FAQs: Legal Services Act and ABSs

The Legal Services Act does three main things.

1. It creates the Legal Services Board (LSB) to supervise the regulation of legal services by all approved regulators, such as the SRA, the Bar Standards Board and the Council for Licensed Conveyancers.
2. It creates the Office for Legal Complaints (OLC)—a new independent ombudsman service to deal with all consumer complaints about legal services. The OLC will cover the work of all lawyers and will deal with redress—not with regulation.
3. It enables new forms of legal practice to develop—both legal disciplinary practices or LDPs (firms involving different kinds of lawyers, and up to 25 per cent non-lawyers, but still providing legal services) and alternative business structures or ABSs, which will allow external ownership of legal businesses ("Tesco law"), multidisciplinary practices (providing legal and other services) and many things in between.

Several things have happened since the Legal Services Act was made in October 2007.

• The chair (David Edmonds) and the board members of the Legal Services Board (LSB) have been appointed so that the board can fully take up its role (to supervise approved regulators etc.).
• The chair and the board members of the Office for Legal Complaints (OLC) have been appointed, so that the OLC is fully operational (to handle complaints) by late 2010.
• In July 2008, the SRA Board made a package of amendments to the rules and regulations to support LDPs and firm-based regulation. These rules and regulations have been effective since 31 March 2009.
• The LSB has decided the detail of its new licensing scheme, and approved regulators can now apply to the LSB to become licensing authorities for the purpose of regulating ABSs. The SRA has applied, on behalf of the Law Society (which is named as the approved regulator in the Legal Services Act) to become a licensing authority for ABSs. Before the SRA is designated as a licensing authority, parliamentary approval processes need to be completed. So, beware of jumping the gun. Visit www.sra.org.uk/abs regularly for the up-to-date position.

The Legal Services Act brings in a separate system for sole practitioners. Since July 2009, anyone wanting to practise in England and Wales as a sole practitioner (solicitor or registered European lawyer) needs to be authorised by the SRA as a recognised sole practitioner. This means that we can regulate sole practitioners in the same way as recognised bodies.  

Since the adoption of firm-based regulation on 31 March 2009, all partnerships need to be recognised bodies. The regulatory framework now applies to the firm (as well as to individuals in it), whether it is a partnership or a corporate practice. 

We mean the application of our regulatory powers, when appropriate, to the firm as an entity rather than through individual solicitors. The Legal Services Act requires that, in order to do reserved legal work for the public, both the individual and the firm must be authorised. The Act facilitates this by giving the SRA new powers to

• control the setting up of new partnerships and sole practices,
• impose conditions on firms, and
• apply our rules to non-solicitor managers and employees (see our guidance New duties for employees and firms).

The Act also gives the SRA and the Solicitors Disciplinary Tribunal new powers to impose sanctions on firms, and in relation to non-solicitor managers and employees.

Of course, it will still be appropriate in many situations to apply sanctions to individuals—for instance, striking a solicitor off the roll for dishonesty—as well as, or instead of, applying them to the firm. For more information, see our consultation Better regulation: A new approach to regulating legal services firms and solicitors—please note that this closed on 31 March 2009.

The Legal Services Act uses the term "manager" to mean

• a partner in a partnership,
• a director of a company, or
• a member of a limited liability partnership (LLP).

This is reflected in the amended Code of Conduct.

The term is used in relation to managers of all firms and not just LDPs and ABSs.

Before starting to practise, you need to apply for recognition of your new firm as a recognised body, whether it is a partnership or a corporate practice. If you want to be a sole principal, you need to apply to be authorised as a recognised sole practitioner. There are application forms (RB1, RB2, RB3) for new recognised bodies, and application form RSP1 for new recognised sole practitioners. If your recognised body is to be an LDP with any non-lawyer managers, you will also need approval for the non-lawyer(s)—there is an application form (NL1).

