ICAEW: legal professional privilege creates “serious distortion” in market

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17 February 2016


ICAEW: “anomaly” extends beyond tax advice

The presence of legal professional privilege (LPP) creates a “serious distortion to the competitive environment” of the legal services market, the Institute of Chartered Accountants in England and Wales (ICAEW) has argued.

The ICAEW said the result was that clients may seek professional services from firms based on the availability of privilege, “rather than on the basis of a more cost-effective service”.

The institute, which called last week for tax accountants to be able to carry out all the reserved legal activities, including litigation and rights of audience, renewed its attack on LPP in a submission from its representative arm to the Competition and Markets Authority (CMA) review of the legal services market.

The ICAEW concentrated its fire on legal advice privilege (LAP). Should its application to the Legal Services Board to undertake litigation be successful, similar arguments could apply to litigation privilege.

“We are aware that some law firms have marketed their services on the basis that they are in a position to keep their advice completely confidential, with the benefit of LAP, where accountants are not able to do so.

“The anomaly remains, not just in relation to tax advice, but all other advisory services where accountants or other professional advisers are both appropriately skilled and regulated.”

The ICAEW said LAP had traditionally been limited to barristers, solicitors and their firms, but section 190 of the Legal Services Act extended this to members of other bodies where they were carrying out a particular reserved activity.

“Together with the rapidly evolving case law on LAP, this has led to a very complex situation, where even the most knowledgeable of clients may be unclear or misinformed on when they could be entitled to a right to LAP.

“In the meantime, chartered accountants and their clients are likely to be disadvantaged, in cases where LAP becomes important to the outcome of a legal issue.”

The ICAEW noted that it had intervened at the Supreme Court in Prudential v HMRC four years ago, challenging the denial of LAP to chartered accountants, but the court had ruled that parliamentary action was necessary.

Elsewhere in its response, the ICAEW took issue with the CMA for describing unreserved legal activities as “unregulated”.

The institute said its members had for many years been providing unreserved legal services to clients, especially in relation to advice on annual company accounts and tax returns for both businesses and individuals, and “further general advisory services” had been developed.

“These services are subject not only to rigorous professional regulation, but the activities of their professional bodies are within the scope of the oversight functions of the Financial Reporting Council, a body of equivalent status to the LSB.

“In the case of small businesses, the importance of this advice has been recognised in research commissioned by the LSB on the legal needs of small businesses. To categorise such services as ‘unregulated’ is entirely inappropriate.”

In a separate response to the CMA market study from its regulatory arm, the ICAEW criticised banks, insurance companies and others for discriminating against accountants providing probate services and in favour of solicitors.

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