Legal services regulation review: The battle lines are being drawn


The consultation period on the government’s review of legal services regulation in England and Wales, announced in June, closed on 2nd September. A small but important group of institutional respondents – the Law Society, the Solicitors Regulation Authority (SRA), the Council of Licensed Conveyancers (CLC), the Legal Services Consumer Panel and Legal Services Board (LSB) – have subsequently published their responses to the MoJ’s call for evidence. A brief survey of these responses provides an interesting insight into the range of positions being adopted and arguments being deployed by the institutional players in this particular game.

As might be expected given the ‘previous’ between these two institutions, the Law Society and the SRA are continuing their public sparring match. The Law Society’s proposals seek to wind back the clock, not entirely to a pre-Clementi position, but pretty close, arguing that :

  •  the Society should have direct responsibility for training, authorisation to practise and standard setting;
  • it is better placed to create regulatory arrangements that are flexible and take account of the realities of different types of practice, and
  • investigation and prosecution of offences should be “undertaken at arms’ length” by a body that is part of the Law Society with independent decision making powers, but reporting directly to the Society.

The Law Society also calls, unsurprisingly, for the Legal Services Board to be slimmed-down in both form and function, and seeks the complete abolition of the Legal Services Consumer Panel, arguing instead that the professions should be responsible for creating governance mechanisms that incorporate the need for the consumer voice.

The SRA takes a markedly different tack. Whilst acknowledging that the Clementi reforms are still a work in progress, the SRA asserts that the proposed review is “timely” in that it is already apparent that the complexity of the regulatory regime is hampering regulators’ ability to meet the Legal Services Act’s (LSA) regulatory objectives. The body of the SRA’s paper then focuses on five ways in which the function of the regulatory regime is said to be sub-optimal. These are summarised in para 3.2 as:

    • inflexibility and over-prescription – in a rapidly evolving legal services market, too many requirements are specified to a significant level of detail in primary legislation hampering regulators’ ability to meet the regulatory objectives and the principles of better regulation;
    • complexity of primary legislation – the SRA has to operate under three major pieces of primary legislation; the Solicitors Act 1974; the Administration of Justice Act 1985 and the LSA. The other approved regulators also work under a multiplicity of legislation.
    • inadequate and irrational foundations for regulation – the whole of legal services regulation is founded on the regulation of six “reserved” activities which have accumulated in a piecemeal fashion and have never been the subject of an objective, evidence based, review;
    • the multiplicity of regulators – largely based around the historic regulation of titles (albeit in some cases with titles relating to distinct functions – for example licensed conveyancers) – which creates fragmentation of regulation across the legal services market and the need for rules to manage the boundaries of the various regulators. Not only are there eight approved regulators, there is also a layering of regulation with the LSB sitting above all of them. These features add to both complexity and cost.
    • regulation is not fully independent – the LSA made regulation more independent from the representative functions of the professions. However, this does not amount to full independence and, for as long as regulatory bodies remain part of strong representative organisations, there will be additional cost and a lack of flexibility within the system. In terms of cost, for as long as the current arrangements remain, the presence of the LSB will be essential in order to ensure compliance with the internal governance arrangements which enable independent regulation, and to deliver some degree of co-ordination between the regulators whose fields of regulation increasingly overlap. In addition the cost burden on the market is also inflated by s.51 LSA, which enables defined but extensive representative activities of approved regulators to be funded through the compulsory levying of practice fees.

The SRA’s remedies are the creation of a single statutory framework for entity regulation across the legal services market, including the abolition of a separate statutory scheme for ABSs; the extension of regulation to all legal activities as currently defined in s.12 LSA (in other words bringing currently ‘unregulated’ services like employment advice and will-writing within the reach of regulation), and, doubtless with a particular nod to the Law Society, a call for frontline regulators to be given complete structural as well as operational independence from the representative bodies. It does stop short of calling for a single regulator for the sector, while acknowledging that the growing (LSB-supported) focus on entity regulation was making the problem of having multiple legal regulators “more acute”.