No. Existing indemnity insurance policies of partnerships and sole practices were unaffected by passporting. Equally, your existing insurance would not be affected by the firm becoming an LDP. However, you must keep your insurer informed. LDPs require qualifying insurance in the same way as any other practice.

 No. Although, with passporting, your partnership will now be a recognised body, if you convert the firm you will need to make an application for recognition of the new LLP.

When we adopted firm-based regulation on 31 March 2009, existing partnerships automatically had their records updated to reflect their new recognised-body status.

In a separate process on 1 July 2009, sole practitioners then practising were passported to become recognised sole practitioners. The separation of these processes was purely to help us manage resources and ensure the processes were carried out efficiently and with minimal impact on the profession.

All passported partnerships and sole practitioners should have received a letter from us confirming the new status of their partnership or practice and the firm's SRA number.

Changes required by the Legal Services Act will impact on the annual practising certificate renewal process. With firm-based regulation, we now have an annual renewal process for all firms, including recognised sole practitioners, which links to the annual practising certificate exercise for individual solicitors.

We don't intend to make significant changes to the fees paid for practising certificates straight away. We are working on the development of an appropriate and fair system of fee allocation and collection and have recently consulted on this. We propose to make changes in an evolutionary way, where possible, so we are unlikely to implement significant changes to the fee structure before November 2010. In the meantime, the main expense of regulation will continue to be through the practising certificate fee.

From 1 July 2009 any solicitor who wants to practise on his or her own account will need to be a recognised sole practitioner. On 1 July 2009 existing sole practices were passported to become recognised sole practitioners. See the passporting section above for more background details.

Before setting up, you need to apply for initial approval to be a recognised sole practitioner on form RSP1, which is similar to the application for firms to be granted recognised body status. Please submit your application at least four weeks before you want to begin practising through your new firm (as you cannot set up until your application has been granted).

No, we will not issue separate certificates. The authorisation is part of the practising certificate, so details of it will be added to your practising certificate when you are granted approval (if approval is granted during a practising-certificate year we will ask you to send us your existing PC for this purpose).

If you want to have a salaried partner, or to hold anyone out as a partner of the firm, you cannot be a recognised sole practitioner. If you wish to have such partners, you should apply for recognition of your firm as a partnership on form RB1.

 No. All sole practitioners will need to apply for annual renewal of approval each October at the same time as recognised bodies apply for renewal of their recognition. The forms for renewal of your approval and for renewal of your practising certificate will be sent to you together.

No. Claims management companies are not authorised non-SRA firms. So, if you work for such a company, it remains the case that you can only provide legal services to the company itself—or, under the limited exception, applying to in-house solicitors in rule 13. This is likely to change with the ABSs, so look out for consultations on changes to the Code. 

 The Legal Services Act specifically extends our rule-making powers to all employees and managers of firms, and the amended Code of Conduct reflects this. Firms already need to ensure that employees comply with our rules—the changes mean that we can take direct regulatory action against an employee, as well as the firm, if appropriate. (See our guidance New duties for employees and firms.)

Yes. From 31 March 2009, solicitors employed in firms regulated by the Council of Licensed Conveyancers (CLC) must do so in their professional capacity and will, therefore, need practising certificates. However, you are now able to become a manager of the firm (subject to the rules of the CLC permitting it).

The same applies to a solicitor working for any other authorised non-SRA firm (such as a firm of patent agents or trade mark agents).

The Legal Services Act amends the statutory powers of existing regulators so that they can develop firm-based regulation. Firm-based regulation is unlikely to affect in-house lawyers who provide legal services mainly to their employer. It may affect in-house lawyers who currently provide services to the public under rule 13 of the Solicitors' Code of Conduct 2007, but not until the advent of the licensing regime for ABSs, when they may need to seek a licence and be regulated as an ABS. 

You are affected only indirectly at present. Firm-based regulation does not currently extend to wholly overseas firms. However, the rule changes introduced for LDPs have meant some changes to rules affecting overseas practice—for instance, which overseas firms have to produce an accountant's report (see rule 15 of the Code of Conduct).

