BT is the latest big name to have been awarded an alternative business structure (ABS) licence by the Solicitors Regulatory Authority. Yes, that’s BT as in ‘British Telecom’ and they’re now in the business of providing legal services to corporate customers, initially in the motor claims sector.
This is all possible because of the Legal Services Act 2007 which allows law firms to seek outside investment (or operate under external ownership) and for companies that are not legal firms to offer legal services. After its introduction, the phrase ‘Tesco law’ was coined to describe the idea that buying legal services would be as easy as supermarket shopping. Ironically, Tesco has not sought an ABS licence although the Co-Operative Group supermarket chain has and its application was approved in March, 2012.
The introduction of ABSs was a radical departure from existing legal structures such as partnerships and limited liability partnerships (LLP's). ABSs can be corporate bodies such as bank subsidiaries or insurers and may even be foreign registered.
The Legal Services Act 2007 - Key Concepts
The Legal Services Act 2007 is an Act of the UK Parliament that significantly changes the way legal services in England and Wales are delivered and regulated. The legislation has been embroiled in controversy ever since Sir David Clementi was appointed to carry out an independent review of the regulatory framework for legal services in July 2003. The government claims that the changes have been introduced to improve competition, flexibility, and choice for consumers.
The Act distinguishes between "reserved activities" and "non-reserved activities".
The reserved activities are:
- advocacy - the right to appear before and address a court, including the right to call and examine witnesses
- conducting litigation - e.g. the issuing of proceedings before any court in England and Wales, the commencement, prosecution and defence of such proceedings, and the performance of any ancillary functions in relation to such proceedings (such as entering appearances to actions)
- notarial activites
- the administration of oaths
Reserved activities can only be carried out by barristers or solicitors, whereas non-reserved activities can be provided by anyone, with or without a law degree.
The Legal Services Board
It brings the entire legal services market under one regulatory framework with the creation of the Legal Services Board (LSB), which replaces a number of different bodies regulating different but overlapping areas of the legal services market. The LSB will be an independent oversight regulator to regulate all reserved activities and any other form of legal services. It will ensure compliance by approved regulators such as the Law Society and the Bar Council who will work under the supervision of the LSB.
Office for Legal Complaints
The Act created the Office for Legal Complaints - the single organisation for all consumer complaints against all legal service providers which will investigate and process them. The Act raises the upper limit for compensation for successful complaints from £15,000 to £30,000.
What it means for the consumer
It means that legal service providers offering non-reserved activities will restyle themselves as ‘law firms’ rather than ‘solicitors’ so that they are no longer regulated by the Law Society. Being a member of the Law Society requires special indemnity insurance and a practising certificate and this adds to the overheads. Many new 'law firms' will still be run by solicitors, they’ll just be taking advantage of the fact that they don’t need Law Society Regulation anymore, but you should check their qualifications.
Many traditional law firms warn of the evils of commoditization of legal services but others argue that smaller law firms still have an important role to play offering a personalized service to the community. Proponents of ABSs argue that the greater competition will drive down prices, provide new ways to deliver legal services and improve access to the law. The ABS structure may also provide alternative career paths for solicitors who don’t want to seek partner status.
The argument that consumers don’t want to buy legal services on-line is a bit weak given the presence of so many internet based firms offering everything from real-time, on-line legal advice to downloadable legal document templates.
One thing’s for sure: ABSs are here to stay and change is afoot in the legal services market.