Impact assessment

Alternative business structures - early conclusions

Business unit: ABS TeamAssessment date:  07 October 2010Publication date:  21 October 2010

This equality impact assessment is superseded by an updated version published on 4 March 2011.

Introduction

1. The introduction of alternative business structures (ABSs) is one of the main reasons behind the revision of our current range of rules and regulations, as we are currently preparing to become a designated competent licensing authority (LA) in order to be able to license and regulate ABSs from October 2011.

2. The SRA considers it important, wherever possible, to ensure that ABSs are regulated in the same way as traditional firms to achieve the same degree of protection for all consumers of legal services, regardless of where these services come from. Steps are therefore being taken to try and harmonise the regulatory requirements for recognised bodies and ABSs, as far as possible. Where differences exist, the justification for them will be based on the proportionality of regulatory burden and the degree of risk posed by different types of firm to consumers and the public interest.

3. As we develop the new Handbook and our new approach to outcomes-focused regulation, we are also looking separately at the potential equality impact of ABSs entering the legal market in October 2011. This early report sets out some of the issues that we will be looking at in more detail over the coming months.

Background

4. The Legal Services Act 2007 set out a new regulatory framework for regulators and the ownership of legal services providers. The Act enables new forms of legal practice to develop, these being:

  • legal disciplinary practices (LDPs), which are firms providing exclusively legal services but involving different kinds of lawyers, and up to 25 per cent of non-lawyers; and
  • alternative business structures (ABSs), which will allow external ownership of legal businesses and multi-disciplinary practices (providing legal and other services).

5. The introduction of ABSs will allow much wider choice in how lawyers and non-lawyers can share the management and control of businesses which provide reserved legal services to the public.

Aims and objectives of alternative business structures

6. The main aims and objectives of introducing ABSs are:

  • to improve consumer choice and value,
  • to remove existing restrictions on the ownership of law firms, and
  • to allow for increased flexibility through offering integrated legal and other professional activities.

Stakeholders

7. The key stakeholders are:

  • consumers of legal services and the wider public,
  • all individuals and bodies regulated by the SRA and all individuals and bodies which may wish to seek recognition or authorisation from the SRA, and
  • the Law Society, the Legal Services Board, the Ministry of Justice, the Solicitors’ Disciplinary Tribunal, and the Legal Ombudsman.

The equality issues

8. We have consulted on the proposed introduction of ABSs and it is largely considered that the introduction to ABSs will have the greatest equality impact in relation to two specific areas:

  • the diversity of the profession, and
  • access to legal services.

9. In its regulatory impact assessment of the Legal Services Bill, the Ministry of Justice stated:

"In conclusion, the Government expects that the proposals for the reform of legal services will have a largely positive impact on BME groups in the legal profession. The ABS proposals could provide opportunities for smaller firms employing BME solicitors to expand, diversify and improve their efficiencies. In addition, through the possible reduction in prices, as a result of competition, the department anticipates that BME groups on lower incomes, but still within the ‘middle bracket’ of consumers, will have greater access to legal services through affordability, thus potentially improving access to justice."

10. The full regulatory impact assessment of the Legal Services Bill by the Ministry of Justice is available on the Ministry of Justice website. The Legal Services Board is conducting its own regulatory impact assessment and undertaking work to harness the opportunities provided by opening the market.

11. The responses we received during our consultation were, however, mixed as to whether ABSs will have a positive or negative impact on equality.

Diversity of the profession

12. Through our consultation, we are aware that small firms and groups representing BME solicitors are concerned about the impact of ABSs on the diversity of the profession. This concern is also shared by the Sole Practitioners Group. There is concern that consumers will seek legal services from ABSs rather than small firms, threatening the future of the small firm. The concentration of BME solicitors in small firms means that it is likely there would be a disproportionate impact upon BME solicitors if the introduction of ABSs were to lead to a reduction in the number of small firms in the market.

13. At the same time, however, it has been suggested that ABSs may lead to the introduction of networks of small firms which would have advantages for solicitors working within these firms, as well as for consumers. It is possible that, through these new ways of working, ABSs could offer a way forward for small firms. Opportunities may also be created for small firms to attract external finance to enable their business to expand.

14. Furthermore, it is possible that the introduction of ABSs may lead to an increased diversity of the profession. New job opportunities may be created which may encourage those who would not normally consider a career within the legal profession. As ABSs are likely to be more large-scale than traditional firms, they are likely to be able to offer more flexible working and wider career options, which may also attract a more diverse workforce. Within current legal services structures, the retention and progression of female and BME solicitors has been a concern as the traditional partnership route has not always been desirable or available to those with family or religious commitments, those wishing to take career breaks, or those with disabilities. The move away from traditional partner structures to more flexible, corporate style structures may work better for such groups and therefore have a positive impact on diversity. ABSs may also provide alternative paths into the profession by widening entry to those with vocational training experience alongside those with a degree.

Access to legal services

15. One of the main aims of introducing ABSs is to improve consumer choice and value. However, concerns have been raised that the development of ABSs will threaten the future of small firms, which provide a valuable service to local communities. Furthermore, if ABSs lead to a reduced geographical spread of firms, this could have a negative impact for some rural consumers. Whilst alternative means of accessing legal services would also be developed alongside ABSs, some consumers may prefer the face to face contact that the traditional firm offers. Concerns have also been raised about ABSs operating primarily for commercial motives rather than for genuine consumer regard.

16. On a positive note, ABSs may be able to provide legal services in the evening or at weekends, which may provide greater flexibility to consumers and therefore enhance access to justice. They may also lead to reduced costs for consumers, particularly for those on low incomes that do not qualify for legal aid.

Impact on human rights

17. It is not considered that the introduction of ABSs will interfere with any human rights.

Conclusions

18. There is divided opinion as to whether the introduction of ABSs will have a positive or negative impact on equality and diversity. At present, it is not clear as to how the legal services market will develop following the implementation of the Legal Services Act 2007. Our provisional view is that there is real potential for the introduction of ABSs to have a positive impact on both the profession, because of the improved employment opportunities, and for consumers, because it will facilitate improved access to legal services. However, it is important that we continually monitor the impact of ABSs, on both the profession and consumers, as ABSs begin to enter the legal marketplace. Particular focus will be given to monitoring the impact on small firms and sole practitioners and the diversity of those solicitors involved in an ABS compared to those choosing to remain within traditional firms. We will publish a full equality impact assessment in the new year and in any event will be closely monitoring the situation from October 2011.

19. The government and LSB are clear that ABSs will be entering the market from October 2011 onwards and maintaining the status quo is not an option. However, we do need to carry out further work to better understand what that impact might be and work with the profession to address their concerns, but also to raise awareness of the potential opportunities the new market may bring. Particular support may need to be given to small firms and sole practitioners to help them deal with the changes within legal services.

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