LSB: we will attack the barriers to “radical change”

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6 December 2013

Edmonds: residual cultural resistance

The Legal Services Board (LSB) has pledged to attack the “cultural resistance to radical change” that it said was necessary for the legal market to thrive.

Issuing its draft 2014/15 business plan for consultation, the market regulator said removing unnecessary restrictions on new business structures – including the controversial separate business rule – and the cost of regulation will also be a major focus.

Chairman David Edmonds said that while the frontline regulators are making “fair progress” towards modernising their frameworks, “the degree of residual cultural resistance to radical change of the kind the legal economy needs if businesses are to be allowed to innovate and thrive remains a block on progress.

“Moreover, the benefits of shorter and less prescriptive rulebooks need to be matched by fewer and more effective regulatory processes if they are really going to deliver benefits to business and consumers alike.”

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Mr Edmonds said this was “not an accusation of blind self-interest on the part of the regulatory bodies”, but a reflection of “the legacy of years of self-regulation, over-complex primary legislation and a conservative constituency, which, in some quarters still expects regulation to serves its interests, conflating what is good for the profession with the public interest”.

The LSB has identified a number of areas “where it appears that regulation is neither targeted nor proportionate and may not be supporting the regulatory objective to promote competition in legal services”.

Among the areas the LSB said it proposed to review, subject to the consultation, were the extent to which regulation – such as the separate business rule – “unnecessarily prevents legal services providers from structuring their businesses, offering different types of legal and non-legal services and rewarding their employees in ways that they want to commercially”.

It will also look at the extent to which it may be possible to make the ownership tests for alternative business structures “more targeted and proportionate”, and how regulators identify and deal with firms in financial difficulty, “including alternatives to intervention and issues concerning regulatory barriers to exit”.

Next spring, the LSB said, it will publish an initial assessment of the current costs of regulation, including those costs imposed by the LSB and regulators, both directly and indirectly, and the cost imposed on the market by practising fees spent by approved regulators on permitted purposes. These are the representative activities that the likes of the Law Society and Bar Council are able to levy through the compulsory practising fees regime.

The LSB is planning to shave £150,000 off its own budget in 2014/15. This will have meant that the board has reduced its annual budget by £633,000 since the first full year of running in 2010/11 – “almost 13% in cash terms before taking account of inflation”.


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