Lloyd: LSB has struggled to have its intended impact
The oversight regulator of legal services has “lost its way” in recent years and a reset is needed while work begins on a wider review of regulation, a major report has concluded.
The independent public bodies review of the Legal Services Board (LSB), commissioned by the Ministry of Justice (MoJ) said that “longer-term legislative reform” is needed.
Richard Lloyd, the lead independent reviewer, recommended that the MoJ “carry out a comprehensive review of the regulation of legal services with consideration also being given to what activity should sit within or outside the current regulatory perimeters”.
A new framework should be developed by 2029 “with a view to implementing a future regulatory framework during the next Parliament”.
Mr Lloyd, a former executive director of Which? and current chair of the Independent Parliamentary Standards Authority, was tasked in February with undertaking the review, the first the LSB has faced since 2017.
“The review identifies a clear opportunity for a collective reset and a new oversight approach to legal services regulation,” he said.
“While longer-term legislative reform is needed, this should not prevent the LSB, MoJ, and frontline regulators working together to strengthen how the system operates in the interim.
“This reset should focus on clearer priorities, stronger oversight, better use of evidence and risk, and a sharper focus on outcomes for consumers, the market, and the wider justice system.”
He said consumer protection “should sit at the heart of this new approach” – this meant looking beyond the prevention of consumer detriment alone, “and taking a broader view that includes effective redress, access to legal services, support for underserved consumers, and preparation for future consumer needs, including the impact of technology and AI”.
It also required “clearer accountability” across the profession, particularly in response to the rising number and nature of consumer complaints.
Mr Lloyd acknowledged the “shortcomings and complexity” of the current regulatory framework but nonetheless found that “the LSB has lost its way in recent years”.
He explained: “It has lacked strategic clarity and has struggled to have the impact intended by Parliament.
“It has not sufficiently prioritised in a pragmatic and proportionate way among its strategic objectives. Its oversight of the performance of frontline regulation has fallen short of what the government and Parliament could reasonably expect.
“As a result, the interests of consumers have not been as well protected by the system as they might have been.”
Mr Lloyd reported concerns that the LSB’s regulatory performance assessments “did not sufficiently reflect the seriousness of emerging weaknesses within the SRA [Solicitors Regulation Authority] at a time when significant supervisory failings were becoming apparent” – and that when it did taken enforcement action following findings of regulatory failures connected to the failures of Axiom Ince and SSB Law, “the approach has been lengthy and prescriptive”.
The LSB has stated that it has learned lessons from these episodes, but Mr Lloyd said “there is a broader question as to whether the LSB has demonstrated the level of pace and agility expected of an oversight regulator responding to significant emerging risks”.
Among his recommendations were that the LSB should commission an expert review “to assess how effectively the overall supervisory approach is working in practice”.
There was, however, “a striking consensus” among stakeholders that the LSB was “staffed by professional people and board members deeply committed to improving legal services”.
With the right changes, “the LSB should be capable of playing a more effective and influential oversight role within the regulatory framework”.
Mr Lloyd added: “There are indications of steps towards improvement at the LSB with a newly appointed leadership. This must now accelerate.
“This review recommends a major shift in the LSB’s culture and capabilities, a clear separation of its enforcement function from its sector-wide convening work, a renewed appetite for collaboration and a shared understanding of priorities, risks and purpose.”
Improvement required not only identifying new priorities but also “making choices about what to stop doing”, he said.
Mr Lloyd said the current regulatory system, while broad and flexible, “can still be described as something of a ‘regulatory maze’” – echoing the term Sir David Clementi used in 2004 to describe the old system, leading to the Legal Services Act 2007.
“While it is beyond the scope of this review to recommend a new framework, it is clearly a root cause of a major risk to the effectiveness of the system that is ultimately overseen by the LSB. This is an issue that will need to be addressed over the longer term.”
Mr Lloyd noted too “indications of support for greater consolidation among regulatory bodies, which could improve efficiency and effectiveness over time”.
In the interim, the Act gave the LSB “flexibility to translate its broad mandate into a clear oversight strategy, removing complexity and inefficiency where possible within existing arrangements, and driving continuous improvement across the legal services sector within its remit”.
The review also examined the LSB’s relationship with the MoJ. While stressing the importance of preserving the LSB’s operational independence, it said the MoJ has “an important role in setting overall strategic direction”.
It also called for greater transparency in this, such as by publishing ministerial steers on priorities and considering whether aspects of the MoJ’s “existing assurance and accountability mechanisms” could be made publicly available.
An MoJ spokesman said: “We thank Richard Lloyd for his review and his findings. We know that the Legal Services Board is not operating as it should and while work is already underway to strengthen the board through new leadership and operational improvement, more needs to be done.
“We will consider the review’s recommendations in due course to ensure the board supports effective regulation and better consumer protection.”
The MoJ confirmed that its response to the review would include whether a wider review of regulation was needed.
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