Changing Regulators: Planning for the future
Regulatory choice is now a reality. Firms can strategically review the benefits and drawbacks of different regulatory systems, before choosing how structure their business, says Katie Jackson of Honne Ltd.
If you are worried about the cost of regulation, compliance with CQS, and PII premiums, you may find it worthwhile exploring the option of a new regulator. Here is our guide to finding your place in the new ‘regulatory market’:
1. Understand your potential regulators, or whether you need to be regulated at all
Historically, solicitors were regulated by the Solicitors Regulation Authority; Licensed Conveyancers by the Council for Licensed Conveyancers; Barristers by the Bar Standards Board, and so on. With the advent of Alternative Business Structures, regulators opened their regulatory regime to different types of lawyers. Now, a solicitor’s firm could hive off their conveyancing and probate work into a new business regulated by the CLC, or have their advocacy regulated in a separate business by the BSB. CILEX now offer direct regulation for certain reserved activities, and ICAEW regulate probate. There are other regulators besides, depending on the type of work you do.
But it is also worth asking – does your business need to be regulated at all? With the changes to the SRA’s separate business rule, solicitors can now run businesses providing non reserved legal services, provided they are not held out as a solicitor and certain other safeguards are in place. If a substantial amount of your business is unreserved work, it may be worth exploring this option.
One of the most common examples we have seen is moving from the SRA to the CLC, so we explore this option in more detail, below.
2. Consider the pros and cons
If we take the example of a high street firm moving from the SRA to the CLC, we could see the following benefits and risks:
- PII Master Policy – the CLC has a master policy for PII which may provide lower premiums in some cases.
- Specialist regulation – the CLC is a specialist conveyancing and probate regulator, and the handbook is tailored as such.
- No CQS re-accreditation – CQS does not apply to CLC firms, so there is no accreditation process. The CLC say their regulatory regime offers the protection of specialisation.
- An approachable regulator – the CLC has a reputation for being pragmatic and approachable.
- Panel membership – it is important to discuss any potential changes with lenders to ensure panel membership would be maintained.
- Logistics and cost of re-structure – If you have an existing firm, with existing staff, premises, clients and contacts, how will this impact on them? The costs, both financially, and reputationally, need to be considered carefully.
- Visits – the CLC generally conduct more visits than their SRA counterparts. This can be helpful (see benefits, above), but can also be a surprise to those who have not been visited before.
- Developing new systems and procedures – this is often a worry, but provided you have a well run firm, with good compliance it is possible to simply make alterations. Referral fees are permitted (provided they are transparent to the client) and acting on both sides is also allowed (subject to some safeguards).
3. Look at the practicalities
Ensure you will get the benefits you perceive by clearly planning and costing the move. Will a remaining part of a law firm be able to survive without conveyancing or probate? Regarding insurance, talk to your own brokers, and to Willis – brokers for the CLC master policy; ensure you have a complete picture of options available to you. As mentioned above, it is also important to discuss the move with lenders before taking any action to ensure panel membership is not lost.
Consider carefully how the new business will be structured, who and what will form it, and how files and other office requirements will move between the two. Service agreements could be used if necessary. If part of a firm is hived off, they will be a separate business – sharing premises, names, staff and other systems, presents a risk that would need to be mitigated.
It is fairly straightforward to transfer to CLC regulation as a solicitor. If you are a solicitor practising in conveyancing you can keep your practising certificate with the SRA, but apply to also become a Licensed Conveyancer. As for the firm, if there will be at least one Licensed Conveyancer manager, you could apply to the CLC to be a recognised body, otherwise you will need to apply as an ABS.
Katie Jackson is a compliance consultant with Honne Ltd. Katie is a former inspector and investigator with the CLC and SRA. You can email Katie to discuss the practicalities of switching regulators at [email protected].