The Chartered Institute of Legal Executives (CILEX) has begun formal talks with the Solicitors Regulation Authority (SRA) about taking over the regulation of its members.
The unprecedented move follows CILEX’s revelation last week that it was reviewing whether to continue delegating its regulatory responsibilities to CILEx Regulation Ltd (CRL), which issued an angry statement in response.
The Legal Services Act 2007 raised the prospect of regulators competing but to date it has only been seen on a small scale when start-up alternative business structures choose from several different regulators.
However, at its AGM yesterday, CILEX informed members that it had written to the SRA to initiate formal talks after Chris Kenny, former chief executive of the Legal Services Board, independently reviewed and validated the organisation’s analysis of the challenges of the current model, which it called ‘the case for change’.
It stressed that any new model would need to preserve the distinct identity of CILEX lawyers and retain the CILEX route to qualification.
There would be no cross-subsidy between CILEX practitioners and solicitors on the cost of regulation and both would continue to have their own representative bodies – CILEX and the Law Society respectively.
An SRA spokesman said: “We have been approached by CILEX with an invitation to enter into formal discussions on a proposal to transfer the regulation of their members to the SRA, while retaining their distinct identity as CILEX practitioners and their route to qualification. We have agreed to those discussions.”
The case for change explained how the Act had created a “complex” regulatory landscape that could be confusing for consumers and professionals alike, “and has led to some potential difficulties that may not serve the consumer interest”.
It explained: “For many CILEX members, this stems from a lack of recognition of their role and regulated status and has introduced unnecessary barriers. For example, some institutions will only recognise solicitors as authorised persons to undertake certain tasks, when chartered legal executives are also authorised.
“CRL has limited resources – indeed, CILEX has had to subsidise its activities at various points.
“As such, it is constrained in its ability to invest the necessary time and activity in the significant amount of market engagement that is needed to establish confidence and assurance in the minds of consumers of legal services – both individuals and corporate.”
CILEX pointed too to the “limited growth” in the number of CILEX practitioners, while the entity regulation model has attracted fewer than 100 firms since CRL was first allowed to regulate entities in 2015 – a significant number of which recently moved over from the Association of Chartered Certified Accountants after it exited legal regulation.
“CILEX must therefore consider the continuing viability of CRL as an independent regulator. The cost of regulation through CRL is already higher for individuals than that paid by solicitors for example (currently £367 vs £306) and the cost of increasing CRL resources significantly would have to be passed onto CILEX practitioners and, in turn, consumers.”
The SRA has “the scale and reach to provide effective regulation”, CILEX went on, especially as around 70% of CILEX practitioners worked in law firms it already regulated. “Dealing with only one regulator has the potential to make life easier for employers too.”
Mr Kenny’s report found “clear evidence” that the nature of the task facing CRL, its current position in the market and those of the individuals and entities it regulated, meant that “it is likely to face higher unit costs than other regulators for some considerable time, absent some form of comparative business transformation process so far not specified”.
As a result, this could “impact adversely on a number of the regulatory objectives” and also potentially maintain and increase CRL’s financial dependence on CILEX – “which is potentially unhealthy in creating the right atmosphere of regulatory independence”.
Mr Kenny concluded: “Whilst it would not yet be accurate to say that CRL’s viability challenges yet constitute ‘a blazing platform’, the issues in relation to the compensation fund show that the impact is becoming increasingly real and, from the evidence I have seen, is beginning to weaken relationships between the regulator and regulated community.”
CILEX chair Professor Chris Bones said: “As a first step, we have asked the SRA to explore the viability of an alternative model.
“If having explored the proposal, we consider it to be able to offer the enhanced public interest benefits outlined in the case for change and to continue to provide effective regulation for CILEX members, we will run a consultation on the impact and implications of the proposed change.
“We believe that bringing the regulation of CILEX members into the SRA could give clients and others real clarity and confidence that regardless of who does the work, the outcomes will be of the same high quality.”
Professor Bones said CILEX was acting “to ensure independent regulation is sustainable and that consumer needs are met. We will only pursue a change of regulation if we are satisfied that such a change achieves both”.
CRL also intends to review its model of regulation and CILEX said it would consider any proposals made.