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Setting up an ABS

Last updated: 31 October 2012

What is an ABS?

An ABS is a regulated organisation which provides legal services and has some form of non-lawyer involvement. This involvement can either be at the management level eg as a partner, director or member; or as an owner eg an investor or shareholder.


Who will regulate ABSs?

The Law Society was designated as a Licensing Body under the Legal Services Act 2007 in December 2011 and started accepting ABS applications from 3rd January 2012. The Council for Licensed Conveyancers is also a licensing authority.


When can a firm apply to become an ABS?

The SRA began licensing ABS in early 2012. They have issued guidance on applying to become an ABS.

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What is the application process?

The SRA application form is available on their website.

Non-lawyer owners

Non-lawyer owners with a 10 per cent interest in (or significant influence over) an ABS will need to demonstrate their suitability. The SRA has published its suitability test. Many requirements reflect those placed upon solicitors entering the profession. However, there are additional requirements relating to financial status and corporate behaviour.

Non-lawyer managers and non-solicitor managers

Solicitors will normally be deemed to be fit to manage a firm, however, other managers will need to demonstrate their suitability. The SRA to applies the same test to managers as to owners.

Compliance officers

The Legal Services Act 2007 requires that an ABS appoint a head of legal practice and a head of financial affairs and administration.
The SRA have re-termed these roles as a compliance officer for legal practice (COLP) and a compliance officer for finance and administration (COFA). Eventually all law firms will be required to have a COLP and COFA.

There has been a lack of clarity over the role of COLP. However, in essence their role is to oversee compliance with the SRA's regulatory requirements (other than those relating to accounts rules) and to record non-compliance and report material that is non-compliant.

The COFA will oversee compliance with the SRA's accounts rules. Both officers will need to demonstrate their suitability. An applicant will also need to demonstrate that they have systems and processes in place to allow their compliance officers to fulfil their rules.

Conditions

All licences will be granted with general conditions attached to them. These have been set out in the proposed authorisation rules. One condition requires that the firms have in place suitable arrangements to ensure compliance with the SRA's regulatory arrangements. Firms will be required to demonstrate that they have suitable arrangements in place.
Proposed authorisation rules

New Handbook

All ABS (and non-ABS) will be regulated under the new Handbook. It is likely that applicants will be required to demonstrate how they meet the requirements in the new Handbook.

While these are not substantially different to the current requirements placed on firms, much greater emphasis is placed on sound business management. This is demonstrated by the addition of two new principles regarding the running of a firm.

Thus applicants should expect greater scrutiny regarding the soundness of their business plan and their proposed governance structure.
Principles of running a firm
Purchase the Handbook

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ABS and in-house lawyers

Currently in-house lawyers are constrained in the advice they can provide to those outside of their employer's business. Becoming an ABS could allow an in-house team to offer their services more widely, to clients outside their employer's business. In the future, some in-house lawyers who offer advice to the public, under the exceptions in the current Code of Conduct, may not be able to do so unless the bodies they are employed by become special bodies. Special bodies are a type of ABS. It is currently unclear exactly which bodies will need to apply to become special bodies. Under the current transitional arrangements special bodies will not need to be licensed until 2014.

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Further help

Guidance on what firms may do in terms of setting up an ABS has been issued by the SRA. The SRA are also happy to provide further guidance.

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Related content

Further help with ABS can be found in our regulation section