The Legal Services Board (LSB) recently unveiled plans for alternative business structures (ABS) which will allow lawyers and non-lawyers (such as accountants) to own and manage the same business. Gina Dyer assesses the plans and the possible implications for the accountancy sector.

In a recent discussion paper entitled ‘Wider Access, Better Value, Strong Protection’, the LSB said it wanted to widen the availability of legal advice in order to create ‘a more competitive and consumer-driven market for legal services’. The proposals include allowing joint accountancy and legal companies, as well as joint legal and commercial firms.

While the decision to open the market to ABS was made in the Legal Services Act of 2007, the new paper puts forward plans for when and how it will be implemented. A consultation exercise will run until 14 August and the new plans are likely to be in place by 2011.

A step towards “Tesco law”?
In a speech at Legal Week’s ‘Future of Legal Services Forum’, LSB chairman David Edmonds said: “Widening access is about intervention in the market place to encourage suppliers to make available services that people want and need at prices they can afford”.

He also argued that increased competition would be good for the legal services sector, saying: “All firms will need to respond to the changing market, whether they adopt ABS or not”.

However, a recent report in the Daily Telegraph dubbed the plans as a step towards ‘Tesco law’, with critics arguing that it could undermine the quality of advice given out.

“It is a radical step”, admits Charles Wilson, a partner specialising in corporate and commercial law at law firm Trowers & Hamlins LLP. “It’s going to be particularly significant for areas of law such as personal injury and conveyancing as these are the sorts of areas which would be attractive to commercial entities like Tesco”.

However, he refutes claims it will dilute the quality of service: “It’s just the method of delivery and the composition of the entity giving the advice that will have changed; it’s still the case that lawyers will be carrying out the legal work. Provided the relevant protections are in place, it shouldn’t affect the quality of work”.

Accountants and lawyers
In the case of accountants joining law firms under the new structures, the transition might not be so bad: “The criticism here is that commercial bodies (such as supermarkets) who buy into law firms in future will not be able to apply the same technical and ethical standards as a qualified solicitor. I don’t think that sort of criticism could be levelled in the case of accountants joining legal firms because they are professionally qualified and are used to complying with same sort of ethical standards as lawyers are”, says John Davies, head of business law at the Association of Certified Chartered Accountants (ACCA).

For accountants, a key sticking point is likely to be the fact that they will have to sign up to the rules of the legal regulatory body. “The specific question is to what extent will there be conflict and friction between the rules of the accountancy bodies and the law regulators? That’s something that needs to be looked at in detail”, notes Davies.

In the case of audit firms, there could be a barrier to entry into the new structures. “There is a real problem with regards to audit firms getting involved in these operations because they have to be controlled by qualified auditors. There’s no way one of these new legal structures could be created which deals only with audit work because that sort of work has to carried out by firms controlled by qualified auditors”, says Davies.

He therefore suggests that if accountancy firms are going to get involved with ABS, “it will be a question of the companies buying small stakes in the law firm and taking a minority role in the work that it does”.

The LSB’s discussion paper states that the first ABS licences should be granted in mid 2011, but the new regulatory bodies still need to be appointed and a new licensing framework will need to be created to regulate the process. “There’s got to be a rigorous appraisal of the rules to identify what provisions are going to be made to identify problems and encourage other professional services to take part in these ABSs”, says Davies.

He also stresses that consultation is required in the wider professional community to assess whether there is a real interest on the part of other professional services providers such as accountants in these new structures.

In the current financial climate, there may well be a business case for joining forces, according to Wilson: “It could bring savings in terms of operating costs and overheads, and hopefully some of that saving will be passed onto clients. It’s only going to increase competition and perhaps lead to some interesting new mergers and tie-ups forming in the coming years”.

Summary of proposals

• The discussion paper argues that professional regulations have tightly restricted the management, ownership and financing or organisations permitted to offer legal services. It proposes scaling back these restrictions, suggesting that each of the approved regulators of the legal profession can become a licensing authority, able to grant licences to new types of providers with alternative business structures (ABS).
  
• The new ABS firms might include a practice with a majority of non-lawyer managers; a high street firm offering accountancy services alongside legal services; or a large corporate firm offering personal client advisory work alongside larger scale work.
  
• The first ABS licences should be granted in mid 2011. This will require a new licensing framework. A high level ABS implementation group will be set up to consult with regulators and stakeholders on the development of the regime.
  
• The LSB will act primarily as an oversight regulator with backstop direct licensing powers. A number of other approved regulators are expected to become licensing authorities.
  
• LSB will issue its own licensing rules in the first of 2011.
  
• Licensing authorities will also have to develop rules to deal with the risks associated with ABS.
  
• Regulators will need to shift their focus from regulating the conduct of individual lawyers towards regulation of the entity providing legal services.

The full discussion paper can be accessed here [1].