Civil Fraud Quarterly Round-Up: Q1 2021
The SRA Standards and Regulations (StaRs) were over four years in the making and whilst many of the changes they introduced are more noticeable in form, rather than in (any new) substance, the same cannot be said for the provisions which widen the legal market by liberalising the ways in which solicitors can practise. One such notable change is the widening of the scope within which solicitors can practise on their own and the creation of a new type of solicitor: the ‘SRA-regulated independent solicitor’ (or, ‘freelancer’).
Opening up the legal market in this way was seen as a radical and controversial proposal that the Law Society vociferously objected to, for fear that aspects of the new regime would confuse the public about how this cohort of practitioners differed to more traditional solicitors. They also argued that there would be a lack of consumer protection and that this threatened a loss of confidence in the title of solicitor and created a two-tier profession. Ultimately, and whilst the Legal Services Board (LSB) disagreed with the Law Society’s objections, there still exists some confusion about what the new provisions will allow. This blog aims to chart the options for those who wish to make use of the new opportunities to practise on their own and to help traditional solicitors to understand how these fledgling ‘one-man band’ practitioners might impact the legal market.
Prior to these reforms, most solicitors practised in SRA-authorised law firms and the majority of solicitors practising on their own, would be authorised to do so by the SRA as a recognised sole practice (RSP). Indeed, 25% of law firms authorised by the SRA are RSPs. It is by virtue of the new regulation 10.1 of the SRA Authorisation of Individuals Regulations (the Regulations) that individual solicitors (including registered European lawyers (RELs)) will be allowed to continue to set up an authorised practice as an RSP.
As of 25 November 2019, however, individual solicitors will be able to practise on their own without being an RSP. Regulation 10.2 of the Regulations allows certain solicitors to provide legal services to the public without the need to be authorised as an RSP. The SRA has most recently chosen to refer to these solicitors as ‘SRA-regulated independent solicitors’ in its recent topic guides, but it will take some doing to move people away from the term “freelancer”, which has been coined over the past year or so. There are two types of freelancer envisaged by the Regulations: those that provide only non-reserved legal services (under regulation 10.2(a)) and those that additionally provide reserved legal services (under regulation 10.2(b)). Interestingly, this change had created three different ways in which you could choose to practise on your own, without the need for your practice to be authorised by the SRA.
Tighter restrictions apply to freelancer solicitors providing reserved legal services and this reflects the nature of the work undertaken and what is at stake for clients and the litigation risks that may flow from this.
As a freelance solicitor, if you provide any reserved legal services, you will need to do so satisfying all of the criteria set out in regulation 10.2(b). If you cannot meet those requirements, you will need to get your practice authorised before you provide reserved legal services.
The (six) regulatory restrictions on freelancers providing reserved legal services are set out at regulation 10.2(b)(i)-(vii):
These first four restrictions are fundamentally about genuinely practising on your own and it is essential that you do not employ anyone (such as a secretary or paralegal) regardless of whether or not they amount to an employee in law. The SRA has said that it may be permissible to contract with third parties to provide administrative support (like in a serviced office) so long as this does not amount to employing others and those staff must not provide legal services. This is most likely to be the arrangement adopted for those wishing to practise from a set of chambers.
There is no definition of what adequate and appropriate cover means within the Regulations but the SRA has produced a guidance note. The insurance you obtain will not need to meet the SRA’s Minimum Terms and Conditions (MTCs) but it will need to take into account the nature of your work, client profile, the number of clients, the value of engagements, estimates as to the maximum loss for work and potential liability and historical claims.
Although not set out in this regulation, the prohibition on holding client money, found in paragraph 4.3 of the Code of Conduct for Individuals, still applies (unless the money is held for paying fees and disbursements.)
This means that freelancers in transactional sectors will not be able to hold the proceeds of sale on conveyancing, court fees or stamp duty payable on a house purchase but a third-party managed account (TPMA) may be used. Other solicitors working with freelance solicitors will need to make sure they do not send client money to them, as they will be prohibited from holding this.
Your clients will also have access to the SRA’s Compensation Fund by virtue of rule 5.1(b)(i)-(iii) of the SRA Compensation Fund Rules which includes within the scope of “defaulting practitioner” a solicitor or registered European lawyer (REL) who was practising on their own; was not employing anyone in connection with the services they provided; and who was directly engaged and paid by clients.
Practising on your own within the parameters of this model (under regulation 10.2(a)) would involve you being a self-employed solicitor who:
The regulatory regime for freelancers performing non-reserved legal services is less restrictive when compared with the tighter controls that apply to those performing reserved legal services. This is understandable given that there is no statutory control over who can carry on non-reserved legal activities; you do not need to be a solicitor to provide non-reserved legal services, they can be undertaken by anyone.
Interestingly, there is no regulatory requirement for freelancers undertaking non-reserved legal activities to take out any insurance cover, unlike RSPs who must have cover that meets the MTCs. As individuals practising on their own, they will be personally liable to their clients and it would be sensible for those wishing to make use of this opportunity to do so with adequate and appropriate insurance in place, even if it is not mandated.
In addition, a solicitor of fewer than three years’ PQE can be a freelancer if they are only providing non-reserved legal services, as there is no minimum PQE requirement, unlike the three year experience requirement for freelancers providing reserved legal services.
Clients of this category of freelancers will also be eligible to make an application to the SRA Compensation Fund, as they will be practising in a way which is compliant with regulation 5.2(b) of the SRA Compensation Fund Rules.
