Back in September 2020, we forecast the increased emergence of genuine ‘Bar firms’ which emulate firms of solicitors but are owned and managed by barristers and non-authorised persons. Such Bar firms, we predicted, would seize upon the regulatory regime introduced by the Bar Standards Board (BSB), after it became a licensing authority in 2016, to be licensed and regulated as BSB entities, more commonly known as alternative business structures (ABSs).
According to the BSB’s Entities Register, last updated on 9th February 2024, there are only 13 BSB licensed bodies, most of which are either solely owned by a previously self-employed barrister, or jointly owned with their spouse. That being said, we acted for a client who was licensed by the BSB effective 12th June 2023, and our client still does not appear on the Entities Register anywhere. So, it’s possible there are a few more BSB entities out there which also do not appear on the Entities Register. Still, it begs the question, “why has the take-up been so slow?”
Undoubtedly the answer is multifaceted, but I offer my twopence worth as a solicitor who specialises in legal services regulation and who, once upon a time, completed the Bar Professional Training Course (as it was called then), attended my dining sessions at my Inn, trundled behind counsel on mini pupillages, shadowed judges, and was called to the Bar by Inner Temple in 2012. The experience I garnered from that training period helps inform the advice I deliver to barristers, chambers and BSB entities. Looking through that prism, I also see that the issue here is not endemic non-acceptance by the Bar, but the regulatory framework for licensing BSB entities implemented by the BSB. I believe the following changes to the BSB’s framework for licensing BSB entities would stimulate innovation and appetite for the Bar to embrace BSB entity regulation:
- Make the BSB’s discretion a little less discretionary – according to its Entity Regulation Policy Statement, “in each case, the BSB retains a discretion to grant or refuse authorisation in light of its overall consideration of the risks posed by the entity, the regulatory objectives, and the BSB’s policy objectives”. Although discretion offers the means for a structure which does not exactly fit the licensing criteria to become authorised, it does not provide the certainty to applicants and any external investors that their proposed structure will be approved. After all, who would want to secure funding, put together a detailed business plan and financial forecasts, obtain indicative professional indemnity insurance terms, and incur legal and application costs only to lose it all on a roll of the dice with the BSB? To encourage practitioners and funders into this space, the eligibility criteria need to be fixed but also welcoming of truly alternative business models and ownership structures.
- Relax the rules on owners and managers – the BSB wants all owners to be individuals and managers of the business. In addition, the BSB would prefer that at least 50% of owners and managers are entitled to exercise rights of audience in the Higher Courts, and that 75% of owners and managers are authorised individuals. Confused? I bet you are. The upshots are that group structuring and private equity investment from non-authorised persons are both out of the question, which also means the pool of buyers for a capital event is severely restricted. These overly restrictive ownership rules also create illogical circumstances and put businesses at considerable cost when undertaking group structuring and share allotment exercises, even when the governance documents mandate that all regulatory decisions must be made by a barrister. In my view, a better approach would be to focus on the character and suitability of the owners and managers so, even where an entity is wholly owned by a non-authorised person, the regulatory objectives can still be met, and clients are not exposed to harm.
- Allow BSB entities to hold client money – as the recent situation with Axiom Ince illustrates, the protection of client money and assets is, of course, of utmost importance, and so my points here are not made lightly. Once licensed, BSB entities may carry on reserved instrument activities, probate activities, administration of oaths, immigration work, and, with the right extension, litigation, all on a direct access basis and on instructions from professional clients. That sounds great, but you can’t effectively litigate, or buy or sell property if you can’t hold client money or give undertakings. Sure, BSB entities are free to use a third party managed account (TPMA), usually a Financial Conduct Authority authorised payment service provider; however, the BSB entity will need to have appropriate systems and controls to monitor the TPMA, the ability to access client money quickly might be constrained, and it will be an extra expense for the business. My view is that the BSB uses the excuse of client protection to conceal an unwillingness and inability to establish and operate a compensation fund. If BSB entities were permitted to hold client money, they could meaningfully carry on the breadth of reserved activities under their licences and genuinely compete with their Solicitors Regulation Authority (SRA) authorised counterparts, distinguished from them by the ability to deliver high-fidelity advocacy and expert legal opinion.
- Permit multi-disciplinary practices (MDPs) – MDPs provide a blend of reserved legal services and other professional services associated with other non-legal professionals. The Thomson Reuters Institute’s 2020 Report on the State of the Legal Market concluded that clients would “continue to drive all service providers, including law firms, toward multi-disciplinary practice-type services designed to provide integrated solutions to business problems” with a warning that “the fundamental choice that most law firms face is to adjust to the new realities of the marketplace or face an increasing erosion of their abilities to compete effectively”. The SRA allows ABSs to operate as MDPs, so it is difficult to reconcile the prohibition by the BSB of MDPs within its regulatory framework. To be fair to the BSB, its Entity Regulation Policy Statement explains that “as both the BSB and those it regulates gain experience, and as the market develops, the BSB will consider whether it would be in the public interest for it to widen the scope of its entity regulation and, if so, it will publish a revised policy statement.” I suggest this takes place sooner rather than later.
I accept that the BSB is a specialist legal services regulator which focuses on the delivery of advocacy, related litigation services, and expert legal advice, all of which is true; and I’m not on a BSB bashing crusade just for the sake of it. I genuinely want to see the BSB pull its socks up and adapt to allow the consummate professionals that operate within its framework to innovate and grow with the rest of the legal services sector. Because, given the comment made by Matthew Hill, CEO of the Legal Services Board, that there is a strong argument in favour of a BSB and SRA merger, and while the SRA currently makes plans to assume oversight of legal executives, there is a real danger that, by failing to support genuine innovation at the Bar, the BSB will be subsumed by the SRA in the push for a single legal services regulator. And take it from me, an SRA regulated individual, this is something which the Bar should avoid at all costs.
Josh Bates is an Associate Solicitor at O’Connors Legal Services Ltd, an award-winning firm of lawyers and business advisers. His work for barristers and barristers’ chambers includes providing advice on the structuring, funding and authorisation of BSB and SRA authorised bodies; assistance with the preparation of BSB and SRA authorisation applications and accompanying business plans; drafting of entity governance documents; and supplying compliance advice.