Micro-managing LSB "risks independence of profession"

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By Legal Futures

25 January 2012

Wotton: large scale and low cost do not always march hand-in-hand

The Legal Services Board’s (LSB) “unduly detailed approach to oversight” risks undermining professional independence, the Law Society president has claimed.

In his major speech to Saïd Business School last night, John Wotton also argued that alternative business structures (ABSs) have “no magic bullet in competitive terms”.

Mr Wotton said the regulatory structure established under the Legal Services Act “is capable of performing satisfactorily in the face of the changing market environment, but aspects of the structure have to be kept under close review, to ensure that the essential independence of the legal profession is not compromised”.

Having an independent commission – rather than the government – appoint the members of the LSB would help, he said, while it is important for the LSB to recognise “the limits of its statutory remit and the parliamentary expectations underlying that remit”.

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“The LSB should not seek to direct the activities of the approved regulators except where absolutely required to ensure delivery of the Act’s objectives. Nor should it seek to function as a standing legal services reform commission. Its role is not to reorganise the legal market, nor is it the economic regulator or competition authority for the legal sector.”

The approved regulators need to recognise those limits and assert their right to act independently of the LSB; while “there have been times over the past three years when one has wondered whether the approved regulators are bending too far towards the will of the LSB, more recently there have been encouraging signs of them finding their feet and asserting their independence, for instance by the professional regulators taking control of the rev

iew of education and training”.

With the LSB having introduced the key changes made by the Act, Mr Wotton raised the question of what role it should have in future, as others have done over the past year. “It might be suggested that the role of LSB would naturally reduce to one of monitoring performance against the regulatory objectives and responding to regulatory innovation.

“Indeed, one might reasonably question whether, once regulatory separation has been achieved to the satisfaction of the LSB, any public purpose is served by the need for approved regulators to submit rule changes to the LSB for approval. There are signs of the LSB taking an unduly detailed approach to oversight of the approved regulators, for instance in the prescriptiveness of the LSB’s internal governance rules…

“In some respects, these requirements have gone back on matters which were widely understood to have been settled in the course of the debates on the Act, such as the ability for the regulatory boards to have a lawyer as chair and a majority of lawyer members. The LSB’s current approach could, in my view, undermine professional independence.”

The LSB is currently undergoing a triennial review by the Ministry of Justice.

Mr Wotton also addressed concerns over the competitive impact of ABSs, saying that “I do not think that predatory pricing is feasible in our legal markets… ABSs have no magic bullet in competitive terms”.

He argued that large scale and low cost do not always march hand-in-hand. “There is substance in the proposition that small businesses can offer consumer services at lower cost and respond faster to changes in the market. I have no doubt that well-managed firms will continue to thrive in the more competitive legal markets of the future, and it will be no mean feat for new ABS entrants to displace them.”

Mr Wotton also predicted that the robust regulation of the ABS regime by the SRA will overcome the scepticism of critics at home and abroad. “I would be surprised if ‘full’ ABS remains for long an innovation confined to England and Wales,” he concluded.

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