LSB chief: Why are lawyers forced to pay for professional bodies?

Hill: LSB has a very strong sense of mission and purpose

The outgoing chief executive of the Legal Services Board (LSB) has questioned why ‘trade associations’ like the Law Society and Bar Council receive a “statutory funding stream” from regulatory fees paid by lawyers.

In an exclusive interview with Legal Futures to mark the end of his tenure, Matthew Hill also highlighted the amount of effort and cost that went into maintaining the current regulatory structure.

Mr Hill, whose five years in the role officially end today, is taking over as chief executive of the Chartered Insurance Institute. He said the oversight regulator had offered “two sorts of opportunities for growth for me” – one was in building the organisation and the other influencing and shaping the external agenda.

While the latter “still exists and indeed has grown in importance”, the former “is not the challenge that it was”.

Mr Hill said the LSB now has “a very strong sense of mission and purpose. It’s well organised, it’s got a great board, it’s got real strength in depth and a fantastic culture as evidenced by the amazing engagement metrics that we have”.

Mr Hill believed the LSB has put itself “firmly on the map” under his leadership.

“What the LSB says now matters more than it arguably did in the past. Alongside that has been the broadening of its reach. When I joined the LSB, our relationships were confined largely to the innermost circle of the regulators and the professional bodies. We’ve absolutely transformed that.”

He pointed to the LSB’s recent Reshaping Legal Services conference, which showcased the “huge diversity and array of organisations and individuals with whom we have proper, strong, meaningful relationships”. This would not have been possible five years ago, he said.

Other achievements included pushing the sector towards a new approach to continuing competence and taking leadership of the Competition & Markets Authority (CMA) recommendations to empower consumers, which the CMA review in 2020 found had not advanced as quickly as it had hoped after its original 2016 review.

“We very quickly converted them into requirements of statutory policy. And we are expecting, and regulators have told us this is the case, that by September this year, those recommendations that are embodied in our consumer empowerment policy statement… will have been implemented.”

There are those, most stridently at the Bar Council, who believe that the LSB regularly oversteps its remit, such as with the statutory guidance it issued on innovation and technology.

Mr Hill robustly disagreed. “Parliament has asked us through the Act to promote the regulatory objectives and Parliament has made it clear that working out how best to [do this] is a matter for the board. It’s not a matter for anybody else.”

(Subsequent to the interview, the justice select committee agreed.)

Indeed, he saw establishing the regulatory objectives at the heart of what regulators did as another achievement. Reviews in 2021 of both the Bar Standards Board and the Faculty Office (which regulates notaries) showed that the regulatory objectives “were not really being given the time of day”.

But now “those regulatory objectives are at the heart of every conversation that we have with regulators” – the way that equality, diversity and inclusion has moved to the top of the agenda for all of the regulators was an example of this.

Mr Hill continued: “Many people see regulation as simply a set of rules [but] I happen to believe that regulation is not so narrow a concept.

“If you consider regulation to be a collection of things that people do to influence behaviors to some commonly accepted good, then rules and regulations might be the last thing that you do.

“You might achieve your aims simply by bringing people together and agreeing what good looks like and getting people to do it because it’s the right thing to do, not because it’s written down in rules and regulations.

“So the LSB’s attempt to put issues on the agenda is really an attempt to give people the opportunity to resolve things for themselves without the need for more formal regulatory intervention.”

At the same time, while the regulators have generally made “great progress” in setting out their expectations, “very few of them have done very much at all to ensure those expectations are met at a strategic level”.

For example, one of the regulatory objectives is promoting and maintaining adherence to the professional principles, which cover areas like independence, integrity and confidentiality.

“You only have to see what is happening in the Post Office inquiry to question whether the professional principles have actually been embedded and are part of the DNA of the profession.”

He described the regulators not fully translating “the intent of the Act into outcomes for the public” as his greatest regret of the last five years.

On technology and innovation, he explained that the LSB’s research and engagement found that the legal services sector could appear “impenetrable” to outside providers. They offer “enormous potential to improve access to justice” for all but regulators “need to work to bring innovators into the sector”.

Mr Hill went on: “It’s absolutely not about mandating technology for legal services providers. It’s just about making sure that regulators are adopting an open stance that suitably balances the opportunities against the risk.”

He argued that there was “a huge untapped market out there for legal advice” that, for some reason, the sector was not looking to exploit.

Putting it bluntly, “if you’re able to sell your services because you’ve made them more efficient and more effective to a bigger market, you’re going to make more money and you’re going to bring the benefit of your services to more people and hopefully they’re going to get better outcomes for the problems that they face in their lives”.

Mr Hill has also had to operate within the awkward regime created by the Legal Services Act, where the approved regulators named in the legislation are bodies like the Law Society and Bar Council, which delegate their regulatory responsibilities to regulatory subsidiaries.

The LSB has had to build a framework around these, the internal governance rules, to ensure the regulators have proper independence.

“Even after all these years, I find it as peculiar as I did when I first set foot in this strange land,” he said. “One thing that has changed for me is that I can see how it can and is being made to work, but it takes a hell of a lot of effort.

“I have described it in the past as like a chair with three legs and you can make that chair stable if everybody runs around holding it up. And that’s really how it feels to me. We put a lot of expensive architecture around the preservation of the professional bodies as regulators.

“One might argue that removing some of that expense and effort might be better for both the public and professionals who pay for it.”

Another feature of this is that the Act allows a portion of lawyers’ practising fees, ostensibly to pay for regulation, to go to the approved regulators to use for specific so-called permitted purposes that go beyond regulation.

The smaller bodies do not take advantage of this but the ‘big three’ of the Law Society, Bar Council and CILEX do. The Law Society, for example, received 27%, or £35m, from the 2023 practising fees paid by solicitors.

“I have worked in lots of different sectors of the economy,” reflected Mr Hill. “I’ve never encountered another in which professionals have to pay for their trade association. There are plenty where to be regulated, you pay a fee to the regulator, but none where to be belong to a trade association, you pay a mandatory fee.”

The LSB’s approach has been to “pursue the transparency of that funding arrangement” and he said lawyers have regularly contacted the LSB to question it.

“The permitted purposes provisions in the Act effectively provide for a statutory funding stream for trade associations. I wonder whether the security of that income stream has resulted in some professional bodies being perhaps less accountable or feeling less accountable to their members than they might otherwise have been.”

  • Richard Orpin, the LSB’s director of regulation and policy, has been appointed interim CEO while a replacement for Mr Hill is recruited. General counsel Danielle Viall has become interim CEO (regulatory operations).

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