Legal regulators urge government to ease burdens on ABSs

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21 July 2015

Pitt: limits to what can be achieved

Pitt: limits to what can be achieved

Legal regulators have called on the government to make a series of changes to the Legal Services Act that will make it easier to approve and regulate alternative business structures (ABSs).

The move is part of the first output from joint work being done by all of the legal regulators in the wake of a commitment made to the government last year to identify opportunities for deregulation.

It was submitted to legal services minister Shailesh Vara by the Legal Services Board (LSB) on behalf of all the regulators, along with a report of what they have all done to remove barriers since the Act was passed in 2007, as well as a briefing paper on alternatives to client account.

However, discussions on what options there may be for more fundamental reform if there was the opportunity of a new legislative framework for legal services – which are being facilitated for the LSB by Professor Stephen Mayson – are ongoing and not reported on to Mr Vara.

Last week Lord Chancellor Michael Gove said the Act would be reviewed during this Parliament. The Ministry of Justice has not provided any more detail on this at the moment.

The proposed “minor” changes to the Act would “simplify and remove prescriptive detail” that “assumes – without evidence – that ABSs are more risky than other types of providers, thereby imposing higher costs and burdens on them”.

This includes the current obligation on an ABS’s head of legal practice and of finance and administration to report any failure to comply, whereas law firms only have to report material breaches.

The changes would also cut down the 21 pages of requirements on the process of deciding whether a non-lawyer should be allowed to own an ABS. Particular problems include the “cost and delay of identifying everyone that falls into the current definition of ‘material interest’, including their associates such as spouse, children, employees, other businesses of which they are a director etc”.

The LSB submission added: “The current requirements lead to commercial uncertainty. There is a particular issue around the practicalities of the requirements applying to PLCs and group structures, eg where an investor tips over the specified material interest point despite having no influence or possibly even knowledge if part of a large investment portfolio.”

Another change would remove the requirement that an ABS licensing authority must consider whether an application explicitly meets the regulatory objective of improving access to justice.

“There is an underpinning requirement for regulators to promote the regulatory objectives, including improving access to justice,” the submission said. “In practice the additional requirement… adds cost and time for applicants to provide information and for regulators to consider [it] while generating no incremental value.”

The regulators said the amendments could be achieved by means of a legislative reform order or attached to another suitable legislative vehicle, such as a forthcoming justice bill.

In his covering letter to Mr Vara, LSB chairman Sir Michael Pitt said: “While our report demonstrates our significant track record in implementing more proportionate regulation since the Act gave us the power to do so, it also shows that there are limits in some circumstances to what can be achieved under the current regulatory framework.

“This has been one of the drivers of our joint discussions about what options there may be for more fundamental legislative change.”

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