Solicitors’ watchdog lacking bark and bite

Running in parallel with a much wider review of solicitors' regulation overseen by former Tory Cabinet minister Lord Hunt of Wirral, the report was commissioned and published by the solicitors' representative body, the Law Society. It deals only with the corporate firms - based mostly in the City and West End - that act for sophisticated commercial clients.

They told Nick Smedley, the report's author and a former senior civil servant, that the regulator needed to raise its game "very quickly indeed". SRA investigators, used to visiting High Street practices where partners were familiar with all current files, had difficulty coping with a corporate firm that had 18,000 cases on the go.

"The SRA staff were used to looking in filing cabinets and selecting files at random," Smedley noted. They "appeared to have difficulty in mapping that approach to a business that operated by means of large and sophisticated electronic databases". The solution he recommended last week was for the SRA to restructure itself, setting up a new corporate regulation group. This would be headed by a "very senior and highly-experienced lawyer with a corporate and commercial background, or alternatively someone with very strong regulatory experience".

To recruit someone of this stature, the SRA might have to offer a much higher salary than it currently pays its chief executive, Antony Townsend, a former chief executive of the General Dental Council.

Under Smedley's plan, the new corporate director would have the authority to by-pass Townsend and report direct to the SRA board.

Needless to say, the new corporate director would need to recruit a team of account managers, who would all have worked as senior regulators or in commercial law firms. Although their colleagues would remain in the Midlands, these managers would work in London - near the firms they were regulating.

At this point we should spare a thought for the SRA. The Law Society, which funds the authority, has foisted on it a demand for cultural change that will clearly be expensive to implement. Who is going to pay?

In my view, there is not the slightest chance that the Law Society will spread the additional cost of regulating corporate firms across the entire profession by raising the practising-certificate fee.

So what about the corporate firms themselves? Chris Perrin, General Counsel at Clifford Chance, heads the City solicitors' committee that gave evidence to the inquiry. "If Smedley's recommendations are implemented effectively," he told me, "then the corporate firms would be prepared to pay a bit more for the benefits that they could see that bringing them"

These could include a reduction in bureaucracy and a regulator who knows enough about their work to guide them on difficult issues.

The SRA board has promised to consider Smedley's recommendations and respond within the next three months. That was not a good sign: Smedley recommended they should reply within two months. And insiders fear that the SRA response, when it comes, will be half-hearted - watering down Smedley's proposals while professing to support them.

I asked Perrin how City firms would react if the SRA said it would simply try to do what it could within its existing resources?

"It would be a waste of time and a waste of money - and a wasted opportunity," he said. "This has to be done properly, with the right people who understand the markets."

And if not? Then Smedley's fall-back position is for the Law Society to take corporate regulation away from the SRA and give it to a brand new regulator. But that would be more expensive - and it's an outcome the City solicitors would prefer to avoid.