LSB request rejected: SRA confirm no review into separate business rule

14 March 2013

The Solicitors Regulation Authority ("SRA") have rejected the Legal Services Board ("LSB") request that they conduct a review of the separate business rule ("SBR"), as it is not in the public interest to do so and the necessary resources are not available.

The rule can be read here.

The Separate Business Rule, contained at chapter 12 of the Code of Conduct, prevents solicitors and alternative business structures from hiving off non reserved legal work into an unregulated business. (There are currently just six areas of reserved legal activity- advocacy, litigation, conveyancing, probate, administration of oaths and notarial work.)

The aim of the rule is to protect consumers by restricting services that can be provided through a separate business, which is not authorised by the SRA. The LSB argue that post the Legal Services Act 2007, there have been unintended consequences resulting from the SBR, as it tends to favour businesses with no legal sector experience. They consider that the SBR is a major bar to alternative business structures as it "adds to the costs that consumers pay, distorts competition and prevents innovation." Whilst the SRA have the power to waive the rule in appropriate circumstances, the LSB expressed concern that a rule that is frequently waived is likely to be disproportionate.

Ultimately the LSB made clear to the SRA that they did not consider the SBR to be compatible with the regulatory objectives and better regulation principles. In response, the SRA committed to undertake a review by May 2012. When the review did not go ahead, the LSB wrote to the SRA in January 2013 stating that the time had come to agree to the scope and timing of the review.

To the LSB's surprise, the SRA has taken a volte face confirming that such a review is not within their 2013 programme as it is not a priority. Further it appears that the SRA do not consider the rule to be a "significant stumbling block to innovation" given that they can waive aspects of the rule whenever justified.

News of the SRA's decision has been met with criticism, with one critic remarking that it is "protection of title rather than public". Whilst the SRA have pledged to keep the matter under review, given past broken promises, changes to the SBR should not be expected anytime in the near future.

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