The Legal Services Act 2007 (the Act) introduced the ability for non-lawyers to invest in, own and manage legal practices through alternative business structures (ABS). This regulatory regime provides an opportunity for innovation in the legal services market, and will enable different types of professional service providers to set up business together. As a result, different types of business will emerge – as is the case with other parts of the economy.
An ABS must be licensed by a licensing authority (LA). Existing and potential approved regulators can apply to the LSB to become a LA (and for associated Orders from the Lord Chancellor). The LSB has issued guidance to LAs on the content of licensing rules for ABS. The guidance focuses on outcomes that LAs must seek to achieve, with the intention that regulation should target risk and consumer detriment.
Some bodies, though, currently benefit from a transitional period during which they may carry out reserved legal activities without the need to be licensed as an ABS (although this does not necessarily prevent them from applying for a licence now).
There are two different types of these bodies under the Act:
Each transitional protection will only come to an end by Order of the Lord Chancellor, on the LSB’s recommendation. We will only make the necessary recommendation once we are satisfied that there is at least one LA with appropriate arrangements in place to license the different bodies.
The Act gives transitional protection to non-commercial bodies (not for profit bodies, community interest companies, and independent trade unions). Once commenced, section 106 of the LSA allows non-commercial bodies and low-risk bodies (collectively known as special bodies) to ask a LA to make an order modifying its licensing rules and/or modifying or disapplying the approval requirements relating to ownership of licensed bodies.
Work so far
The LSB previously issued two documents (in April and December 2012) that considered what appropriate LA licensing arrangements for special bodies might look like. Responses identified a number of policy issues needing to be addressed before a recommendation could be made to the Lord Chancellor.
We have since explored these issues and possible options with stakeholders at individual meetings and at two workshops. The stakeholders included not-for-profit organisations, approved regulators and LAs, the Legal Ombudsman and the Ministry of Justice (MoJ).
In December 2014 work on licensing special bodies was deferred (following an earlier postponement in October 2013). This was because there is still no LA with suitable arrangements to license special bodies as ABS. As such, it is not appropriate for the time being to make a recommendation to the Lord Chancellor to end the transitional protection provided by section 23 of the Act.
The transitional protection for special bodies will remain in force for the foreseeable future. We will provide adequate notice prior to any future work in this area.
Law firms with Schedule 5 rights
There are currently some commercial law firms that, but for the transitional period established in Part 2 of Schedule 5 of the Act, would need an ABS licence. This includes legal disciplinary partnerships (LDPs), which were permitted as a result of the Act amending the Administration of Justice Act 1985.
Taking into account the limited evidence of risk to the regulatory objectives or of actual harm from these firms, the LSB has decided to also defer work on ending the transitional protections in the Schedule for the forseeable future (unless there are signs of increased risks or harm in the meantime).
For more information please contact Chris Nichols