The next five years for law firms

The next five years for law firms

With the political dust settling from the general election, our panel of experts considers what the election result could mean for the legal practice in the UK.

The experts

Nick Jarrett-Kerr, LLB, specialist adviser to law firms and professional services firms

Giles Murphy, head of professional practices at Smith & Williamson

Iain Miller, partner in the litigation, advisory and regulatory department at Bevan Brittan

What does the election result mean for your practice area?

Nick Jarrett-Kerr (NJK): From a management and regulatory standpoint, the appointment of Michael Gove as Justice Minister is a very interesting one. It has for some time been suggested that the regulatory controls on lawyers have become very cumbersome and there are too many regulators, and I suspect Mr Gove will move to de-layer this to a great extent. I can’t see the Solicitors Regulation Authority surviving!

I regularly advise overseas firms in jurisdictions where the solicitors and barristers’ professions have been fused, and yet here we are in the UK with a split profession where nevertheless an alternative business structure can bridge the two branches. To my mind, a split profession—particularly in our deregulated jurisdiction—begins to look antiquated and out of line globally, so I wonder if we may yet get a fused profession.

Giles Murhpy (GM): I think everyone is a bit surprised by the result of the general election and are, therefore, trying to work out what the impact will be. Essentially, the answer is probably little change. We were all gearing ourselves up for a lot of negotiation and indecision as various parties attempted to form a government, followed by potentially much more significant change than is now likely to materialise.

Traditionally, the more right wing the government, the more business-oriented it tends to be. With this in mind, we might reasonably expect to see the removal of regulations and legislation that gets in the way of business, with fewer requirements for the need to seek or rely on professional advice. Again, while this may be all good and well for those seeking to push ahead with their business, it’s not so good for those professionals who have, up until now, earned their income by supplying this advice.

Iain Miller (IM): One area that has been highlighted as needing review in the run up to the general election is the Legal Services Act 2007 (LSA 2007). There are a number of structural problems with LSA 2007, and several technical issues that need to be addressed. However, it is also clear that, as it currently stands, LSA 2007 is not regulating what it needs to regulate.

A working party of the legal regulators is preparing a briefing paper for the Ministry of Justice, outlining a number of helpful changes and providing a menu of things the new government would be advised to consider in this area. This could include such matters as the scope of the reserved legal activities under LSA 2007 or more technical issues such as how the regulators approve external ownership under LSA 2007, Sch 13. Now, with an unexpected majority government, the Conservatives should find it easier to pass legislation.

Although, of course, this is mere speculation because nobody yet knows what the new government is planning to do. The new government may see legal services reform as a way to liberate the market to reduce the cost of legal services. For example, it might encourage social enterprises around criminal legal aid work. Obviously this is an area that has faced enormous cuts over the last five years, and a more enterprising approach may just help to stretch the budget and ensure that those who need legal aid services will be better placed to access them.

There are already provisions in LSA 2007 for low-risk bodies to be authorised with less regulatory oversight. The change of administration may further prove to be a driver to more competition in this area. All of this needs to be balanced, of course, with an approach that ensures that the regulatory framework protects consumers and the public interest.

From the manifesto pledges, what is on the horizon for this area?

Giles Murhpy (GM): The intention is to create a more enterprising culture that is more conducive to those wanting to start, grow and run a business. As above, this is likely to bring about deregulation and the removal of restrictions that at present are an impediment to this.

Is there any immediate action practitioners should take in light of the result?

Nick Jarrett-Kerr (NJK): I actually think that many firms have been quite lax about regulatory compliance. Though they may have a compliance officer for legal practice and a compliance officer for finance and administration, I don’t see a lot of evidence that risk and compliance management has changed much, except in large firms. A change in regulator might mean that some firms will find themselves in trouble and I would urge them to put in place effective compliance and risk management policies and to ensure that they have paper trails to cover such things as engagement letters, complaints handling and file auditing.

Giles Murhpy (GM): The key objective post-election should be to re-focus on running our businesses. There are undoubtedly many issues on the horizon—the EU debate, potential deregulation, devolution—and many pitfalls ahead, but at the moment these are medium to long-term issues. The more pressing matter for now is managing a business in what has become a growth cycle, which is going to be very different to previously trying to steer a course through a recession.

Iain Miller (IM): The election result is likely to take us in the direction of further liberalisation of the legal services market. This may not have happened without a majority Conservative government. In light of this, those involved in legal services need to be able to spot how the market is going to move and what they need to do to prepare—whether this be better IT systems, more office staff, etc. Until we have a clearer picture of what the government is planning, all of this should be considered as a further element in organisations’ forward planning.

Interviewed by Jane Crinnion.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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