The Legal Services Board is to impose reform that will end the “different treatment” for accountancy regulators which also oversee legal services compared to dedicated legal regulators.
The Institute of Chartered Accountants in England and Wales (ICAEW) has strongly opposed any attempt to force it to create a separate regulatory body along the lines of the Solicitors Regulation Authority (SRA) or Bar Standards Board.
Under the existing IGR, the ICAEW and Association of Chartered Certified Accountants (ACCA) can combine both regulatory and representative roles free of the detailed obligations imposed on the likes of the Law Society, Bar Council and Chartered Institute of Legal Executives (CILEx) as approved regulators (ARs).
The LSB said the exemption was originally justified on the basis of proportionality, because the accountancy bodies regulated people whose main reason to be regulated was for accountancy services.
Under the new rules, the LSB said ARs with both regulatory and representative functions would be subject to “the same obligations”.
Giving its reasons, the LSB said the risk to the independent regulation of legal services related to the legal activity being undertaken, not whether or not non-legal activities were also being regulated.
“Different treatment of ARs (in this scenario) that are regulating the same legal activity runs the risk of creating additional unjustified differences in the operating environment for legal services providers offering the same legal service.
“The case for excluding some ARs on the basis of their limited scale is now weaker, in view of the current and prospective extent of their legal services regulatory activity.
“As a result, we intend that all ARs that have both representative and regulatory functions will be subject to the same obligations under the new IGR.”
The LSB said it aimed, through the new rules, to ensure there were “fewer disagreements” between ARs and their regulators.
The consultation last November said the oversight regulator had been notified of 30 disputes over the previous three years, mainly differences about governance but also strategy and resources.
While regulators responding to the consultation were divided on what kind of regime they would prefer, the LSB said the majority wanted greater clarity about the roles of different bodies, a “legitimate and effective mechanism” for managing risks when they delegated powers, more independence for regulators and rules which were not “overly prescriptive or burdensome”.
The LSB said it “carefully considered” the suggestion that it should sit in on recruitment processes and meetings, before rejecting it on the grounds that there was a “high chance that behaviours under such observation would not be representative”.
The oversight regulator said its review of the internal governance rules was “wholly separate” from its investigation into the Law Society’s arrangements for monitoring and oversight of the SRA, but did inform the findings of the review.
Following the end of the investigation in May this year, the LSB handed out its first ever public censure, finding that the Law Society had governance arrangements in place that could have interfered with the SRA and were a “serious breach” of the rules.
It invited further submissions on the IGR in the wake of the decision and received six, one of which was from the Bar Council.
The new rules will impose obligations on ARs to proactively report non-compliance.
LSB chief executive Neil Buckley said: “Our aim in reviewing the internal governance rules is to enhance regulatory independence within the current legislative framework.
“Having assessed the effectiveness of the current internal governance rules and taken into account stakeholders’ views on the need for change, we intend to develop new rules.
“These will be based on principles and focused on outcomes and will be applied together with new supporting guidance.”
Mr Buckley said the LSB expected to consult further on the new internal governance rules and draft guidance this autumn, with approved regulators starting their transition to the new regime next spring.
Meanwhile, CILEx’s new governance structure – which separates out CILEx’s duties to the public interest, the profession and independent regulation – came into force last week.
A new CILEx Group board sit at the top of structure, with an overarching duty to the public interest. It is charged also with protecting CILEx’s Royal Charter and its reputation.
Beneath is are CILEx Professional, dedicated to promoting the profession’s interests; CILEx Law School, delivering legal education; and Group Services, providing business infrastructure to all parts of the group.
CILEx Regulation continues to have its own independent board.
Philip Sherwood last week took over as the new president of CILEx, and as such he chairs the board of CILEx Professional.
It is smaller than its predecessor council – it has 11 members, compared to 23 before – and Mr Sherwood said all of them had to go through a rigorous application process to show they were the right people for the job.
“The new structure has to be fit for purpose – we want the right people in the right places, leading the organisation and making the strategic decisions. I believe that this is what we now have,” he said.
Professor Chris Bones, the independent chair of the group board, added: “Since my appointment in January, we have all been working hard to ensure a seamless transition to the new governance regime, which reflects the multi-faceted nature of the organisation.
“I believe that with the support of a ‘fit-for-purpose’ Institute, CILEx members have every opportunity to make the best of a legal market more receptive than ever to their skills and experience.”
Also last week, CILEx received the Lord Chancellor’s approval for CILEx Regulation to license alternative business structures.