The Changing Faces of Legal Finance
Posted on Wednesday, September 6, 2017 by Venn Group — No comments
There is no doubt that the biggest overhaul of the accounts rules in recent history is upon the legal industry. As it stands, from autumn 2018 the Solicitors Regulation Authority (SRA) will complete the ‘Looking to the future: Flexibility and Public Protection’ phased review of regulator approach, a change which includes a significant review of the Solicitors Accounts Rules. This new approach won’t remove the requirement to ensure the protection of client money and assets but does have potential to change how law firms recruit talent into their finance departments.
On the SRA’s website they describe the current accounts rules as ‘prescriptive and restrictive, and focused on ensuring all firms handle money in the same way’. To overcome this, the SRA have recently been consulting on the first stage of change, which will change how law firms protect client money and assets by removing many of the prescriptive accounts rules in favour of more outcomes focused regulation.
The industry has already seen in recent years, as part of the Red Tape Initiative, a focus on removing unnecessary burden to firms and reducing the cost of regulating the profession. For example, the removal of the necessity to submit an Annual Accountants Report to the SRA has been removed when certain criteria has been met. Furthermore, in cases where it is still applicable, the format of that report has also seen a transformation, with a new approach relying more on the views and opinions of the reporting accountant to assess client risk through firm procedures.
The key debate within the industry currently is whether the new proposed accounts rules increase risk to the client whilst the SRA still enforce the obligation to protect client money and assets. The proposed amendments would change the rules from around a 40 page document to just seven (in the current draft version), potentially removing administration breaches for the business such as the 14 day transfer rule which are generally considered by both those in practice and the SRA to bring little value in client protection.
This new regulatory approach demonstrates a wider culture change towards legal finance regulation. With new entrants to the market in the shape of alternative business structures, it is of no surprise that the SRA are looking for a more flexible approach to how client money and assets are handled. Currently, many businesses that provide legal services do not transcribe to the historic structure of a law firm and clients no longer need to use a traditional law firm for all their legal needs, thus the way the SRA regulate legal services needs to reflect this change to enable competition within the market.
For recruitment it is logical to consider this a positive change. Currently candidates who work within the legal sector can find it difficult to move into other sectors due the niche skillset that is required to ensure SRA compliance. Equally from the view point of a hiring manager, it is difficult to find someone with experience of dealing with the accounts rules and thus lowers the candidate pool, potentially leaving the firm short of knowledge and requiring additional training needs. From recruiting within the legal sector across Birmingham myself, I can vouch that one the largest skill shortages in the market across any sector is for a Legal Cashiers due to the niche knowledge required.
With an increased outcomes focused regulation approach based around firm procedure coming to legal finance, firms would be able to seek talent from other sectors who have knowledge of and can instil good practice through internal processes, with a reduced fear of breaching the accounts rules. Equally it’s likely that candidate’s would find themselves less pigeonholed into a role or sector allowing for a wider variety of businesses to be interested in their financial skillset.
From the perspective of recruitment, the proposed changes to the rules would be positive, resulting in improved talent acquisition and development of individuals being more effective. However the greater debate is whether this will come at the expense of the client and thus the basic foundations of ensuring integrity within the legal industry.
Alex Ellis, Venn Group