20 December 2011

LSB puts Law Society on report after SRA complains about independence threat

The Legal Services Board (LSB) has activated statutory powers that require the Law Society to provide monthly reports on whether it is complying with rules that are meant to ensure the independence of the Solicitors Regulation Authority (SRA).

The LSB’s decision on the Law Society’s compliance with its internal governance rules (IGRs) marks the end of a long-running saga caused in part, it emerged yesterday, by SRA complaints that the Law Society was infringing on its independence under the old arrangements.

The society has, however, complained that the monthly monitoring is disproportionate and only appropriate for a “delinquent body”.

The LSB has concluded that the new governance arrangements – which we outlined last month – are “potentially capable of delivering compliance with the IGRs”. It was also pleased that the society is on track to deliver a lay majority on the SRA board in January 2013.

However, as the new arrangements are “untested, unimplemented and relatively complex, we are unable to determine definitively at this stage that [they] deliver independent regulation in practice. Hence we cannot conclude that the Law Society internal governance arrangements are fully compliant with the IGRs”. If they fail to deliver what they promise, next year the LSB will consider enforcement action.

This uncertainty contributed to the decision to activate section 55 of the Legal Services Act 2007 to require the Law Society to provide information on how the arrangements are working on a monthly basis.

In a letter to the Law Society, LSB chairman David Edmonds said this was also driven by the fact that the previous arrangements were not compliant, “the serious concerns about independence of regulation expressed during this year’s IGR exercise”, the failure to deliver on all commitments from last year, and the society’s “reticence” – “to our surprise and disappointment” – to provide all relevant papers to assist the LSB in reaching a conclusion on the new arrangements.

The LSB revealed that earlier this year the SRA had made it clear that “many of the risks to independence arising from the complexity of the arrangements between the two organisations had in fact materialised”. The Law Society did not accept this view, but the LSB said it did not need to decide what had happened given that there were to be new governance rules.

Mr Edmonds said the LSB intended the monitoring to last for nine months at the most. In a statement, he said: “This has been a lengthy and at times difficult process. I appreciate the efforts that have been made to draw this long-running source of tension to an end. My hope is that the progress made in 2011 will make reviewing compliance a considerably less onerous task in future years.”

In a letter last month to Mr Edmonds – responding to the then threat of using the section 55 powers, and published yesterday by the LSB – Law Society chief executive Des Hudson argued that the board was acting disproportionately by introducing “intensive monitoring” – which he said would be necessary for a “delinquent body”.

He said: “Such monitoring might be appropriate if there were reason to fear that the SRA board was not genuinely independent of the council, so that it was in some way in our pocket. I am sure there are many criticisms which may rightly or wrongly have been made of the SRA board, but subservience to the Law Society council is certainly not one of them.”

Tags: internal governance rules, Law Society, Legal Services Act, Legal Services Board, Solicitors Regulation Authority