LSB lays out vision of radical reform of legal regulation

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10 September 2013


Edmonds: more change is needed, not less

The Legal Services Board (LSB) has today published its “blueprint for deregulation”, the culmination of which would be a new single regulator for the legal market that is “organisationally, statutorily and culturally fully independent of both government and representative bodies’ vested interests”.

In its response to the Ministry of Justice’s legal services review, LSB chairman David Edmonds argued that “more not less change is needed”, with the “labyrinthine” 2007 Legal Services Act living on borrowed time.

A new regulator would need to be created from scratch, unrelated to any existing regulator – itself included – the LSB said, with the new rule book similarly starting from a blank sheet of paper. This would be informed, but not constrained, by current requirements, with no ‘passporting in’ of old rules.

Authorisation to provide service would be based on risk and outcomes, rather than having a professional title.

Controversially the LSB said the core protections for legal services consumers, as with other consumers, should lie in general consumer law, together with “enhanced access” to redress through the Legal Ombudsman.

Anticipating a much shorter and simpler rule book, the LSB said any sector-specific regulation that survived would have to be targeted on the nature of the risk. It identified activities such as handling client money, litigation, advocacy especially on issues of liberty, mental health matters and the provision of immigration and asylum services as priorities for any regulator.

The LSB outlined incremental reform given that this would take some years to achieve. It would start with immediate action by the LSB and existing regulators “to target regulation at identified risks”, and over the next two or three years simplifying the legislative framework and giving access to the Legal Ombudsman for consumers of all legal services.

Alongside this would be the development of timetabled and costed proposals for the new framework, with a single regulator the “core model to be tested”. The LSB considered a number of other possible approaches but concluded that this would most likely achieve the end result of effective regulation.

Among the shorter-term legislative changes proposed by the LSB aimed at lower costs and entry barriers and structural simplification were:

  • Prohibiting professional bodies from levying compulsory fees for non-regulatory activities, which it said adds £20-25m to the sums levied on the sector;
  • A new simple ‘fit and proper’ test for alternative business structure owners;
  • Fewer restrictions on in-house solicitors acting direct for the public;
  • A general power for regulators to make the rules that are required by the Act; and
  • Rationalising the current sanctions and appeals arrangements.

This would be supported by more freedom for the LSB to act, including giving it the power to ‘call in’ existing rules and processes for assessment.

The LSB added that it will shortly consult on introducing a rule that all approved regulators must have a lay chair.

Mr Edmonds said the current system is “over-engineered and exceptionally complex”, caused by incomplete liberalisation in 2007 and the institutional framework of regulatory bodies tied to professional organisations.

“The result is a situation where 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 UK plc through reduced competition, innovation and consumer choice.”

Mr Edmonds was particularly critical of how the development of multi-disciplinary practices has been inhibited.

“There is growing evidence that the conservatism of the legal profession and its regulators continues to make it difficult for new provider types to enter the market, especially those with truly innovative delivery models,” he said.

“A combination of the prescriptive requirements of the Act, regulators’ inherent discomfort with other professional services and specific rules such as the SRA’s separate business rule is delaying approval of firms seeking to offer multi-disciplinary services.”

Mr Edmonds said that while the 2007 Act had improved regulation, “more could have been achieved, faster with a simpler statutory framework and bolder, more market sensitive, more independent and less risk averse regulators”.

He emphasised: “Our prescription does not turn the clock back. More not less change is needed in mechanisms for market entry; regulation needs to be further detached from the influence of the provider towards the consumer; and simplification at every level can be delivered.”

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