BSB: small number of applicants means costs will exceed income
The Bar Standards Board (BSB) is not expecting the introduction of entity regulation to lead to many barristers joining forces in a single business, it has emerged.
The BSB hopes to start regulating entities from January 2015, and predicted that by the end of the third year, there will be 400 single person ‘entities’ and only 12 with more than one barrister – and of those, only two are expected to involve more than 15 barristers.
“Our market research suggests that a relatively small percentage of barristers or chambers wish, at least initially, to seek authorisation as an entity,” the BSB said.
It is understood that many individual barristers are keen to incorporate their practices to limit liability. The move would not prevent them from remaining as members of chambers.
The predictions feature in a consultation paper the BSB issued last week on its proposed fees for BSB-regulated entities, which explained that for firms with between six and 15 barristers, the BSB will differentiate between ‘simple’ and ‘complex’ entities, with the latter attracting a higher authorisation fee because of the extra time they will demand from the regulator.
“This is because it is possible to have within this category both a very straightforward entity (which broadly replicates the chambers model), and a complicated entity (which seeks to involve both barristers and solicitors or is structured in an unconventional manner)…
“For example, the BSB is likely to view an entity with a large number of employees, but with only a small number of authorised persons, as complex because of the regulatory risks it presents and the enhanced supervision arrangements that would be required as a result.” The BSB will issue guidance on what it considers to be complex.
A single person firm will pay an application fee of £260 and an authorisation fee of £330, making a total of £590. The firm will then pay an additional annual authorisation fee of £390.
Fees will increase depending on the firm’s size. Those with two to five people will pay authorisation fees of £1,600, and an annual fee of £1,000. The biggest firms will be charged an authorisation fee of £4,250 together with an annual fee of £2,900.
The BSB has estimated its annual operational costs of regulating entities as £410,000. “The fees for the authorisation process and the subsequent annual fees will be set at a level designed to cover the BSB’s operational costs for entity regulation,” the regulator said.
“Initially, the small number of expected applicants will mean that costs will exceed income. These initial losses will be recovered over subsequent years with the intention of breaking even over a three-year period.”
Oliver Hanmer, director of supervision at the BSB, said: “There needs to be a new and distinct fee structure for regulated entities because these costs will not be covered by the barristers’ practising certificate fee. We have tried to ensure our entity authorisation fees are affordable for all prospective entities.”
In its policy statement on entity regulation, the BSB has said its focus will be on “the regulation of advocacy and related litigation services and expert legal advice”.
It has listed factors which would tend to indicate firms might be suitable for regulation by the BSB. Among them are that 50% or more of the managers have higher court advocacy rights, a “substantial part” of the services to be provided are litigation and advocacy and the firm is “not intending to provide high-volume, standardised legal transaction services”.
The BSB has said that “in due course” it will apply to become a regulator of alternative business structures.
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