Whether you are applying for a training contract or preparing for an interview, you will be expected to show an appreciation of some of the issues currently facing the legal profession. One of the more significant developments in recent years is the introduction to the legal profession of a new type of business structure, known as an Alternative Business Structure (ABS). But what is an ABS, and what effect have they had on the legal profession?
What is an ABS?
The idea behind the ABS was first introduced by the Legal Services Act 2007 (LSA 2007), although the first ABS licences were not granted until as late as 2012. The main aim of the act was to liberalise the legal market by increasing the number of those who can participate in the provision of legal services. The introduction of the ABS is the mechanism by which it was hoped that this aim would be achieved.
Under the Act, organisations may apply to an approved licensing authority for an ABS licence which, depending upon the type of organisation that is applying, will allow them to change the way in which they organise or run their business. Law firms can apply for a licence that will allow them to both accept investment into the firm from external sources and appoint non-lawyers as owners or managers of the business. Non-legal organisations, by contrast, can apply for a licence that will allow them to provide legal services in conjunction with the other services that they provide. In short, therefore, an ABS is simply the name that is given to an organisation which has been granted an ABS licence to operate under one of these new structures.
What is the significance of ABS’s and how have they been received by the legal profession?
This may not seem like a particularly significant step but, on paper at least, the introduction of the ABS by the LSA 2007 actually represents quite a stark departure from the rules governing conventional legal businesses. Traditionally, lawyers were only allowed to practice as sole traders, in partnerships with other lawyers, or as employees in a business providing advice directly to their employer. Further, non-lawyers could not own or manage law firms, and any investment into a firm had to be generated internally. There was clearly no system in place which allowed non-legal organisations to provide legal services, so the legal market was relatively closed.
Of the changes introduced by the LSA 2007, the opening up of the legal market to non-legal businesses has attracted the most attention and caused the biggest stir. The intention, many argued, was to introduce a wider variety of providers into the legal market by allowing non-legal organisations access to it. It followed that this would create a more competitive and therefore innovative market, and that this would only benefit consumers of legal services. Others were less optimistic, claiming that the move would result in many organisations competing to offer low quality ‘off-the-shelf’ legal services. They therefore saw the introduction of the ABS as a watering down of standards, and believed it would result in a ‘race to the bottom’ (hence the rather pejorative nickname, ‘Tesco Law’).
What has been the effect on the legal industry?
It is fair to say that the introduction of the ABS has divided opinion from the start. However, 10 years after the LSA 2007 came into force, and five years since the first ABS licences were granted, it is still difficult to judge the relative success of ABS’s, or precisely what effect they have had on the legal industry. This is most likely because the changes are still in their infancy in addition to the fact that there are other forces currently shaping the legal market.
What can be said is that, after an initially slow uptake, the number of ABS’s does seem to be increasing – approximately 500 ABS licences had been granted by 2015 and that number is likely to have increased in the intervening years. Further, the organisations which are acquiring ABS licences are not limited to law firms, but include accountancy firms, insurance companies and even supermarkets. Although it may be too early to analyse their impact upon the legal market, therefore, the opportunities presented by ABS licences are clearly appealing to some organisations in quite different industries.