Section 13 – SRA licensing authority arrangements related to ABS ownership approval

One of the key reforms of the Legal Services Act 2007 (the Act) was to allow non-lawyers to own and/or manage entities, known as alternative business structures (ABS), which carry on reserved legal activities. Holding certain interests in an ABS requires approval by a licensing authority in accordance with the provisions of schedule 13 to the Act. These provisions are designed to ensure that, as far as possible, people with improper significant influence are detected.

The LSB previously issued guidance to licensing authorities on their approach to licensing ABS, including in relation to schedule 13. This indicates that we expect them to implement ownership tests in a proportionate way. The requirements of the LSA to be addressed are extensive in nature. However, while some are prescriptive, others allow licensing authorities to exercise discretion when applying them.

LSB research and our ongoing dialogue with stakeholders had pointed to problems associated with schedule 13. As a result, over the first quarter of 2014/15 we reviewed this area in more detail to better understand the issues, underlying causes, and action needed to address them. This review identified a clear need and scope for the SRA to revisit the processes and procedures that it currently has in place for assessing the ownership of ABS, with a view to their simplification. Following discussion with the SRA, we expect this to happen in Q2/Q3, and to see improvements introduced and evidence of their positive impact quickly thereafter. We will monitor the SRA’s progress, and also whether that work suggests the need for further action in this area.