“Compelling case” for reform of regulation, says LSB, as focus on independence intensifies

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27 July 2015

Pitt: regulatory framework must be more efficient and effective

Pitt: regulatory framework must be more efficient and effective

There is a “compelling case to introduce a new regulatory settlement” for the legal market in the medium term, the Legal Services Board (LSB) told the government today.

A report to the Ministry of Justice said it was “increasingly clear” that the absence of full separation between the representative bodies and legal regulators is proving “a strong impediment to progress” for some.

The paper exploring options for reform of the Legal Services Act 2007 (LSA) has been submitted to justice minister Shailesh Vara and is the product of LSB-facilitated cross-regulator discussions chaired by Professor Stephen Mayson since last autumn as part of a package of work on deregulation.

It is explicitly stated not to represent the views of any individual regulator, nor the simple sum of collective views, but comes in the wake of the Lord Chancellor, Michael Gove, saying the Act would be reviewed during this Parliament.

LSB chairman Sir Michael Pitt said: “I very much welcome the recent indication by the Lord Chancellor that he wishes to review the Legal Services Act during the lifetime of this Parliament. The paper we are publishing today sets out a series of issues and options for further discussion to help inform the design of any reform package, should the opportunity of a new legislative framework arise.

“Whilst there may not be a ‘burning platform’ for emergency action, there is a compelling case to introduce a new regulatory settlement for the medium-term.”

The report said its findings “suggest that the current framework will increasingly inhibit further reform and that a considered and timely approach to reforming the LSA would yield benefits for meeting broader objectives of economic growth, and reducing regulatory burdens, as well as achieving greater proportionality, cost-efficiency and effectiveness in legal services regulation, whilst protecting public and consumer interests”.

It highlighted a series of shortcomings with the LSA: the use of a fixed list of reserved legal activities – themselves largely an accident of history – as the foundation for regulation; the approach of some regulators that, once a provider is authorised for one or more reserved activities, all their non-reserved activities are regulated as well; the ‘regulatory gap’ that allows those undertaking non-reserved activities to operate without regulation; and the “historic link” between professional bodies and regulators.

Its working hypothesis was that regulation should fall somewhere between the extremes of all legal services and providers being regulated and having no sector-specific regulation whatsoever.

While the paper said it did not attempt “to provide definitive answers or positions” – and in most cases, such as the possibility of having a single regulator, just outlined the pros and cons of the various options – it was notably robust on the issue of independence.

“The 2007 settlement was seen at its inception as a radical departure from the status quo,” it said. “But now, after significant experience of working under the current system, it is increasingly clear that the absence of full separation between the representative bodies and regulators is proving a strong impediment to progress for some.

“The present arrangements are fragile as they rely heavily on individual personalities and goodwill, whereas a robust regulatory framework should be capable of working successfully independently of these things…

“Moreover, the current structure risks undermining the credibility of regulation in the public perception in that some professions are still seen by consumers to be policing themselves (and therefore inferentially to be ‘protecting their own’). To ensure public confidence in regulation, it needs to be independent and be perceived to be independent.

“The experience of the legal regulators is that the public continue to question the fairness and independence of regulatory decisions despite the changes introduced by the 2007 reforms.”

There was also a steer in relation to the approach when non-reserved activities are caught in the regulatory net when a provider also handles reserved work.

“A risk-based and proportionate approach to such regulation might conclude that only [after-the-event] intervention of some kind would be appropriate for certain non-reserved activities, without the need to subject all providers to full before, during and after-the-event regulation in respect of all legal activities they conduct.”

Sir Michael said: “Regulation has the potential to make a very real contribution to unlocking growth, increasing productivity and addressing the significant unmet need for legal services.

“To do so, the regulatory framework must be more efficient and effective in seeking to promote strong and fair competition. It has to be capable of responding to rapidly changing conditions in the market whilst also maintaining necessary protections for consumers and the public interest.

“The LSB will continue to develop its thinking on what the key elements of such a regulatory framework might be.”

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