At the end of 2014 the Bar Standards Board (BSB), the Barristers' Regulator, successfully applied to the Legal Services Board for approval to regulate businesses owned and managed by Barristers and non-lawyers. This change in regulatory approach has potential repercussions for the Solicitors' professional indemnity insurance market. Are Solicitors going to see this development as a viable alternative to the open market?
Barristers previously wishing to provide legal services under the umbrella of a legal entity (whether a limited company or LLP) would fall outside the remit of the BSB and would have needed authorisation from a different regulator, for example the Solicitors Regulation Authority in the case of Barristers working in firms of Solicitors.
However, Barristers (whether trading alone or in partnership with other professionals such as Solicitors) can now create trading vehicles to provide legal advice under the auspices of the BSB. Given that the BSB has the power to allow Barristers to take on conduct of litigation and take instructions directly from clients, the parallels with the current function of Solicitors is obvious. These entities will also be able to employ legally qualified staff, including Solicitors.
The BSB has indicated that authorisation for such entities is likely to be limited to the type of specialist practice that it already regulates: "primarily advocacy, litigation and specialist legal advice". As such commoditised legal services such as residential conveyancing are unlikely to be carried out by such entities. There is also a barrier to conveyancing generally, as these entities will not be authorised to handle client money. In time the use of the BSB's escrow account service (BARCO) may help to overcome this issue, though this will invariably involve additional costs.
Authorisation from the BSB typically takes about six months, so it is only now we are starting to see these entities emerge. In general this has involved uptake from either individual Barristers working under direct access schemes or small firms of Solicitors run by Barristers.
Why do it?
There are obvious advantages to the new regime, particularly for Solicitors:
- The greater availability of professional indemnity insurance, at lower cost, via the Bar Mutual Indemnity Fund. Given recent issues with unrated insurers in the Solicitors' insurance market and the limited appetite amongst insurers to cover smaller firms, this development provides a genuine and potentially cheaper alternative.
- The lower regulatory and compliance requirements imposed on entities by the BSB, as compared with the SRA, which is likely to give rise to a cost saving.
The bar to holding client money may present an issue, although given the type of work that such entities are likely to conduct (ie litigation), this is unlikely to be a real barrier for many firms wishing to change.
In time this development may well impact on the Solicitors' professional indemnity market. Firms currently obtaining insurance from Qualifying Insurers now have a viable alternative for cover. Whilst this change is unlikely to impact on the way Solicitors' PI cover is underwritten or costed, it may well result in Solicitors (particularly smaller firms) leaving the main stream PI Market.