SRA's planned suitability test flawed?

The Solicitors Regulation Authority (SRA) is adopting a narrow and over-restrictive approach in its quest to develop a “character and suitability” test for non-lawyers who want to become managers in any legal disciplinary practice (LDP) it regulates, a legal expert claims.

Under the Legal Services Act 2007 (LSA 2007), from 2009 law firms will be allowed to be owned and managed by other lawyers, such as barristers, and have up to 25% non-lawyers as partners.

Firms wanting to bring non-lawyers on board will need to show they are “fit and proper persons” and the SRA is consulting consumers and bodies representing them, legal services providers, and procurers for their views on the issue.

However, Simon Young, a solicitor and legal management and training consultant, says the interpretation the SRA is placing on the new legislation is wrong in at least two areas.

“The SRA says a non-lawyer applicant must be ‘part of the delivery of the LDP’s legal services, not merely an external investor’. This is not stated anywhere in LSA 2007: it was an idea which was floated and rejected. The only restriction is that a person seeking consent, if they have ‘an interest’ in the business, must be a ‘manager’ of it,” he says.

For this purpose, Young says, the only relevant meaning of manager is that found in LSA 2007, s 207, which states that a manager equals a partner in a partnership, a member of a limited liability partnership, or a director of a limited company.

“The question of whether they are active in the affairs of the business is irrelevant. The only category of person thus excluded would be a shareholder who was not a director as well.

“Therefore, if an otherwise fit and proper person wished to invest their capital, but not their time, in the business, and the others were prepared to grant the relevant status to them, the SRA could not, in my view, prevent that,” he adds.

The second problem, Young says, is in para 2.13 where the SRA says “we shall have to give further thought to whether our rules should place any restrictions on the activities of non-lawyer managers over and above the restrictions imposed by statute”.

He adds: “No justification is offered for that statement. Indeed, what justification can there be for the SRA in effect trying to second-guess Parliament, and say, ‘well, we know Parliament did not think it appropriate to impose any limitations, but we know better’? There should, at the least, be no implicit prejudice in the approach to this question.”