Neil Rose, the Editor of Legal Futures, last week
published an interesting interview with SRA executive director Samantha Barrass
in an attempt to get to the bottom of why there have been only seven
alternative business structures (ABS) authorised in more than five months, and
whether the critics of the SRA are justified in pointing to this as a failure
of process.
Rose rightly points out that none of the applicants
on the waiting list seem to want to put their heads above the parapet, for fear
of retribution from the regulator – after all, who in their right mind would want
to get on the wrong side of a body which is charged with making hugely
important decisions regarding their future?
However, I have spoken to some of those business affected, and although they
may prefer not to be publicly named, I can vouch for the frustration that they
feel. It was therefore with some
interest that I read Ms Barrass’s comments.
In theory the application process is simple -
there is an initial stage one expression of interest, and then a stage two
application form. The SRA has six months (extendable by a further three months),
to decide on an application. So far, so
good. But what Ms Barrass confirmed in
her interview with Rose (and a point I have made in previous blog postings) is
that the clock does not start ticking at the point the form is submitted, but
rather at the point that the SRA consider they have all of the information they
need. Given that there is not a “standard”
set of documents or questions which apply to all cases, some applicants have
found themselves on the end of a seemingly endless list of requests for
additional information, some of which seem to the applicants to be irrelevant
or entirely tangential. The fact that
the SRA has the discretion to decide when it has enough information, whilst
understandable in one sense (particularly if the SRA is receiving poorly
completed applications), means that in effect the published timetables are fairly
meaningless.
There has also been frustration amongst applicants
over the length of time taken to consider whether individuals are suitable
persons to be licensed, particularly where they are already licensed by another
stringent regulatory body – such as the FSA.
The expectation of applicants is that if the FSA has already licensed
someone, then any additional checks required by the SRA should be fairly
minimal. After all, it would be an odd
situation if someone who was deemed to be an acceptable person to run an
investment or banking business was unacceptable to be involved in a law
firm.
The gap in expectations and understanding of the
process has, in Ms Barrass’s view, been one of the key lessons of the first few
months, as has the fact that the SRA have received many more complex
applications than they were expecting. Next
week the SRA will be publishing revised guidance so as to put more information
about the application process in the public domain, in an attempt to close the expectation
gap. That is undoubtedly a good thing, but surely the need for better guidance
could have been foreseen at an earlier stage - after all, the enabling legislation
was hardly through at the last minute.
Whilst the closing of the expectation gap is surely
a helpful step, I can’t help but thinking that there should be an equal amount
of focus on actually speeding the process up, rather than simply managing
expectations. I am not for one minute
suggesting that the SRA should compromise its standards by rushing applications
through, but an application process of 9 months or more seems to me to be
unnecessarily drawn-out and surely is susceptible to improvement? Perhaps, for example, a “lighter touch”
regime could be used for approving the involvement in an ABS of individual
applicants already currently authorised elsewhere?
Rose points out that the length of time
applications are taking is causing problems for companies who have arranged financing
in anticipation of a licence. Ms Barrass was decidedly and clearly unapologetic
about this in her interview – saying that it is a mistake to put in place financing
before talking to the SRA about how long the application will take. Others might argue that given the lack of any
expectation-setting by the SRA at the outset, it was not unreasonable of
applicants to have assumed that the 6-9 months specified in the guidance notes
was indeed an accurate estimation, and therefore not assumed the need for any
further clarification on the topic. In
addition, I have a sneaking suspicion that in practice, if asked, the SRA would
not have been able to give a great deal more clarity about the timing in
advance, given that it can’t say in advance exactly when it will be happy that
the information provided will be sufficiently comprehensive, and it had no past
experience by which to be guided.
In my view, the SRA needs to find away of
standardising the process more than is currently the case. This will enable applicants to be better prepared
for the process, and for the SRA to be able to process them more
efficiently. I accept that at the
beginning there will be a number of different scenarios which need to be accommodated,
but it is not beyond the wit of man to cover those. So long as there are
bespoke elements of each application and a dearth of guidance, then there is
bound to be a lack of clarity around timetables and the prospects of an
application succeeding. The SRA appear
to be trying to deal with the guidance issue, but they must also tackle to
process efficiency.
There have so far been 230 stage 1
applications, 130 stage 2 and a further 25-30 that are now ‘complete’ – ie
there are 25-30 where the clock is running.
Having predicted back in January when the first licences would be
granted, and having received a deluge of criticism for then missing the date by
a month, Ms Barrass was understandably reluctant to commit to when the next ABS
will be approved, but did say that a few are “quite imminent”.