The Legal Services Consumer Panel, however, suffers from no such reticence in its preference for what Legal Futures (Sept 2) has called the “nuclear option” of a single regulator. As we have come to expect, the Panel’s evidence does not mince words when it concludes (para 9.1):

Four years of evidence of the consumer experience has demonstrated to the Panel that the existing regulatory framework does not provide a sustainable model in the long term to offer consumers the best system of consumer protection or support a competitive market place. Consumers have to find their way around a labyrinthine maze; the scope of regulation is not based on any consumer protection rationale; there are gaps and overlaps in redress; there is considerable duplication in regulatory structures that consumers ultimately pay for; regulation is not sufficiently independent of the profession; and there are serious doubts about the capacity and capability of the smaller regulators to do a good job

The Panel’s advice? In effect, it calls on the MoJ to do a proper job of gathering the evidence and exploring the costs and benefits of the options, but with a view to tearing up the LSA and starting again with a more consumer-focused approach. The Panel does not anticipate nor spell out in considerable detail what this might look like, but it does highlight a number of themes. Most of these chime, to a degree, with the issues raised by the SRA: the need to assure proper regulatory independence from the professions, to re-visit the range of legal activities subject to regulation, including mapping out and assessing risk across the unregulated sector,  and to achieve a better balance between entity and individual regulation.

In the only response to be published so far by one of the smaller regulators, the Council for Licensed Conveyancers has also picked up on a number of these themes calling, longer term, for a review of the scope of regulated legal activities, completion of the separation of representative and regulatory functions and (interestingly) reform of compensation arrangements to improve consumer protection. For the time being, however, the CLC does not want much change. It specifically rules out a single regulator model for now, arguing that there is a role for multiple regulators to continue developing a range of approaches to regulation that will support specialisation and innovation in the marketplace.

In its response, published today, the Legal Services Board has also offered its support for the longer term option of a single regulator, adding, crucially, that such should be “unrelated to any existing regulator, including the LSB.” In the short term it is also highly critical of the continuing preponderance of ‘one-size-fits-all’ regulation and calls for existing regulators to do more to develop risk-based models and otherwise re-regulate the market, removing rules which cannot be justified on a risk basis. Its response also calls for wider consumer access to the Legal Ombudsman and new powers for the Office for Legal Complaints to develop its services.

So what does this small cross-section of responses tell us? First off, there is a fair degree of unanimity about one thing: the compromises enacted in the LSA regime have left virtually no-one satisfied. The CLC’s is the only published response so far that wants to retain something close to the status quo. This is not entirely surprising. The smaller regulated occupations have arguably benefitted disproportionately from the changes, gaining a mandate for (quasi) self-regulation, and with it the opportunity to use regulation to achieve a degree of occupational closure that they would have struggled to achieve otherwise. This of course also highlights another issue: the extent to which self-interest drives these kinds of institutional responses: the SRA’s calls for structural independence and the extension of regulation to all legal activities are thus somewhat predictable for an ambitious regulatory body, though such an extension of legal activities seems to fly against the liberalising ethos of the LSA. I suspect it will not find favour with a Lord Chancellor whose instincts are fundamentally deregulatory. The LSB’s proposals may in this regard be closer to the mark. They propose making all legal activities subject to a baseline comprising access to an Ombudsman or other dispute resolution mechanism,  supported by some enhanced consumer protection laws. They would only deploy a risk based model of regulation over and above this in respect of activities for which there are substantive public /consumer interest grounds for doing so.

I actually suspect that Lord Chancellor Grayling’s instinctive preference would be for a greater return to self-regulation, contrary to the views of the CLC, SRA, LSB and the Consumer Panel. Although it was the Thatcher government that took the first swipe at professional self-regulation, Tory governments (which this one seems to be in almost everything but name) are ultimately not renowned for favouring consumer over business interests, but would Grayling go as far as the Law Society (and one suspects the Bar Council, though the latter is likely to be less critical of its regulatory arm) would like?

I hope not. It is difficult not to see a return to the old ways as a retrograde step. Will market innovation be enhanced with (for example) the Law Society and Bar Council in charge of licensing ABSs? I don’t know, but, as data from the LETR indicated, there appears to be a strong undercurrent of hostility to new business structures among the grassroots of the profession. How would the representative bodies deal with that to re-assure external investors? It also takes a very short memory and a generous pinch of salt to take seriously the Law Society’s claim that “there is no evidence to suggest professional bodies cannot take decisions in the public interest about standards and qualification.” That’s true so long as we overlook the whole sorry story of the OSS (which the Society seemingly wishes to re-introduce in another guise), the Training Framework Review, which took seven years to achieve very little, and the history of underfunding and neglect of effective CPD regulation. I am sure the Law Society has learned some lessons from the past, but more evidence and less hubris might have made its claims more credible.

Some might say that it also takes a particular kind of legal mind-set to argue that professional self-regulation equates to independent regulation, and to conflate independence with non-accountability, but that’s a story for another post.

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