SRA or BSB Entity- which should I choose to set up my firm and what are the pros/ cons of each model?

SRA or BSB Entity- which should I choose to set up my firm and what are the pros/cons of each?

If you are a lawyer thinking about setting up an SRA ABS or BSB entity, I can tell you from experience it can be a minefield. The Legal Services Act allow both Solicitors and Barristers to run a practice with both regulators. I had an enquiry this week from a lawyer looking to obtain information on this which had led to an article on the basics.

I currently run www.mckielegal.co.uk as an SRA Regulated ABS but as a Barrister with Litigation rights (and a former Solicitor). The set up process with the SRA was relatively pain free and completed in a few months. The big advantage of an SRA practice over a BSB entity is that we can (like any other SRA firm), we can run a client account to receive money for client damages and we do not require an exemption to obtain ATE for clients (an absolute must for any litigation practice). The big draw back with an SRA Regulated entity is the costs of PII insurance (ours was under ￡10k in year 2 of practice) which I am told is good for a litigation firm in year 2. Depending on the type of work undertaken some PII insurers are reluctant on the open market to insure new set ups. I will write a separate article about this and getting PII for a new firm and what to do. I would budget a minimum of ￡30-50k for the basic set up of an SRA law firm with no employees, the big cost being PII for year 1 with no track record with the insurer.

I also ran a BSB Regulated entity for 4 years. The one big disadvantage of the BSB entity was ATE insurance (you need separate FCA Regulation as the BSB does not have the exemption- it cost circa ￡15,000 in regulation costs) and also that a BSB entity cannot run a client account. The solution of the Bar Council was Barco (which was closed down in 2018 due to lack of use/ funding) and replaced by recommend escrow providers. This can work in principle (as we had to make it work), but its far more labour intensive, costly and complex than running an SRA client account. The one big advantage over an SRA law firm is PII costs. Barristers in BSB Regulated entities can obtain insurance from Bar Mutual (I recall our first years insurance was circa ￡2k for ￡2m of cover) as it is based on fees generated by the practice in different areas of work and not subject to costs on the open market. I think it is now true to say that Bar Mutual will not insure all areas of work and it is possible for a BSB entity to go to open market but it certainly makes a huge difference on start up costs. A new simple BSB entity can probably be set up and running for under ￡25k and is certainly cheaper than a SRA model on new set up costs (primarily due to PII costs)

Whichever regulator you choose there will be an application to complete and here are a few tips to help:-

1. If going to the open market start your PII search early. You cannot start your SRA application without this.
2. In order to set up the firm, the regulator will want to see a clear set up of the structure of the firm, who is in it and what role they are likely to undertake.
3. The regulators are primarily interested in risk management and compliance (especially for litigation work). You will need to carefully set and consider how those risks will be managed in the firm and individuals in the firm
4. Financial controls- part of the application will involve financial controls (especially if you are running a client account). How are these risks managed by the firm and by whom?
5. Finance - how is the firm being funded and by whom? The regulator will want to see details of how the firm will have financial stability and this is going to involve some solid financial projections.
6. Where is the work coming from? The regulator will want to see that you have a clear business plan for the generation of compliant work and that the risks of any conflict and work generation are compliant and well managed.

In summary, the starting point of the exercise is a clear business plan for the firm, clear financial plan with projections and a risk management document. When we set up both the BSB Regulated Entity and the SRA Entity the documents we drafted still form the basis of our risk and compliance procedures two years later (albeit we have updated these for Lexcel compliance which we achieved in 2021).

If you are thinking of starting a firm BSB or SRA use are more than happy to assist with the set up process and application process including assisting to check or draft applications. We offer fixed fees for the whole process or consultancy on specific parts of the process. You can contact me on [email protected] or 07739964012.

About the Author. Andrew Mckie is a Barrister with Litigation Rights and is a member of Clerksroom Chambers and also runs an SRA Regulated ABS www.mckielegal.co.uk. Please note this article is not designed to provide legal advice and should not be relied upon as such. Please contact a lawyer for advice on a specific set of facts.