Crunch time for the legal profession – and Michael Gove

Posted by Mark Stobbs, former director of legal policy at the Law Society

Stobbs: A single regulator could be an attractive option to many

Stobbs: A single regulator could be an attractive option to many

Is Lord Chancellor Michael Gove out of favour? Two of the most significant announcements within his portfolio – the decision on small claims and whiplash, and a review of regulation of legal services – have been hijacked by George Osborne and, in the case of regulation, Sajid Javid, as part of the Autumn Statement, only a few months after Mr Gove had told the justice select committee that he himself was considering such a review.

Meanwhile, Mr Gove is left with the tasks of explaining to parliamentarians why the bill reforming human rights has been delayed and scrapping his predecessor’s criminal courts charge. Not glamorous.

The announcement said: “The government will launch a consultation by spring 2016 on removing barriers to entry for alternative business models in legal services, and on making legal service regulators independent from their representative bodies. This will create a fairer, more balanced regulatory regime for England and Wales that encourages competition, making it easier for businesses such as supermarkets and estate agents among others, to offer legal services like conveyancing, probate and litigation.”

This will have the professional bodies more than worried. While it’s the obvious next step after Clementi, it puts them in a difficult position. While a source of tension internally may be removed, they won’t welcome becoming the only professional bodies in the country with no control over the standards and qualifications of their members.

Those that rely on the provisions of section 51 of the Legal Services Act to obtain income for non-regulatory work will have to do some serious thinking about their business models. It will be an astonishing feat of negotiation if that survives this review.

It’s unclear whether the assumptions – that ABS will increase competition and cheapen prices, and that the regulators are still under the control of the professional bodies – are correct. It’s unsurprising that ABS firms are more likely to be innovative than those that aren’t. The research doesn’t yet show that this innovation has led to significant benefits for consumers or markedly lower prices, however.

Legal Services Board research does suggest that regulation is seen as a barrier to innovation. It’s a leap, though, to blame this on the influence of the professional bodies on their regulators. Although, some have expressed frustration about what they saw as an over-bureaucratic approach to ABS authorisation by the Solicitors Regulation Authority (SRA), that had nothing to do with the Law Society.

The chair of the SRA has welcomed the consultation but only on the general grounds of principle, not because she identifies any damage caused by the society.

We don’t know whether supermarkets and estate agents haven’t taken up the opportunity to offer reserved services because they don’t see money in it (both conveyancing and will-writing are currently pretty competitive markets) or because of unhelpful rules.

And are those rules unnecessary or appropriate in the public interest. Is it right, for example, that estate agents should do the conveyancing where they are selling both sides’ property? Any regulator will want to debate the tension between competition and consumer protection in that sort of case.

We don’t know how wide-ranging the consultation will be. At one end of the scale, it could be extensive, looking at the question of what work should be regulated and how it should be regulated – lots of interesting questions to explore and duck there. At the other, it could simply look at the two areas identified, though it will be difficult even then to avoid the wider questions.

Assuming that it’s the second and that the government wants to achieve something quickly, regulators might be concerned if it is to take decisions about barriers to entry for ABS. Isn’t this their job? Legislation or even advice to regulators on this might raise some questions about independence of regulators from government rather than the professional bodies.

As to the independence of regulators from their professional bodies, there are two basic options: keeping the existing 11 regulators or build a brand new one.

Making the existing regulatory arms independent is the less expensive option. It would require some fairly chunky legislation which will differ massively between the Law Society (where most of the powers are in statute) and the Bar (where most of them aren’t) but implementation, and the costs (largely of separating systems, employment arrangements etc) are left to the professions. But if I’m right that the relatively slow pace of ABS has nothing to do with the professional bodies this, of itself, won’t speed it up.

The fact that it’s now commonplace for law firms to employ solicitors, barristers, accountants, licensed conveyancers and chartered legal executives, suggests that it may be unhelpful to have 11 approved regulators (even if two of those, both accountancy bodies, are dormant) that all, to a greater or lesser extent, overlap. How many ABS licensing authorities do you actually need?

A single regulator could be an attractive option to many, provided that it were not giving out professional titles. That regulator could set the basic standards for undertaking reserved work, authorise and supervise entities. A single set of rules would eliminate what will look increasingly anachronistic differences. The LSB could go as well.

The logic will be beguiling. The SRA would surely try to morph into the single regulator, though it shouldn’t count its chickens there.

The government could decide whether it wanted to look at what work should be reserved or whether it wanted something done relatively quickly.

It would be expensive and the professions may baulk at funding both the set-up costs and what will undoubtedly be significant redundancy costs. The governance also needs to be right and clearly independent of government or there’ll be trouble from the judges and in the House of Lords.

The professional bodies could then set their own standards for giving out professional titles. There could even be an element of self-regulation for those of their members who didn’t do reserved work. Since most professions make their money out of their ability to give a title that means something, this could make sense for at least some of them – the Bar Council’s hampered because the Inns of Court own the title ‘barrister’.

It also depends on the qualification being attractive enough to be worth the cost of dealing with two bodies – but it’s a model that seems to work for the accountants and section 51 might prove irrelevant.

So there’s a lot to play for and a lot to fascinate regulatory geeks. For the profession, whatever happens will cost more money at least in the short term. Whether changes will address questions of cost and access for consumers is anyone’s guess.

It is, in any case, crucial to the future of the professional bodies and they’ve got some hard thinking to do and choices to make before they start lobbying. By then, it might be clearer whether they address this to Messrs Osborne and Javid or to Mr Gove.

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