The Legal Services Act will allow barristers to form partnerships for the first time. Simon Garrod considers the implications the proposed changes will have

The Bar Standards Board (BSB) has given the question of how the Legal Services Act (LSA) will affect it in the future extensive consideration and consultation. The reality is that the consequences of this significant statute simply cannot yet be known, although it is clear it facilitates a potentially fundamental change in the way in which legal services will be provided to consumers in England and Wales.

The Act represents both uncertainty and opportunity for all those it affects. The BSB has recently issued a consultation paper seeking views on the implications of the LSA, in order that future regulation is informed, as far as is possible, by the realities of practice and in the interests of the consumer, as well as clarifying the uncertainty and permitting the potential to be realised.

The Act facilitates the establishment of Alternative Business Structures (ABSs) and Legal Disciplinary Practices (LDPs) in which lawyers and non-lawyers will be able to offer legal services through the same corporate entity. This will clearly have important implications for barristers. Currently, there are restrictions on the type of business structures through which legal services may be provided by barristers. For example, the Code of Conduct forbids barristers from supplying legal services to the public through any body such as a partnership – except in the case of barristers employed by solicitors, who may provide legal services to the firm's clients.

Permitting barristers to work in LDPs or ABSs therefore requires a fundamental regulatory re-think. The responses received to the BSB's first consultation paper last year were notable for their divergence of views, even on fundamental questions. The Act comes into force incrementally, and in line with that chronology the BSB has now issued a second consultation paper, the deadline for responses to which is 1 March, 2009. In particular, this paper seeks views on the regulatory policy relating to barristers becoming managers of LDPs and the development of barrister-only partnerships.

Legal Disciplinary Practices

Before the ABS regime is implemented, the LSA establishes an interim regime by conferring on the Solicitors Regulation Authority (SRA) the power to regulate LDPs that include up to 25% non-lawyer managers, provided that they have at least one solicitor or registered European lawyer manager.

The SRA plans to commence regulation of LDPs during March 2009. The Council for Licensed Conveyancers has also been granted transitional powers under the Act to regulate LDPs and will be able to do so at the same point as the SRA.

The BSB considers in its consultation paper the possible arguments against restricting barristers from becoming managers of LDPs and has taken competition advice on whether maintaining the existing prohibition would appreciably limit competition. In short it advised that upholding the current restriction would likely to be a failure on the part of the BSB to promote the regulatory objectives of the Act – that is, a breach of the positive statutory duty as well as a breach of the negative obligation under the European Community Treaty not unjustifiably to restrict competition.

In the light of that advice, the consultation paper is framed on the basis that barristers should be permitted to become managers of SRA-regulated LDPs.

Barristers working in LDPs will be regulated both as part of the business entity and as individuals. Regulation of LDP business entities will be carried out by the SRA, and will essentially deal with the services that the firm provides. This will necessarily involve a substantial degree of regulation of the individuals, including barristers, providing services on behalf of the entity.

The exact setting of the regulatory boundaries between the SRA as entity regulator and the BSB as the regulator of individual barristers within the entity is still the subject of ongoing dialogue between both bodies. Critical to that discussion will be the need to ensure that the fundamental standards and duties of barristers which currently apply to all practising barristers continue to apply to barristers who are managers of or employed by SRA-regulated LDPs. There cannot be different classes of barristers to whom substantially different duties owed to client and court apply.

To that end, all the frontline regulators (the BSB is the front-line regulatory function of the Bar Council, itself an approved regulator under the Act) meet regularly to ensure that the rules they create following the Act do not conflict with each other. This aims to ensure that, as far as possible, they remain consistent and do not create confusion for the consumer.

Although the SRA LDP rules are still anticipated to be in force in March, the amendments to the Code of Conduct necessary to enable barristers to practise as managers of LDPs are subject to the outcome of the consultation. Following which they will be finalised and submitted to the Ministry of Justice (MoJ) for approval in June 2009.

Barristers will not be able to join an LDP as a manager before then, and possibly not until the rule changes have been approved by the MoJ. However, a barrister could become an employee of an LDP under, and subject to, the existing provisions of the Code (Part V) that apply to employed barristers generally.

Barrister-only partnerships

The consultation paper also asks whether barristers should be allowed to practise in barrister-only partnerships. If barrister-only partnerships are permitted, they would be regulated through the individual barristers rather than through the entity as a whole, and as a result would be entirely regulated by the BSB.

The Board has been advised by leading counsel that neither it nor the Bar Council currently has power to regulate any body of -persons, only individual barristers. To obtain such power in relation to LDPs, the Bar Council would need to seek appropriate amendments to its constitution to give it the -necessary powers and then to -delegate those powers to the BSB. In the absence of powers to regulate entities, the Board could not itself take on the role of regulating LDPs. This also has implications in relation to barristers working within the ABS regime.

Alternative Business Structures

The ABS regime is not expected to be in operation until late 2011 or early 2012.

An ABS is defined as a body in which one or more of the owners or managers is entitled to provide legal services and one or more of the others is not. ABSs will have to be licensed by an authority approved by the LSB. The Law Society, through the SRA intends to seek to become a licensing authority. It would be open to the Bar Council, through the Board, also to seek to become one.

Schedule 10 of the Act sets out the licensing framework and consideration of getting this operational is now underway at the LSB, featuring in its newly published draft business plan. Its target is to have established the process for approved regulators to seek designation as licensing authorities by the end of 2009-10.

Over the coming weeks and months, many of the issues that are being discussed and settled in relation to the LDP regime will have consequences for the ultimate ABS regime. The BSB is aware of the momentum behind these issues, and of the need to set out a clear and robust regulatory framework to facilitate those individuals and entities intending to change and to stimulate the external investment envisaged by the Act as being such a vital driver in bringing the changes to fruition.

Engaging with the profession

There is no avoiding the need to engage with the Act. As its effects come into sharper focus, the BSB is keen to tackle the implementation process with full knowledge of the profession's views. All responses to the second consultation are therefore welcomed and need to be sent to the BSB by 1 March.

In terms of gathering intelligence on the ground, the BSB is currently recruiting to an advisory panel and seeking secondments from individuals currently working in a chambers/practice management environment. Details of all these initiatives and a copy of the consultation paper can be found on the BSB website and all future activities will also be posted there.

This may be a period of some uncertainty but it is also one of opportunity and the BSB wishes to engage with all those with relevant views and experience.

Simon Garrod is head of professional practice at the Bar Standards Board.