LSB launches investigation into dispute between CILEX and its regulator

Hill: Considerable efforts made to resolve dispute

The Legal Services Board (LSB) has launched an investigation into the ongoing disputes between the Chartered Institute of Legal Executives (CILEX) and its regulatory arm, CILEx Regulation Ltd (CRL).

It said there has been a “breakdown of trust and communication” between the two.

The LSB has very broad enforcement powers in the event of failures by approved regulators, ranging from monitoring performance and issuing directions to intervening in a regulator and cancelling their designation as one altogether.

The row entered the public domain in July when CILEX announced that it was looking into delegating its regulatory responsibilities to the Solicitors Regulation Authority instead.

It has now emerged that both bodies have referred disputes to the LSB under the latter’s internal governance rules (IGR).

These govern the relationship between the likes of CILEX, the Law Society and Bar Council – all named in the Legal Services Act 2007 as the approved regulators of their parts of the profession – and the regulatory bodies to which they delegate that responsibility. Their aim is to ensure the regulators maintain their independence.

This is the third time the LSB has run an investigation of this nature, having previously censured the Law Society over its governance arrangements, and informally resolved a probe into the Bar Council interfering with its regulator.

According to a letter sent to both bodies last week by LSB chief executive Matthew Hill – which was published yesterday – the row has been going on for some time.

“Despite our considerable efforts to encourage and support an agreed approach, it is clear that the ongoing disputes and disagreements between CILEX and CRL have persisted for many months and appear no closer to resolution,” he wrote.

This meant it was “appropriate to commence an investigation”, the details of which were sent to CILEX and CRL on Tuesday.

The letter from Angela Latta, the LSB’s head of performance and oversight, said it would be examining “the ongoing disputes, disagreements and associated issues between CILEX and CRL, including delegation, financial matters, proposed consultations and the apparent breakdown of relationship”.

The investigation will cover the period from June 2021 to October 2022 and consider “the lawfulness of the acts or omissions of both parties and compliance with their duties under the [Legal Services] Act”.

The aim, Ms Latta went on, was “to inform the LSB’s decision concerning whether to exercise its enforcement powers”.

The first issue is whether CILEX has the power to re-delegate its regulatory functions to another body and/or begin preparatory steps for doing so, and whether the “acts/omissions” of both sides to date “have had the effect of undermining CRL’s exercise of its regulatory functions”.

The financial issues arose out of the IGR dispute referred by CRL to the LSB, Ms Latta explained, “including the transfer of reserves and alleged [practising certificate fee] surplus retained by CILEX”.

This part of the investigation will also look at the “overall financial management of both CILEX and CRL and other connected financial matters”.

CILEX, meanwhile, referred an IGR dispute regarding a consultation CRL had proposed entitled ‘Regulating responsibly and responsively’. This has not been published.

Ms Latta said: “The LSB considers that the apparent breakdown in relationship between CILEX and CRL and consequential breakdown of trust and communication is material to all the areas of investigation listed above.”

She said the LSB currently intended to issue a finding in relation to the delegation issue before concluding the investigation as a whole. The current timetable is for the LSB to publish its conclusions at the end of February or early March 2023.

Ms Latta asked CILEX and CRL to continue, in line with an earlier request, “to pause any further steps, including external and public communications/engagement/consultation, in connection with any of the matters in dispute between them”.

This was necessary “to prevent ongoing risk that CILEX/CRL will undermine the other’s activities by publicly airing their disputes and disagreements”.

Ms Latta warned: “We consider that, based on the information available, there may be evidence that the parties’ previous acts or omissions have had an adverse impact on one or more of the regulatory objectives.”

But she said both were free to continue to work on their proposals internally.

“Both CILEX and CRL should continue to carry out regulatory or ‘business as usual’ functions connected to the matters in dispute. This includes working effectively together where necessary,” she added.

A CILEX spokeswoman said: “We welcome the LSB’s intervention and will co-operate fully with the process. Therefore, in compliance with the LSB’s letters of 4 and 11 October 2022, we are unable to comment further at this stage.”

CRL said it first formally referred CILEX’s actions to the LSB in February. Jonathan Rees, chair of the CRL board, commented: “CRL strongly supports transparent decision making and accountability for public bodies. We very much hope that the LSB’s process will now operate efficiently and that it will, in a timely way, resolve the issues which we have referred.”

He stressed that CRL would continue to operate as normal in the meantime.

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