ABS and ATE – Regulation and PII Insurance

Much has been written in recent months about the changes in how solicitor practices conduct business. The so called Tesco laws which allow non lawyers to own a solicitors practice came into force on the 3rd January 2012 and Alternative Business Structures (ABS) became a reality.
Ironically, despite five years of free advertising, Tesco’s have so far declined to take part in the party.

In fact there has been little interest so far in forming ABS’s – the Solicitors Regulatory Authority reported “more than 10 applications” had been received by close of play on the first day. With an ABS licence predicted to take up to nine months to secure, it seems unlikely that ABS will have an immediate impact on the legal market. However the scene is set for the corporate money to move in and this will inevitably be a game changer.

The Jackson reforms are the other wind of change that’s blowing through the legal services market. The Government seems set on banning payment and receipt of referral fees by solicitors and insurers by amending the Legal Aid, Sentencing and Punishment of Offenders Bill. Legal firms who rely on referral sources to generate their case load need to start planning now or these reforms will seriously affect the flow of business. Referral agents and After the Event Insurers (ATE) will also considering their future.

Inevitably the interested parties will find a work around whereby work and money continues to flow to legal firms, referral agents and insurers. This might result in the formation of ABS companies where the business owners are drawn from the three affected business sectors and possibly incorporating financial advisors to mop up commission due on investments that are made on larger compensation or court of protection settlements.

Whatever the reason for setting up an ABS, the parties need to be aware that of how the new ABS’s will be regulated in respect of the sales of general insurance and investment business. Currently any legal firm that undertakes this work or derives income from the sales of these products is covered from a regulatory point of view by the Law Society. However the Law Society has said that they will not be responsible for these companies and therefore any ABS which wishes to profit from this type of income will need to seek authorisation from the FSA. (click here to view FSA Policy Statement) An application to the FSA for authorisation will further complicate and prolong the time that it takes for an ABS to be in a position to begin trading.

From a professional indemnity insurance point of view the ABS will still need to buy cover from the approved SRA insurers, however it will be important to ensure that the policy also covers professional indemnity risks arising from the fees generated by any work that is regulated by the Financial Services Authority.

Alternative Business Structure who need advice on Professional Indemnity Insurance can call PI Expert for help and advice. PI Expert specialises in Professional Indemnity for ABS firms and Solicitor practices.