LSB eyes major changes to legal regulation

Brooker: Regulatory system is falling ever further out-of-step

The Legal Services Board (LSB) is set to conduct a major review on the extent to which it can reform the regulatory regime – including the reserved legal activities (RLAs) – using its existing powers.

It is likely to ask the government to support the work financially, as it would be unfair to ask lawyers to pay in full for a review that will have a significant impact on the unregulated sector.

As we revealed in April, the LSB has identified the RLAs as one longer-term way to flex regulation to help the profession recover from Covid-19.

This came before the Ministry of Justice’s unsurprising confirmation last month that a full review of the Legal Services Act 2007 was not on the agenda.

A follow-up paper seeking agreement to begin preparatory work on a review, which was approved at last week’s meeting of the LSB, noted: “It has been apparent for some time that the government has no plans for major legislative reform to the legal services regulatory framework.”

But as it has since publishing a vision for legislative reform in 2016, the LSB said change of some sort was needed: “Over time, the regulatory system is falling ever further out-of-step with the evolution of the market.

“It is important that the regulatory framework is as fit for purpose as it can be to support the sector to recover from the Covid-19 pandemic, maintain its international competitiveness following EU exit and deliver wider consumer and public interest outcomes.”

This meant that any review of the RLAs should be approached “as part of a broader vision of change that can be achieved within the parameters of the Act”, the paper, written by head of policy development and research Steve Brooker, said.

He noted that the approach of some regulators to apply the full panoply of regulatory requirements to all legal activities was “a matter of choice”.

“The Act provides scope for regulators to authorise providers holding other professional titles or operating in the unregulated market, raising issues around the future institutional landscape. There is scope to set up voluntary arrangements relating to both regulatory standards and consumer redress.”

So alongside any alterations to the RLAs, the LSB would want to explore parallel reforms to the regulatory arrangements of existing regulatory bodies.

“Should we wish to add to the list of reserved activities, we would not wish to create new monopolies for existing authorised persons or a proliferation of new regulators. We would also need to consider wider external developments, such as possible statutory reforms to consumer rights and redress.”

Mr Brooker said the LSB’s exploratory work should be “strategically aligned” with the review the Competition and Markets Authority (CMA) is set to conduct soon on the progress made against its 2016 report on the legal services market.

The authority called on the government to review the whole regulatory regime and recommended a move away from regulation by title to a regime based on activity, as well as full independence for legal regulators.

The paper described a comprehensive review as “a substantial undertaking that would require an increase to our existing budget to cover additional staffing, expert advice and evidence collection”.

It continued: “Given a significant element of the review costs would relate to the unregulated sector this potentially raises fairness issues for levy payers. Added to this, we are mindful of economic pressures on the profession due to Covid-19.

“Therefore, we consider there is a case for part of the costs to be met through grant-in-aid and we will explore this further in our discussions with Ministry of Justice officials.”

Any changes to the RLAs would not be a quick process, likely to take at least two years of investigation, consultation and reporting.

Ultimately it is a decision for the Lord Chancellor on the recommendation of the LSB, and although the 2007 Act allows the Lord Chancellor to add new RLAs through an order, removing one requires primary legislation.

If there were new RLAs, there would then need to be a transitional period for one or more current or new regulators to be authorised to regulate them.

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