Whether you will be able to practise through an ABS in future will depend on a number of factors, including legal and regulatory restrictions on other jurisdictions.

 Yes. Because you have a head office in England or Wales, the firm needs to be a recognised body and you should have been passported in March 2009—this would be the case whether your head office is in London or Paris.

Yes. Form NL1 and guidance notes, to apply for approval of a non-lawyer manager, are available. 

Any individual who is not legally qualified can be a manager in an LDP, provided they are approved by the SRA (this will include a Criminal Records Bureau check), and provided there is not more than 25 per cent non-lawyer ownership of the firm. The SRA can only approve individuals to be non-lawyer managers.

No. Although firms can have non-lawyer managers, only individual non-lawyers who have been approved by the SRA will qualify. When ABSs are launched, non-lawyer corporate bodies will be able to become managers of a firm, but this will be under a new regulatory scheme to be established by the Legal Services Board. 

As is the case now, a partner may be more or less active in the firm, but remains professionally and, in most cases, legally responsible. However, the Legal Services Act requires that any non-lawyer owners of practices will have to be managers. This means that a non-lawyer could only be a shareowner in a company if he is also a director of the company.

The fee to apply to the SRA for approval for a non-lawyer manager is £250. You also need to pay for the Criminal Records Bureau check. Generally, approval will not need to be renewed, although an approval could be withdrawn by the SRA, and will lapse if a non-lawyer ceases for two years to be a manager in a recognised body. 

Yes and no. If you have not completed your pupillage, you are not entitled to a practising certificate from the Bar Standards Board, so you cannot become a "manager" of the LDP as a practising barrister. Assuming you have no other qualification as a lawyer, you can still become a "manager" in the LDP, but only if the firm makes an application for approval through the "non-lawyer" route. If you are approved by the SRA to become a "manager" through this route, you will count as one of the maximum of 25 per cent non-lawyer "managers" of the LDP.

 The Bar Standards Board has published a series of FAQs on the Legal Services Act.

Subject to approval by the SRA, any non-lawyer can be a partner or manager of an LDP (provided the firm also gains recognition as a recognised body). However, non-lawyers can't represent more than 25 per cent of the ownership of the firm, or more than 25 per cent of the number of managers. Therefore, you and your son could not be the only partners in the firm until a system for ABSs has been developed.

Licensed conveyancers, barristers, notaries public, legal executives (Fellows), patent and trade mark agents, and law costs draftsmen are able to be managers of LDPs, along with solicitors, registered European lawyers and registered foreign lawyers.

Non-lawyers are not required to undertake specific training—we expect that firms will be keen to ensure that anyone taken into the firm is properly trained (and qualified, if appropriate) for the role they will fulfil. 

You can choose the Council for Licensed Conveyancers (CLC) as your regulator—provided you can comply with the CLC's rules (for example, you may need to have at least one licensed conveyancer as a manager in your firm), and provided your firm's practice is confined to work that can be regulated by the CLC.

Currently, the CLC regulates conveyancing and probate services, so your firm would not be able to provide other legal services to clients. There may also be indemnity insurance implications, as the change would probably trigger run-off cover.

Subject to the Council for Licensed Conveyancers rules permitting this, you can join a firm of licensed conveyancers as a manager or as an employee. Your work through that firm will be regulated by the CLC. However, you will still require a practising certificate, and you will remain subject to rule 1 (core duties) of the Solicitors' Code of Conduct.

The private equity company can't buy into the firm until ABSs are permitted. LDPs cannot include non-lawyer corporate membership. As to an option to buy, firms are warned to take great care. It could well give rise to problems under the rules. The ownership and control of firms that can be regulated by the SRA are constrained by the law and regulations. Additionally, a fee-sharing arrangement cannot go beyond what is permitted under rule 8.02. For example, an option to buy at less than a commercial rate could suggest a transfer of ownership at the earlier date.

