SRA authorisation and professional indemnity Insurance
Many recently formed sole practices in England & Wales have taken advantage of the new framework implemented by the Solicitors Regulation Authority (SRA) that enables solicitors to “practise” (i.e. to refer to themselves as “solicitors” or “lawyers” and provide legal advice to the public) without being an employee or member of an authorised law firm.
This so-called Freelance Solicitor Model was made possible by a ground-breaking reform in the legal services regulatory landscape that came into effect in 2019 and was implemented under the SRAs Standards and Regulations (STaRs).
The Freelance Solicitor Model was perhaps even more transformational than the introduction of alternative business structures under the Legal Services Act 2007, which allowed non-lawyers to own and manage authorised law firms for the first time.
If anything, the Freelance Solicitor Model was intended to legitimise the recent explosion in the consultancy model, with freelance lawyers (and their non-authorised personal services companies) working hand-in-glove with consultancy platforms, “New Law” firms and alternative legal service providers, many of which were themselves not SRA-authorised.
More broadly, however, the reforms were designed to reduce the burden on start-up and small practices in order to introduce some much needed competition and downwards price pressure across sectors of the legal market. Looked at through this lens, one must consider the reforms a resounding success.
Since 2019, provided that you are not offering “reserved legal activities” (largely litigation, probate and conveyancing-related), there appears on the surface to be little advantage to the sole practitioner, from a regulatory standpoint at least, of seeking SRA authorisation for their practising vehicle (and seeking the SRA minimum terms professional indemnity insurance cover that is a prerequisite of such authorisation).
This seismic change has opened up huge opportunities, particularly for business lawyers, to ply their trades without all the red-tape of yore.
Having said that, some inconveniences remain.
The number one concern is the adequacy (or inadequacy) of the laissez-faire approach taken by the SRA to requirements for professional indemnity insurance for non-authorised practices.
It can be challenging to obtain adequate PI insurance to cover a non-authorised legal practice (there are providers but very few understand the nuances) and, perhaps more worryingly, it is clear that these providers do not offer anything like the same level of cover as is offered under the standard minimum terms of cover mandated by the SRA for authorised firms.
Reports of “worryingly cheap” policies are rife across the industry. Perhaps time will tell whether allowing unauthorised firms to seek their own insurance terms was the right approach.
Should insurers start refusing to cover claims brought against non-authorised solicitors’ practices, effectively rendering those practices insolvent, the SRA may start to revisit its approach.
On the other hand, essentially all sole practices that were established prior to 2019 remain as authorised firms, carrying the significantly heavier burden of continued authorisation and the significantly heavier price tag of SRA level PI insurance. Many of them likely wish they had been offered the same opportunities as practices established post-2019.
For these authorised sole practices, it is of course difficult (read, expensive) to step out of the regulated landscape, once you’re in it, given the regulatory requirements for run-off insurance cover in particular.
Where an authorised practice is not able to sell itself or merge into an ongoing authorised practice, the principal must typically pay to the practice’s insurer three years’ worth of PI insurance premiums (think around 20-30% of their last 12 months’ revenue) upon closing the practice to insure any claims that might arise in the six years that follow such closure.
For those just starting out in sole practice, there is a stark choice: seek authorisation, the gold standard, and take the full plunge or stay out of the regulated water, but risk inadequate insurance arrangements and a lack of credibility with certain clients.
As the insurance market matures, we may find more suitable and reliable policies emerging for non-authorised practising vehicles.
For the authorised sole practices out there, identifying and working with the best broker and the best SRA compliance support providers you can find tends to pay dividends.
To learn more about how Clearlake supports independent lawyers and sole practitioners, take a look at the Clearlake careers website.
