The Legal Services Board (LSB) has closed its investigation into the Law Society’s governance arrangements – which led to an unprecedented public censure last year – after a series of reforms.
However, the Solicitors Regulation Authority (SRA) said it still needed complete separation from Chancery Lane.
Last May, the LSB found that the Law Society had governance arrangements in place that could have interfered with the independence of the SRA – although there was no evidence they actually had.
At the same time, the arrangements did reduce the regulator’s effectiveness “to some degree” and the censure said the Law Society’s actions undermined “the public interest in effective regulation of legal services”.
The Law Society gave undertakings to produce a report by 30 November 2018 on the steps taken to remedy the situation.
This has now been published, along with the SRA’s response and LSB’s conclusion.
There have been detailed changes to the remit of the business and oversight board (BOB), which exercises the society’s approved regulator function of oversight of the SRA board, in accordance with an agreed protocol between the two.
There have also been amendments to ensure the society no longer has any control over SRA staffing matters, including appointments to its board, and that the SRA no longer has to notify the society about any rule changes it is making.
The report did indicate concerns among members of the Law Society’s ruling council about how it could effectively discharge its supervisory role given these reforms.
The society said the experience to date did not reflect “any evidence of or concern about the new arrangements… having impaired or risked the impairment of the efficiency of the SRA board in the performance of its regulatory functions or in relation to its reporting requirements”.
It stressed too the work being done to embed a new culture code across the Law Society, including its governance framework.
“The society has also seen positive relations with the SRA at operational and policy levels,” it added.
In his response, SRA chief executive Paul Philip endorsed “the description of the significant improvements” that had been made.
But he said there were still further steps that should be taken: “We recognise the efforts made by the Law Society in terms of culture change and awareness raising. However, there is a risk of inadvertent scope creep by the governance committees over time.
“We have experienced requests for information from members of the BOB and group audit committee that go wider than the committees’ terms of reference and consider that this needs to be continuously and proactively managed.”
He argued that the time had come to abolish the BOB – which was set up primarily to move shared services to a ‘neutral’ centre, a role it no longer has – and for the residual assurance role to be carried out by the Law Society council, through the mechanism of an annual SRA report.
Mr Philip continued: “However, ultimately… we believe that it is time to move to complete separation within the current statutory framework – with the SRA being established as a corporate entity with a separate legal personality.”
Concluding the investigation, LSB chair Dr Helen Philips said the oversight regulator agreed that the undertakings have been fulfilled, but warned that it was “imperative” that the society continued to monitor the impact of the governance arrangements on the SRA’s effectiveness.
“The importance of embedding the behaviour change prompted by the LSB investigation across the Law Society should remain in sharp focus,” she wrote in a letter to Chancery Lane last week.
“We welcome the steps taken as set out in your report and note that the new governance arrangements and emerging culture change remain a work in progress.
“While you set out your wider culture change programme, which is a helpful indication of the developing approach, the LSB is more concerned with the Law Society’s culture of compliance with the internal governance rules but we recognise that this will be an element of your wider change programme.”
She warned too about the requests for information that Mr Philip had complained about.
LSB chief executive Neil Buckley added: “The LSB will continue to hold the Law Society accountable to ensure that behaviour change in regard to regulatory compliance remains firmly established.”
He added that the LSB’s planned rewrite of the internal governance rules – which has been criticised by the Law Society – would “mitigate the practices such as those found as a result of the investigation, which impeded the effectiveness of the SRA”.