This will not be possible until ABSs are launched in line with standards set by the Legal Services Board, which is unlikely to be before the latter half of 2011. Firms are warned against making arrangements that could breach the rules by jumping the gun (see our guidance Preparing for alternative business structures).

No. We only request details of managers of the firm and of employees who are solicitors, registered European lawyers and registered foreign lawyers. We will continue to ask for equality and diversity information to help us build a picture of the profession and to monitor progress. 

We will try to keep our requests for information to the minimum necessary to enable us to be an effective, risk-aware regulator. We will need to collect more information than we do at present. For instance, turnover figures, such as firms already provide to their insurers, will help us to

• assess risk,
• target our resources, and
• develop a more appropriate system for allocating and collecting fees.

Yes.

There have been significant changes to the rules and regulations, including the following:

• The SRA can regulate LDPs—these are (broadly) legal practices owned and managed by at least one solicitor or registered European lawyer, along with certain other lawyers, and up to 25 per cent of individuals who are non-lawyers.
• Unincorporated partnerships need to become recognised bodies.
• Sole practitioners need to be authorised as recognised sole practitioners.
• Existing sole practices and partnerships have been automatically passported to become recognised without having to undergo any formalities.
• Solicitors can join legal practices regulated by other approved regulators (e.g. the Council for Licensed Conveyancers) as owners, managers or employees.

 Existing firms received details of their SRA ID number in the reference of their passporting letter—or you can find it by visiting Find a solicitor, the Law Society's directory of solicitors, where it will be shown as your head office ID number.

We don't stipulate how you should show the information that needs to go on your notepaper, e-mails and website. Information given must not be misleading or inaccurate; so, for example, if you use a trading name you must also show the firm's recognised name (or registered name if you were a company or LLP) and you should take care that readers are clear what this is.

Partnerships and sole practices can display their SRA number as best suits their notepaper, for example:

• Solicitors Regulation Authority number 12345
• SRA no. 12345
• Regulated by the Solicitors Regulation Authority, no. 12345.

Yes. There were changes to the requirements in the publicity rule from 31 March 2009. There were periods of grace for firms to make any necessary modifications and to use up existing stocks of letterhead, but these have now passed. Briefly, the requirements are that all firms must show on their letterhead (and fax heading), website and emails

• the words "regulated by the Solicitors Regulation Authority", and
• the name under which the firm is recognised by the SRA and its SRA number if it is a partnership or sole practice (we will give details of these to existing firms in the passporting letters) or the registered name and number of the firm if it is a company or LLP.

Recognised bodies needed to have made any necessary changes by 1 October 2009 and sole practitioners by 1 January 2010.

It can be. The approved regulators are those that are approved for the purpose of regulating any of the reserved legal activities. Only an approved regulator can apply to be a licensing authority so all of the licensing authorities will be approved regulators. However, some approved regulators may not (at least initially) apply to become licensing authorities.

ABSs or alternative business structures are a new form of practice that will allow non-lawyer organisations to provide legal services, and lawyers much greater flexibility in the way they practise. The introduction of ABSs will allow much wider options in how lawyers and non-lawyers can share the management and control of a business which provides reserved legal services to the public. ABSs will allow external investment and ownership of law firms.

 Our plan is not to prohibit any models provided that they meet the minimum requirements, such as the involvement of at least one non-lawyer owner or manager, and at least one lawyer manager. Our emphasis in considering applications for licences will be on ensuring that the organisation satisfies any fit and proper tests for non-lawyer owners/managers and that it is a suitable regulatory model, for example in relation to risks to clients.

 The Government introduced the Legal Services Act 2007 under which ABSs will be permitted to allow greater competition in service delivery and innovative ways of meeting consumer demand for legal services, subject to appropriate consumer safeguards.

We think that there will be broadly two models of ABS, although we expect a lot of variations on these themes:

• ABSs providing legal services only—these could involve many ownership/management options from traditional law firms and legal disciplinary practices which have at least one non-lawyer manager, ranging to complete or partial external ownership of the ABS with legal services being provided through a ring-fenced entity.
• ABSs providing mixed services—this would be a multi-disciplinary practice made up of different professional service providers providing a range of services within one entity, the "one stop shop".

