 2011 and guidance notes to that rule.

24. Rule 9.1 SRA Authorisation Rules 2011.

25. Rule 34 SRA Authorisation Rules 2011; section 9(2)(ea) and (eb) of the Administration of Justice Act 1985; and section 87 of the Legal Services Act 2007.

26. Rules 24 and 25 SRA Authorisation Rules 2011.

27. Rules 13.1, 13.3 or 14 SRA Practice Framework Rules 2011 (as applicable to the Applicant).

28. Rules 12, 15 and 16 SRA Practice Framework Rules 2011.