The Law Society has warned the Legal Services Board (LSB) that it is overstepping its role as an oversight body by trying to become a market regulator.
Responding to the consultation on the LSB’s draft business and strategic plans, the society said the plans suggested an “inappropriately proactive approach for an oversight regulator” in directing the development of the legal market in the post-alternative business structure (ABS) world.
“The LSB’s interest in acting as an economic or market regulator, in a similar way to the utility regulators or Ofcom, goes well beyond the purposes intended for the LSB.”
It added: “It is not for LSB to make sure that new opportunities are ‘seized’, only that there are no unnecessary barriers. When the government introduced the concept of ABS, they did so because they believed that liberalising the legal services market would benefit consumers by allowing different business models to emerge, rather than because one model was to be favoured over others.”
Chancery Lane said that now the LSB’s three main tasks have been achieved – setting up the Legal Ombudsman, creating and enforcing internal governance rules for the frontline regulators, and ensuring that ABSs are introduced – the body should start downsizing and cutting costs as it establishes ‘business as usual’ activity.
“It has been known for organisations to allow the work they do to expand and fill the resources available,” the response observed.
The central theme of the response was that the LSB is looking to undertake work – such as understanding and mitigating risk in the system, and conducting research – that should properly be done by the frontline regulators.
“There may sometimes be role for the LSB to suggest improvements to such risk management systems, but the primary responsibility for risk management remains with the frontline regulators,” it said.
Criticising the amount of time and money the LSB spends on researching the sector, it said: “The Legal Services Act envisaged the primary roles of the LSB in this area as being to ensure that approved regulators effectively separated regulatory from representative functions, and to ensure that the regulatory functions were carried out to an adequate standard. It was not the intention that the LSB should seek to regulate the market.”
The society was also heavily critical of the annual process imposed by the LSB on the frontline regulators to carry out a self-assessment of their own regulatory arrangements.
“The proposed programme seems unnecessarily intrusive and the templates for assessment rigidly mechanistic. The LSB needs to take action where there is a reason to believe an approved regulator is failing to regulate effectively in accordance with the regulatory objectives…
“It is not appropriate for the LSB to require regulators to carry out such an exercise in the absence of evidence of regulatory failure. It is particularly inappropriate for LSB to require this on a strict timetable, when regulators may have many more pressing priorities.”
During last year’s self-certification exercise, the LSB was unable to state that the Law Society’s new internal governance structure was compliant with LSB rules and required it to make a monthly report  on the progress being made.