It is unlikely. We will need to know the ultimate beneficial ownership of ABSs (as we do with traditional firms). Whether owners of ABSs need to satisfy any "fit and proper" tests will depend on the extent of their share in the firm so the SRA will need details of all owners and their interest in the firm. 

 Some types of option arrangement may be possible at this stage but you must be careful not to put your independence at risk—please refer to our guidance for help.

 They should be able to do so, but factors such as the potential for conflict of interest will need to be considered—putting conditions on a licence may be an option to deal with any areas of perceived risk. Further work will need to be undertaken on how we approach this type of issue.

 Provided the company is licensed by a licensing authority, such as the SRA, you could be employed as an in-house lawyer to act for the company’s customers. The work that you could do will depend on the range of regulated activities that the licensing authority can regulate. Note that if you are not going to provide reserved legal activities your employer should not need to be licensed.

 Yes, one of the opportunities will be for firms to get together and set up new arrangements for supporting their practices. For example, you could have a "hub and spoke" arrangement between legal firms and a central administration company (wholly or partly owned by non lawyers) under which the company might own part of the individual firms and take part of the profits whilst providing support such as updating systems and procedures and standard documents.

This will depend on the jurisdiction. If ABSs are permitted in the jurisdiction you want to practise in, we are likely to relax our regulations to allow it provided there are equivalent safeguards in place.

Solicitors are already able to practise wholly overseas with non-lawyers through firms not regulated by the SRA, provided the firm is 75 per cent owned and managed by lawyers and, generally, as long as it doesn't breach rules for local lawyers. Although no decisions have yet been made, when ABSs are permitted in England and Wales, our aim would be to allow greater flexibility to solicitors overseas too. However, we will need to consider this area in some detail because many jurisdictions do not permit lawyers to practise with non-lawyers.

Our rules currently apply to all managers, owners and employees of a solicitor’s practice or an LDP, and we are aiming to take a similar approach to those involved in ABSs. ABSs are likely to involve others, particularly members of other professions, who will also be subject to individual regulation by their own regulators, for example in multi-disciplinary practices which provide a range of different professional services. Each ABS will only have one legal entity regulator, but some ABSs may also have other regulators. This could happen where, for example, a firm of solicitors is also directly authorised by the FSA to provide mainstream investment services.

ABSs will be licensed and regulated by licensing authorities which are designated as such by the Lord Chancellor on the recommendation of the LSB. The SRA is working to be one of the first licensing authorities. Other regulators may also seek designation. The LSB's role will include overseeing the licensing authorities. 

In theory, yes. However, in large measure who can regulate an ABS will depend on the type of work that it wishes to carry out. An ABS will only be able to carry out reserved work that their regulator is able to authorise the firm to deal with. Other than notarial activities, the SRA can authorise the full range of reserved work. 

Our aim is that ABSs regulated by the SRA will be subject to the same regulatory requirements as the other firms that we regulate, so that clients will receive the same consumer protections—whatever type of firm they use. We aim to have one set of rules applying to traditional law firms and ABSs; this set of rules will be clear and easily accessible to clients and firms, as well as to any other interested parties. The rules will be outcomes focused, giving more flexibility and responsibility to firms by setting out clear outcomes, with firms deciding the best way to deliver these for their type of business. 

If the SRA grants your ABS its licence, the SRA will be the licensing authority that regulates it, and you will need to comply with the SRA's rules. The LSB will fulfil the role of oversight regulator of all of the licensing authorities (and the approved regulators) to ensure that they are regulating effectively and in accordance with the regulatory objectives in the Act. The LSB is also able to regulate directly as a licensing authority in its own right but it has not yet decided whether to do so. 

