LSB research highlights surge in Law Society spending on ‘permitted purposes’

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25 May 2016

Sir Michael Pitt

Pitt: lawyers and public need “greater clarity”

Law Society spending on non-regulatory ‘permitted purposes’, such as law reform and practice support, surged by £6.3m in the four years between 2010 and 2014, research by the Legal Services Board (LSB) has revealed.

In contrast spending on ‘permitted purposes’ by the Bar Council went down by over 5% in the same period.

Under the ‘permitted purposes’ provision of the Legal Services Act, all the approved regulators can use practising certificate fee (PCF) income for certain non-regulatory purposes.

report on the Law Society and Solicitors Regulation Authority, published yesterday as part of the LSB’s cost of regulation project, showed an increase in the amount spent on ‘permitted purposes’ from £25.8m in 2010 to £32.1m in 2014 – an increase of 26.5%.

Over the same period, the amount spent by the Bar Council on ‘permitted purposes’ fell, from £3.69m to £3.49m.

The LSB issued reports on the costs of each approved regulator, as well as itself. In its introduction to the work, the oversight regulator said: “Considering the approved regulators as a whole, compiling this information proved far more challenging and time-consuming than it should have been.

“The LSB recognises that it has not previously set requirements in this area, and further that each regulator will have reasons for deciding on the content and format of the financial information that it publishes.

“Nonetheless, the LSB was disappointed by the level of available information, which has frustrated our efforts to present as full a picture of the cost of the regulators as we would have liked.”

The LSB said there was “a clear need” to improve the level and quality of published information about costs. “Over the coming months, we will be working, together with the approved regulators to ensure more data is available.”

The cost of regulation project included a ground-breaking survey of the attitudes of 1,000 lawyers and firms.

Initial results from this survey, published last year, showed that although almost half of law firms and barristers regarded PC fees as ‘poor value’, they were surprisingly ignorant about where the money went.

In its latest overview report on the project, the LSB said this “lack of awareness” of what is paid for by the PCF “may contribute to dissatisfaction with the cost of regulation”.

However, it went on: “Overall there was quite high awareness among solicitors and barristers that the PCF includes mandatory contributions to fund representational activities. These activities, which are technically called ‘non-regulatory permitted purposes’, account for a significant proportion of the PCF and amount to large sums in total.

“Increasing transparency by regulators about their costs could help to address low awareness among providers about how the PCF is spent and offer assurance around value for money.”

The LSB warned that it would be “scrutinising closely” the PCF approval process used by the frontline regulators and “looking at the underlying regulatory costs” which determined the size of the annual fee.

The oversight regulator set out plans in February this year allowing it to study spending in more detail before it approved their practising fees.

The LSB added: “If anticipated government reforms to fully separate the regulation and representation functions of the regulators are implemented, in due course we will work closely with the regulators on transitional arrangements and seek to embed build greater financial transparency within the new structures.”

Sir Michael Pitt, chair of the LSB, commented: “The challenge is to ensure that the regulated community and the public obtain greater clarity of the costs of legal services regulation. Without this, a robust assessment of value for money cannot be mounted.

“As the oversight body for regulation in the legal sector we will continue to scrutinise and encourage openness on all regulatory costs, including our own, in the expectation that general awareness grows over time and that costs will reduce as a consequence.”

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