City lawyers are quietly celebrating - at least those who are bothered about regulation. Lord Hunt of Wirral has given them exactly what they want in his report out this week on how the profession should police itself.

David McIntosh, a past Law Society president, led the chorus of approval. The City of London Law Society, which he chairs, and its corporate members — a “high proportion of the UK’s and world’s leading commercial law firms” — welcome Lord Hunt’s conclusions, he said. They look forward to working with a “renewed” Solicitors Regulation Authority (SRA) towards improved and more effective regulation of the practice of corporate law with the emphasis on compliance, not recrimination.

The City’s endorsement comes from Lord Hunt’s adoption of the thrust of the Smedley report, a forerunner in the present regulation debate. Nick Smedley, a former senior civil servant, produced a report in March, concluding that the way corporate law firms were regulated was in urgent need of reform.

Echoing the criticisms of many City lawyers he said that the SRA, the body hived off from the Law Society to handle standards and training, discipline and conduct, needed a radical overhaul. One size, he concluded, did not fit all. The SRA needed greater expertise and understanding and a more sophisticated approach that recognised the varied needs of different sectors of the profession.

Lord Hunt, the former Conservative MP and a senior consultant with Beachcroft, the national law firm, has picked up Smedley and taken it a stage further.

The Smedley model, self-governance for those firms that can demonstrate effective internal audit systems, is good — but should be there for firms “of any shape or size” that can set up robust systems, Lord Hunt says. Corporate law firms will be in the vanguard but any firm should be able to aspire to the same arm’s length model.

His report with 88 recommendations was commissioned by the Law Society that wanted a review of the regulation of the profession as a whole against the backdrop of the Legal Services Act 2007 and the Big Bang it will create over the next two years.

The underpinning of this approach, what Lord Hunt styles authorised internal regulation, or AIR, is his faith in the profession and its traditional values. Lord Hunt is a one-profession man: in the face of doom mongers who envisage an increasingly split profession, Lord Hunt believes now is the chance to re-cast old principles.

As he says in his introduction: “Solicitors have very powerful, specific traditions upon which to build and we understand the value of regulation based upon principles rather than prescription.

“I have been a lawyer for more than four decades and my instinctive guiding principle has never wavered. I have always sought to be a trusted adviser and my immediate duty is to the client. Putting the client first was bred into me.”

So at a time when the trend is towards business models (the alternative business structures — ABSs — permitted by the 2007 Act), Lord Hunt wants a return to what he calls reinvigorated professional values — a return to principles-based regulation.

Rule 1 of the solicitors’ code of conduct should become an overarching philosophy, a statement of core ethics that embrace the importance of justice and the rule of law, integrity, independence, the paramountcy of clients’ interests and standards of service.

How will this fit the legal landscape with all kinds of newcomers entering the market? Lord Hunt is an admitted sceptic about the proposed mixed partnerships or other enterprises and warns that the new regulatory regime for ABSs must be “very rigorous indeed”. It must not, he adds, be an “ethics-free, consumer protection lite” model — although it must not be shackled by too-heavy or cumbersome regulation.

He recommends that ABS firms should comply with the same governance criteria as firms under his AIR regime and be regulated according to the same principles. Successful ABS firms will be those that look and behave most like the best law practices now, he believes. And where there is outside ownership of such firms, the SRA should consider imposing a fit and proper person test on any senior non-lawyers involved.

Finally, he wants to extend the regulatory net to all activities on the fringe of the legal market, such as will writing, claims management companies and probate. Activities that “smell” like a reserved legal activity should become so, he says.

The report has been warmly welcomed by the Law Society — to whose council it now goes — and by the SRA. Peter Williamson, the SRA chairman, has announced that some of the big corporate firms have agreed to work with it on a pilot scheme to address issues arising from the Smedley review.

Charles Plant, incoming chairman of the SRA board, will lead a team to devise how it can implement a fresh approach and work on creating regulatory arrangements to command the “wholehearted” support of corporate law firms and their clients.

Williamson recognises the need to move swiftly. The corporate sector has increasingly lost confidence in the SRA, threatening a split in the regulation of the profession.

Ironically, when the Law Society hived off its regulatory activities from its trade union, representative arm, the concern had been as to whether the latter would be able to hold the corporate and high street ends of the profession together and represent both. But it has been over regulation, not representation, that the split became a real prospect.

Smedley, with his different approach for corporates alone, could have made that division a reality. Lord Hunt may have given the City what it wants but he also provides a blueprint to meld the profession’s parts together again — and ensure a reinvigorated Law Society, plus a SRA reinvented as the “very model of a modern professional regulator”.

As he puts it: “I would not like to see this profession divided. I strongly believe in the old maxim about the benefits of standing united.” But the benefits of that professional cohesion, he reminds the profession, are ultimately for the client.

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