Yes, as an individual. At present where solicitors work for a firm of licensed conveyancers, their work through that firm will be regulated by the CLC, although they still need a practising certificate and remain subject to rule 1 (Core duties) of the Solicitors' Code of Conduct. As similar public interest issues will apply, this will be the most appropriate approach with ABSs. 

No, because the Act requires the HOLP to be a lawyer, as well as to be approved by the licensing authority. 

 It may be possible for the same person to do so provided they are approved for both roles by the licensing authority.

 We don't know yet what the fee will be but we are working to develop our systems of fee calculation to make them as fair and simple as possible.

The LSA requires all ABSs to have a Head of Legal Practice (known as the HOLP) and a Head of Finance and Administration (known as the HOFA). The HOLP must be a lawyer and will be responsible for ensuring compliance with the terms of the ABS's licence and for reporting to the licensing authority any failure to comply with the terms of the licence. The HOFA (who does not need to be a lawyer) will be responsible for ensuring compliance with the licensing rules that relate to the treatment of money held by the ABS and keeping of the firm's accounts, and is also required to report any breach of those rules to the licensing authority. 

We think it is important that clients receive the same level of consumer protection whether they use a traditional firm or an ABS and so are looking at how this can be achieved across a wide variety of business types. We will be consulting on what the best approach will be so please look out for this—you can sign up for our consultation alerts here.  

Yes. The current restrictions that require a non-lawyer owner of an LDP also to be a manager of it will not apply to an ABS so a non-lawyer could be just an investor. 

Yes, they will both need to be approved by the licensing authority. It is not possible to apply at the moment but please keep an eye on our website for the up to date position.

 No—there needs to be at least one lawyer who is a manager in an ABS but the majority of managers and all owners could be non-lawyers.

Whether you are a manager or an employee in the firm, the answer will depend on who are the managers. Like an LDP regulated by the SRA, provided the firm doesn’t have any non-lawyer managers when ABSs are introduced, the firm should be able to continue as a lawyers' practice under the regulation of the CLC. If it has any non-lawyer managers when ABSs are introduced the firm will need to become licensed as an ABS—it is hoped there will be transitional arrangements to deal with this. 

This will depend on the type of employer and on whether you carry out reserved legal activities for the public. If your role is purely to advise and act for your employer and you do not (and don’t plan to) provide such services to the public, your position should remain unchanged and you would not need to advise your employer to become a licensed body.

If you work for a commercial organisation such as an insurance company providing legal services, which include reserved legal activities, to the public or a section of the public your employer will almost certainly need to become licensed as an ABS. The only exemption will be if you act only for clients who are specified as not forming a section of the public, for example members of a trade union.

If your employer needs to apply for a licence but does not wish its whole business to become licensed as an ABS, an option would be for it to set up a separate body which is licensed and which employs you to provide the legal services.

 Possibly. If you have any non-lawyer managers in the firm you will no longer be eligible to be an LDP and will therefore need to become an ABS. We and the LSB are proposing to have transitional arrangements for firms in that situation. If the firm is a lawyer-only LDP you will be able to continue as an LDP when the ABS regime comes in.

 If you are employed by a "special body" such as a not for profit organisation providing legal services to the public which include reserved legal activities, your employer will need to become an ABS. However, a tailored ABS regime will be developed for these types of organisation and this will be to a later timetable than for commercial bodies. It may also be that, as such bodies are not commercially motivated, they can be regulated differently to commercial ABSs.

 We are considering whether the transitional arrangements could include a passporting exercise to move LDPs with non-lawyers into the ABS regime in a similar way to the passporting of partnerships to recognised body status in March 2009. The details of this will need to be developed nearer to "ABS day".

We are focusing our resources on the changes we need to make to implement the Legal Services Act. The picture is developing all the time, so please add sra.org.uk/LSA to your favourites and check back regularly.

Our e-newsletter, SRA Update, also includes news about our plans and progress. We send SRA Update, on an "as-required" basis, to all regulated individuals who have not previously unsubscribed. You also have the option of subscribing to SRA consultation alerts.