Such freelancers will not be able to personally, hold client money, in any way, as this is prohibited by paragraph 4.3 of the Code for Individuals.
Practising on your own within this model (under regulation 10.2(a)) is likely to involve you being a self-employed solicitor who:
As with the other type of freelancer under regulation 10.2(a), there is no regulatory requirement for these freelancers to take out any insurance cover, but as above, given they will be personally liable to their clients, it would be sensible for those wishing to make use of this opportunity to do so with adequate and appropriate insurance in place, even if it is not mandated.
Again, there is no minimum PQE requirement, unlike the three year experience requirement for freelancers providing reserved legal services.
Importantly though, your clients will not be eligible to make an application to the SRA Compensation Fund, as you will be practising in a way that is not compliant with regulation 5.2(b) of the SRA Compensation Fund Rules, in that you will be practising through a trading company and employing people in connection with the services you provide. Essentially, the way you are practising makes you no different to an unregulated business providing non-reserved legal services – and the lack of access for your clients to the Compensation Funds reflects this position.
The SRA Principles and the new Code of Conduct for Solicitors, RELs and RFLs will apply to freelance solicitors regulated by the SRA, whether they undertake reserved legal activities or not, as do the Transparency Rules and so solicitors need to ensure they comply. Particular attention will need to be paid to client care to ensure that the client understands the regulatory safeguards they have the benefit of; paragraph 8.11 of the Code for Individuals addresses this issue. This will need to include making sure that clients know that they will not be covered by professional indemnity insurance subject to the MTCs, but that alternative insurance arrangements are in place if that is the case (remember, having insurance is not a requirement if you only provide unreserved legal services). Where applicable, you will also need to inform all clients that they will not be eligible to apply for a grant from the SRA Compensation Fund. Both of these requirements can be found at rule 4.3 of the SRA Transparency Rules. You should also publish details of your complaints process for your clients and how they can complain to the Legal Ombudsman and the SRA. This is covered by paragraphs 8.2 to 8.5 of the Code for Individuals.
If you are eligible to operate as a freelance solicitor, and intend to do so, you must notify the SRA and specify whether you intend to deliver reserved legal services. This information will be included in the SRA’s public register.
If you are offering legal or notarial services in respect of financial or real property transactions then you will need to register with the SRA to comply with The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
Finally, it is worth noting that as an independent freelance solicitor, you will not be allowed to display the SRA’s “digital badge” on any website you have. This is on the basis that you would not be practising as an authorised body and the digital badge scheme was introduced as a type of accreditation scheme for those bodies.
We suspect the majority of solicitors may not find the opportunity to become a freelancer particularly enticing given the exposure and risks involved. The restriction on holding client money will be a barrier for many in transactional work who, for example, need to hold proceeds of sale and purchase funds. This will be likely to be the case until such a time as TPMAs are more commonplace and clients become more familiar with them. Additionally, none of the three scenarios above allow a freelancer to carry on financial services activities or claims management activities, unless they are authorised by the Financial Conduct Authority. Nonetheless, freelancing may be a good option for non-practising solicitors who are currently working on a consultancy basis, but without a practising certificate (and are thus restricted to providing non-reserved legal services), who want to now expand their scope of practice.
We anticipate that uptake may be greater for other areas where flexibility has increased, such as solicitors being able to practise as such in unauthorised businesses, for example, working as a practising solicitor in a property or architects business. Some solicitors in certain sectors with good professional networks may carve out opportunities to form mutually beneficial relationships with third parties that could facilitate and enhance their practice. Some may offer services from chambers to supplement and complement the skill set offered by barristers, or some may join forces with surveyors, accountants, banks or financial advisors. Others may choose to compete with direct access barristers instead.
Freelancers will certainly have lower overheads and potentially lower insurance premiums, depending upon the legal services they are providing, and this may mean that they can offer lower fees than RSPs and SRA authorised firms. However, clients may still prefer to instruct a professional with the improved safeguards offered by a regulated firm, such as insurance that meets the SRA’s MTCs.
We have some doubts about whether freelancers will be competing for the same clients as the more traditional models; it is more likely that freelancers will begin to offer products that occupy other spaces in the market, differentiated by their ability to charge lower fees. To this extent at least, freelancers might help to combat the often reported on public perception that legal advice is inaccessible and expensive.
As a closing comment we should emphasise that firms need to make sure their staff are aware of the regulatory parameters within which freelancers providing reserved legal service need to practise, if they are working with them, for example, on the other side of a transaction. This is particularly important to avoid negligence claims arising out of transferring client money to a freelancer, which that individual is not entitled to hold. It would be prudent for firms and RSPs to amend internal processes now to ensure that the status of a solicitor is checked prior to transferring funds. Those competing with freelancers must also be able to accurately explain the differences between them to clients so that prospective clients can make informed choices.
 As per section 12(1) of the Legal Services Act 2007, these are: the exercise of a right of audience; the conduct of litigation; reserved instrument activities; probate activities; notarial activities; and the administration of oaths
 Paragraph 4.3 of the Code of Conduct for Individuals: “You do not personally hold client money save as permitted under regulation 10.2(b)(vii) of the Authorisation of Individuals Regulations, unless you work in an authorised body, or in an organisation of a kind prescribed under this rule on any terms that may be prescribed accordingly”
self-employed and practising in your own name and not through a trading name or service company; not employing anyone in connection with the services you provide; and engaged directly with your clients and making sure they pay their fees directly to you.
 Paragraph 7.6(c)(i) of the Code for Individuals
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