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29 July 2011

Posted by Neil Rose, Editor, Legal Futures

The old way of doing things: reservation cannot be dictated by deals done by prime ministers

It’s not often that I recommend that people plough through some of the turgid consultations that I plough through on their behalf, but I very much do in the case of the Legal Services Board’s (LSB) distinctly unturgid discussion document on how it will “assess the boundaries of legal services regulation and connected regulatory decisions”. It is an extremely hard document to do justice to in a news story.

This is big stuff – the future shape of legal practice. “The approach that is more likely to deliver the regulatory objectives is to rationalise regulation, so that there remains maximum flexibility for providers while ensuring the right level of protection for consumers and the wider public interest,” the paper says. “This hinges, therefore, not just on what is and is not reserved but equally the shape of the regulatory arrangements adopted by the approved regulators.”

It is a shame, therefore, that it has taken the LSB time to get to this work. It’s understandable – as it had more immediate priorities such as setting up the ombudsman, bringing alternative business structures to fruition and ensuring independent regulation – but a shame nonetheless.

The current regulatory framework has grown up without any real planning or joined-up thinking. If the LSB is good to its word, that will now change. But it is stuck with reservation as the main, if blunt, tool to do this with.

Rather than conveyancing being reserved to solicitors because of a deal done 207 years ago by Prime Minister Pitt the Younger to appease a profession unhappy with him hiking taxes on articles of clerkship and practising fees, there will be a proper rationale and process behind what should be the preserve of so-called authorised persons.

And as I don’t tire of reminding Legal Futures readers, it is reserved activities that are the difference between a lawyer and anyone who fancies setting up shop offering legal advice, whether they have a qualification as a lawyer or as a plumber. That vast swathes of work are currently unreserved has allowed non-traditional businesses to flourish in the legal sector long before the Legal Services Act. For some of these businesses, alternative business structures will make little difference.

Perhaps the most fascinating, and challenging, part of the task the LSB is setting itself is to consider the position of such “general legal advice”. It wants to protect consumers without, so far as possible, reducing access to justice, competition or innovation in the market. The LSB recognises that “it is difficult to construct even a retrospective case” for why consumers of certain legal services should be protected if they choose a regulated provider, and not if they choose an unregulated one. Put that way, it is hard to see how it cannot intervene in some way.

At the other end of the scale, it is looking at corporate law as an area where deregulation may be appropriate because, in essence, these are often clients who can look after themselves without the heavy hand of regulation. But then regulation also has a role in providing credibility to the system.

There are a many other points worth picking out of the paper but I will restrict myself to three. In the context of new entrants targeting unreserved work, the LSB notes that regulation has acted as “a barrier to innovation” for firms which want to meet this competition, a problem that will only grow with ABSs coming online. Conversely, “such regulation provides a comfort blanket for firms that wish to maintain traditional models without innovating in the consumer interest”.

Future regulation is likely to have a greater focus on the entity and less on the individual. The paper explains: “In many circumstances it is likely that authorisation and regulation should be focused on proper systems and controls taking effect at the entity level. The entity would then be free to determine the most appropriate person to undertake different types of work based on the knowledge, skills, competence and experience needed to achieve the right outcome.” Appropriately qualified individuals within the entity might still be needed to undertake certain work.

Entity regulation will be a very major shift. How, for example, to ensure that appropriate behaviour and ethics are adhered to throughout the workforce?

Finally, rationalised regulation will “likely require continued movement towards activity based regulation that is organised around clearly identified risks”. The extent to which this would make regulation via professional title obsolete is arguable, however, says the LSB. “There is asymmetry of information between many consumers and providers of legal services and title does provide a useful, if not perfect, signal to consumers about regulation and thus consumer protection.”

At the same time, we are likely to see an activity based solution to the will-writing issue by making it a reserved activity, but setting standards required of those people who undertake it, whether a solicitor or unqualified will-writer.

I could go on, but really, the best thing is if you read the paper yourself. It highlights, once more, that perhaps the Clementi review did not go far enough in rethinking legal services regulation for the modern age and there is a very intriguing, if brief, reference to the possible need to go back to Parliament to reshape the entire regulatory regime. But for the time being the LSB seems to ask all the right questions in this paper. Getting to the answers, however, is another thing altogether.

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