Caroline Hill and Sarah Downey assess the agendas in the MoJ’s review of regulation
The Ministry of Justice (MoJ)’s decision to conduct a review of the profession’s regulatory landscape comes just a little over a year since the landmark Legal Services Act (LSA) came fully into force. The irony is that barely has the radical reform been enacted that was supposed to sort out fundamental problems with professional standards and all parties seemingly now believes it’s time to once again go back to the drawing board.
Since justice minister Helen Grant announced in June that the government would look at ‘what could be done to simplify the regulatory framework and reduce unnecessary burdens on the legal sector’, the MoJ has received submissions from the City of London Law Society (CLLS), the Solicitors Regulation Authority (SRA), the Law Society, the Legal Services Board (LSB), the Legal Services Consumer Panel (LSCP), the Bar Council and the Bar Standards Board (BSB).
Where consensus has been reached, it is to say that the LSA is too complex and lacks the agility to deal with the sophisticated and fast-changing market.
In many ways, the LSA has been a victim of its own success; new bodies have emerged and there are now approaching 200 alternative business structures (ABSs). However, ‘that very success has shown that radical change is needed to simplify regulation further and target it more effectively. More can be achieved, faster, with a simpler statutory framework and bolder, more market-sensitive, more independent and less risk-averse regulators’, says the LSB.
Overhauling legal services regulation is a ten-year project.
Alasdair Douglas, City Law Society
The submissions give clear insight into the tensions and in-fighting between the regulatory bodies. The CLLS, in its three-page submission, claims that the cost of regulation ‘is close to getting out of control’ and says: ‘The existing arrangements appear to generate constant tension between the Law Society and the SRA regarding the need for, and management of, regulatory resources leading to a disproportionate and costly management overhead.’
Alasdair Douglas, chairman of the CLLS, told Legal Business: ‘The multi-entity structure of regulation doesn’t work terribly well because each entity has to have numerous relationships.
‘It’s not the entities that are causing problems, it’s the structure of having numerous different entities and having to have relationships that makes it difficult to work.’
The CLLS proposes the creation of four or five distinct divisions to regulate the various limbs of the profession.
Rejection of ‘one size fits all’ is another area of rare consensus between the bodies. The LSB summarises: ‘Firms face a common regulatory cost base unrelated to the risk they present, a cross-subsidy of bad firms by good. That leads to unnecessary costs for law firms, but also costs to UK plc through reduced competition, innovation and consumer choice.’
Finding a solution is more divisive. Both the Law Society and the Bar Council have called for a return to self-regulation, the former proposing that it regains control of training, authorisation and standard-setting, while investigation and prosecution of offences be undertaken by a scaled-back SRA reporting directly to the Law Society.
Law Society: ‘Regulation is too detached from the profession; it is not focused on addressing possible market failures.’
Solicitors Regulation Authority: ‘The legal services market we are seeking to regulate now and in the future bears no resemblance to that on which the core current foundations are based.’
The SRA, unsurprisingly, has called for complete independence. Meanwhile, the Bar Council and the BSB have suggested a non-statutory college or council of regulators to replace the LSB, which the BSB claims adds 20% to the time and cost it takes to make ‘necessary changes’.
Amid accusations of a blurring of lines between the regulatory bodies, there are widespread claims that the LSB is overstepping its intended remit, but in a 92-page submission the board counters with a proposal that the labyrinth of legal services regulation should be streamlined into a singular body instead of ‘ten front line regulators, an oversight regulator and a statutory ombudsman scheme [which] operate in a legal framework of at least ten main statutes and dozens of statutory instruments, while trying to promote eight different regulatory objectives’. This accords with the LSCP’s call for a single regulator to avoid consumer confusion and a ‘race to the bottom’ by regulators.
In a call for primary legislation, the LSB puts forward a number of detailed proposals to reduce costs, including streamlined mechanisms for market entry and ‘a new simple “fit and proper” test for ABS owners, replacing the 20 pages of Schedule 13 to the Act’.
However, there are questions over whether the government has the appetite to take on the level of reforms required. Douglas comments: ‘We’re looking at a ten-year project. [Bringing in] primary legislation for lawyers – will government find time in parliament to do that?’