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LSB reveals “stream of disagreements” as it begins review of regulatory independence rules

Buckley: Independent regulation gives confidence

A “steady stream of disagreements” between legal regulators and representative bodies means the rules governing their relationships may need to be rewritten, the Legal Services Board (LSB) said yesterday.

The oversight regulator said it had been notified of 30 disputes over the past three years, mainly differences about governance but also strategy and resources.

In February 2017, the LSB launched a formal investigation [1] into whether the Solicitors Regulation Authority (SRA) has sufficient independence from the Law Society.

It is not known when this will conclude, but the LSB said the outcome would provide more evidence for the review and consultation [2] it published yesterday.

The Legal Services Act 2007 requires the LSB to make internal governance rules (IGR) to ensure that approved regulators (ARs) – bodies like the Law Society that are named as regulators in the Act – do not improperly influence the independent bodies, such as the SRA, to which they have delegated their regulatory responsibilities.

The Act not allow the LSB to require structural or legal separation, although it does support such a move, as does the SRA and Bar Standards Board.

This is the first full review of the IGR since they were first put in place in 2010 and has been prompted by various developments, including the Ministry of Justice in July telling the LSB [3] to do more within the current framework to ensure independent regulation.

The consultation said: “This document explains that the evidence we have obtained to date suggests there are issues with the current IGR. This includes the steady stream of disagreements about independence matters that have been raised with the LSB since 2010.

“Many of these issues appear to stem from a lack of shared understanding about what residual functions remain with an AR where it has delegated the discharge of its regulatory functions to another body.”

These disputes, it continued, consumed management time and resources, adding: “We have been told by regulatory bodies that there may also be an anticipatory chilling effect on reform of regulation, where policies are diluted or not pursued, in the knowledge that these will be contentious and/or that it will be disproportionately resource-intensive to deliver change.”

The LSB is canvassing views on options ranging from no change to the IGR to ripping them up and starting again.

It hinted at support for more radical reform. The evidence of the ongoing disputes “may suggest that the current IGR generate rather than reduce regulatory uncertainty”, while “some ARs and regulatory bodies have told us that they would prefer starting afresh with entirely new IGR, rather than amending the existing IGR”.

One way to change the regime would be a series of ‘gateways’ – relating to issues like finance, governance or regulatory performance information – which would be the only permissible channels for information and assurance to flow between regulatory bodies and the ARs.

The LSB said this would reduce the AR’s discretion to oversee its regulatory body and could also improve its ability to carry out representative functions “since policy positions could be vigorously pursued without being compromised by concerns about risks of ‘overstepping the mark’ in relation to regulatory independence”.

The consultation also seeks views on how compliance with the IGR should be monitored – the LSB has not required dual self-certification since 2013 – including possibly introducing “third-party assurance”.

LSB chief executive Neil Buckley said: “Independent regulation gives confidence to consumers, providers, investors and society as a whole that legal services work in the public interest and support the rule of law…

“The LSB’s view is that regulation should ideally be structurally, legally and culturally independent of the professions and government. A review of the legislative framework by government for the regulation of legal services, however, is unlikely for the time being.

“We are, therefore, interested to understand stakeholders’ experiences of operating under the current IGR, including whether the IGR might be improved within the constraints of the Act and, if so, how.”