Regulator told to define LDP business models

The Solicitors Regulation Authority (SRA) must define what it means by “business models” for legal disciplinary practices (LDPs) or face possible legal challenges, the College of Law’s legal services policy institute warns. Professor Stephen Mayson, director of the institute, which was set up in 2006 in the aftermath of the Clementi and Carter reviews, says a definition is urgently needed before new LDPs are formed under the Legal Services Act 2007 in 2009.

He says:

“As the marketplace for legal services changes in the wake of competition, there is increasing talk about appropriate business models for the new landscape. It is apparent, however, that although the same term—business model—is being used, it is not necessarily being used in the same way by everyone.”

The proposed LDP regulations would allow the SRA to attach a condition to an LDP’s recognition on the basis that such a condition is necessary in the public interest to “limit, halt or prevent a risk to clients, third parties or the public” arising from the firm’s business model (or one it is likely to adopt).

Mayson says:

“Neither law firms nor the SRA has a working definition of business models but the SRA is planning to use the concept in LDP regulations. So how can either be sure what the other is proposing? There is a real risk that the regulator and regulated will end up at crosspurposes— or even worse, judicial review.”

An SRA spokesman says:

“The rules provide for internal appeals and the statute provides for an appeal to the High Court, so there would be no need for a judicial review. Regarding the definition of business models, the SRA would almost certainly allow any that are legal and do not present risks to clients and the public.”

The institute has drawn up its own definition, which is published in a working paper, Business Models in Legal Services:

“A business model is an articulation of a firm’s core logic for creating and capturing value through its investments in and use of resources.”

The paper says law firms should consider whether their firm is one business with strategic business units requiring one business model with multiple elements, or a number of discrete businesses each requiring its own business model. For each business model, four core elements must be identified: the value creation elements, the value capture elements, the investment element and the resources element.