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More than two years on, the latest figures from the Legal Services Board (LSB) indicate that 300 firms have so far been granted ABS status [1]. There is an increasing number of big names entering the arena - including the likes Allianz and PWC - and while the number of ABS firms appears to be a drop in the ocean (around 2% of firms to date), the trend towards ABS conversion only seems set to increase, with potentially major repercussions for the legal market as a whole.

Lockton has just produced an online guidance note for practices considering becoming an ABS - availabe to download (see link at the end of this article).

Choice of Regulator?

Despite the fact that there are a number of regulators with the ability to regulate ABSs (including ICAEW, Council for Licensed Conveyancers, and the Intellectual Property Regulation Board) the fact that only the Solicitors Regulation Authority is permitted to regulate ABSs undertaking all of the reserved legal activities listed in the Legal Services Act means that all but 15% of ABS licences granted to date have been through the SRA.

Firms that have applied for ABS licences have described the process as 'daunting' and 'time-consuming'. Applicants could find themselves''lost in the process' with little information regarding the status of their application. What the LSB has already criticised as a 'slow and cautious' approach, can be derailed if key elements of the process are not understood at the outset.

Select the 'best-fit' structure

ABSs are definitely not 'one size fits all'. According to Chris Kenny, chief executive of the LSB: 19% of ABSs have been motivated by the benefits of accessing external capital; 23% wanted to include non-lawyer partners; and c. 23% were seeking to offer additional services. The remainder perceived ABS as offering operational advantages such as greater tax efficiency and facilitating succession planning (source: LawFuel).

Joanne Smith, Compliance Solicitor at Compl-i, highlights the importance of selecting the right structure for your business needs. "It's critical to have a coherent business strategy to back up your ABS application. Otherwise firms run the risk of the SRA both delaying the application, and potentially, seeking to impose an alternative structural solution which, while it may look good on paper, may not deliver the right result for your business".

This fear has been reflected in the LSB's ongoing concern that the SRA's application procedure is prejudicial to non-conventional structures, dispersed firms and multi-disciplinary practices.

Am I ready to make an ABS Application?

Following feedback from clients regarding the SRA Guidance on ABS applications, Lockton has produced an ABS Application flow-chart which, if you are considering making an ABS application, will guide you through the initial questions you need to be able to answer, and help you identify the structure that best suits you.

Negotiating the Application Process hurdles

"It's essential that you provide the SRA with the information to understand your business and the risks and challenges it faces. This requires more than simply submitting a set of documents to accompany a comprehensive application. It requires extensive dialogue to build their trust and may extend to meetings and making presentations to them", says Adam Entwistle, Compl-i's resident ABS application specialist. "We have helped a significant number of clients, who have faced significant obstacles or even outright rejection of their ABS applications initially, achieve a successful outcome. It's all about understanding the nuances of the trigger issues which can ground an application. We know the process intimately, and act as a broker with the SRA, ensuring that, with pre-planning, you steer clear of the rocks that lie just below the surface".

ABS Application Guidance from Lockton

Careful planning of your application is essential. There is a lot of information to be gathered and presented in the right way at the right time. Our ABS Process Guidance note provides a clear overview and timeline of the application process, with annotated examples to provide some practical context. Download it, using the link below.  Lockton clients can log-in to access the complete guidance document in the Guidance & Resources section of the website.

Calum MacLean, Risk Manager for Professions at Lockton, was speaking to Adam Entwistle and Joanne Smith, specialist consultants with Compl-i, the bespoke Consultancy service of Weightmans LLP.

 

[1] Source: Legal Services Board