In the final part of Armstrong Watson’s series on starting up your own firm, Andy Poole explains applying to the SRA for authorisation.
As specialist advisers to the legal sector, Armstrong Watson has helped many firms to start practising. In the last three articles of this series, I have covered the top considerations that individuals should take into account in starting a new law firm: the importance of planning; the business structure of the firm; and tax considerations. In this final article, I look into the application / recognition process with the Solicitors Regulation Authority (SRA).
The SRA often receives much criticism from solicitors, but I must start by saying that it has much improved its whole process for applying for recognition. In the past, it has taken some three or four months from the point that it receives all of the application information to approve new law firms, and even then only by constant chasing. For new alternative business structures (ABSs), the timescales were over six months.
In our most recent applications for new law firms, it is taking as little as four to six weeks for recognised bodies and around three months for ABSs. Of late, we have been receiving very few queries, if any at all, from the SRA. That may be due to our experience of what it is looking for in the applications, rather than it not having such a keen eye for the detail.
The timescales and some of the application requirements may have been slimmed down, but it is still an onerous process, with much form-filling.
SRA form FA1 must be completed. The form is 14 pages long, but can be completed as an editable PDF. That means that you can save it, complete it in stages, and change entries. It contains standard information requests, but also looks at the role-holders, such as:
- compliance officers
- managers (directors in a company / partners in a partnership / members of an LLP)
- authorised signatories
- anti-money laundering reporting officers etc.
In order for the SRA to assess the viability of the new firm, the form also asks questions on:
- sources of funding
- interest rates
- types of work to be undertaken
- any linked businesses.
Individual forms also need to be completed, forms FA2, which are 16 pages long and focus on the roles of those individuals; their background information; professional status; experience; reasons that they are appropriate; employment history; and business interests. Essentially, these forms are used to assess the suitability of the candidates to take on their proposed roles.
There are exemptions for certain individuals from completing form FA2, if they are ‘deemed approved’. Essentially, this is a practising solicitor. Even where the individual is deemed approved as an owner / manager, they will still need to complete the forms if they are to hold the role of compliance officer for financial affairs / compliance officer for legal practice, unless the firm will have fee income of under £600k.
If another entity will be a manager or owner of the new firm, the 10-page form FA3 needs to be completed too, which also assesses suitability.
The SRA will expect to see:
- business plans
- risk assessments / business continuity plans
- governance documents, such as shareholders’ agreements.
The SRA will use all of the above information to focus on the risks to the new firm. A common area of risk is business continuity, particularly for smaller firms. Applications should therefore consider this in advance and set out contingency planning in the event of impacts on key individuals / premises / IT etc.
If you are applying to be a licenced body (an ABS) rather than a recognised body (a non-ABS), then the same form FA1 is used, but there are additional questions on:
- material external interests
- associated relationships
- voting powers
- influence of non-authorised persons.
The SRA will also require forms FA2 on all non-deemed approved individuals, and the accompanying materials as set out above. The SRA tends to ask for far more information on ABS applications, particularly on risks associated with separate business links.
All forms can be submitted electronically. We advise that you use your covering email to explain the purpose of your application and add anything that isn’t covered by the forms that you feel will benefit your application. You should then receive a positive response from the SRA. In the meantime, you can concentrate on getting your new business ready to be a success from the start, by following the guidance set out in this series of articles.
In this series, I have provided a very high level overview. Starting any new business, let alone a regulated law firm, can be a complex area and advice should be sought from a legal sector specialist accountant on which route is best for you.
For more information on how the specialist Armstrong Watson legal sector team helps with the themes discussed in this article, please visit our website www.armstrongwatson.co.uk/legalsector