Dispute looms over how Law Society can spend practising fee income

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16 November 2015

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Law Society: act is silent on derivative income

A “potentially high-profile and contentious” dispute between the Legal Services Board (LSB) and the Law Society is looming over how the latter spends money derived from practising fees.

The LSB is to review its 2009 Practising Fee Rules after a hole was found in the Legal Services Act 2007.

Though most of what solicitors pay in practising fees goes to the Solicitors Regulation Authority, under the ‘permitted purposes’ provision of section 51 of the Act, the Law Society is able to use some of it for certain non-regulatory activities, such as law reform work and practice support.

This amounts to around a quarter of the money Chancery Lane raises from solicitors and firms in practising fees, and is the primary source of income for its representative work. The Bar Council and Chartered Institute of Legal Executives are also affected by these rules.

According to a paper before last month’s meeting of the LSB, the issue focuses on “derivative income” – under section 51 the society can use practising money for accreditation and training schemes, for example, but it can also charge solicitors for those services.

Up until now, this income was used by the society to “net off” the money taken from practising fees, the LSB said, but now it wants the ability to put such cash towards ‘non-permitted purposes’ such as paying off overheads or commercial activities.

The LSB described the Act as “silent” on whether this was allowed.

The oversight regulator continued: “Deciding any application for PCF [practising certificate fee] approval will be an exercise of the LSB’s functions and we must therefore act in way that is compatible with the regulatory objectives.

“Whilst using income in the way proposed by TLS [the Law Society] is not explicitly prohibited, since solicitors have no choice but to pay the PCF, we should question whether it is right that income from activities funded by this non-optional fee can be used for optional activities for which there may be little or no benefit to fee payers.

“So, while on the face of it this is a technical matter on the PCF Rules, it is a potentially high profile and contentious issue.”

The LSB said that in any case, its practising fee rules, made in 2009, were “overdue for a review”.

It went on: “A review would help the LSB test the extent to which the rules continue to promote the regulatory objectives, particularly in respect of protecting and promoting the public interest, protecting and promoting the interest of consumers and encouraging an independent, strong, diverse and effective legal profession.

“We will review the current rules and, if necessary, propose changes. This might include providing greater clarity as to the criteria we will use when deciding whether to approve a PCF application, without fettering our discretion in relation to a specific application.

“The overall aim of any revision to the PCF rules would be to provide greater clarity and transparency to our decision-making. The review will not be looking at the nature of the PCF more generally, nor PCF levels.”

Should changes be needed as a result of the review, the LSB said it planned to launch a consultation in January 2016.

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