Regulation, ABSs and NfPs

Many not-for-profit agencies will have been focusing recently on the tenders for new legal aid contracts, writes Simon Pugh. But in between breathing a sigh of relief at the successful submission of your PQQ and the release of the ITT in September, there is another issue to consider.

How will you be regulated in the future? That is a question with some very significant implications for not-for-profit agencies (NfP) that employ lawyers.

NfPs that employ solicitors have been able to do so because of an exemption in the SRA’s Practice Framework Rules allowing employed solicitors to act for the public if they do so from a NfP that does not charge its clients for their services. Without it, we would only be allowed to practice from traditional firms (and more recently LDPs and MDPs).

The Legal Services Act 2007 created a new regulatory regime for legal services, or at least reserved legal activities and other work done by qualified lawyers. Since it is designed to be a comprehensive regime, allowing lawyers to practice both in traditional ways and in other, non-lawyer owned, business models, there is no longer a need for an exemption for NfPs. We work for non-lawyer owned organisations and provide legal services to persons other than our employer; that is now a permissible business model so no need to make special provision.

But the flip side of that is that any organisation that employs solicitors has to be regulated, either as a solicitors firm or as an Alternative Business Structure (ABS). Currently only the Solicitors Regulation Authority can license ABSs wanting to do litigation and advocacy.

So any NfP that employs solicitors to provide reserved legal activities (primarily conducting litigation and exercising a right of audience in the courts) will have to become licensed and regulated by the SRA.

NfPs, with some other organisations, are designated as ‘special bodies’ by the Act. Commercial organisations are already able – required – to become ABSs. Special bodies are not until the Lord Chancellor extends the Act to us. When he does, s106 gives legal services regulators the power to vary some (but not all) of the licensing regime for special bodies.

The Legal Services Board is currently consulting on when to extend the ABS regime to special bodies, and what regulation should look like when it does. It is proposing regulation from April 2014, meaning any NfP that employs lawyers will have to be licensed as an ABS by then. The SRA’s rules allow them to take six to nine months to consider an application, and the application itself is very detailed, so to be licensed by April 2014 an application would have to be ready to submit by late summer 2013.

Any NfP that employs lawyers will need to comply both with the Act and with the SRA Handbook from the date they are licensed. This includes:

  • All ‘managers’ (which means those with ultimate ownership and control; for most NfPs the board of trustees or management committee) must be accepted as ‘fit and proper’ and are ultimately responsible for ensuring the organisation complies with the rules. At least one manager must be a lawyer. This creates new responsibilities and duties for trustee boards, who are in many cases volunteers
  • A Compliance Officer for Legal Practice (COLP) and Compliance Officer for Finance and Administration (COFA) must be appointed. The COFA is responsible for ensuring the body complies with the SRA’s Accounts Rules, the COLP for compliance with all other rules. This puts a particular burden on one or two employees who have a series of very specific duties imposed on them. The COLP must be a solicitor. If the organisation is regulated as an ABS, all of its legal activities – not just reserved activities or work done by lawyers – become regulated. This requirement may create particular challenges in organisations with separate solicitor and advice teams, or that do generalist as well as specialist advice, since the COLP is responsible for all legal activity (defined by s12 of the Act very broadly). If part of your legal activity – the solicitor’s work – is regulated then all of your legal activity is regulated. You are either wholly in or wholly out of the regulated sector. The COLP and COFA must not just enforce compliance internally, but must report any breaches to the SRA – there is a whistle-blowing obligation.
  • The whole organisation and all its staff come within the regulatory reach of the SRA which has the same powers of discipline, sanction and intervention over ABSs as it does over private practice. All employees, whether or not engaged in legal activity themselves, have a duty to ensure that they do not cause or contribute to a breach of the rules. This will affect NfPs that also carry out non-legal work, or have fundraising or campaigning arms.

The LSB is also consulting on whether some of the other specific requirements of the Act and SRA rules should be waived for special bodies. It recommends that the prohibition on NfPs charging for advice should be removed immediately – it remains to be seen what the SRA’s response to that will be.

So while the timing of the consultation is not great, this is a very important issue with significant implications for NfP solicitor agencies.

The consultation paper can be found here and the deadline for responses is 16th July.




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