LSB rule change to put spotlight on spending by professional bodies

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6 June 2016

Neil Buckley

Buckley: “clarity on financial resources” is crucial

The Legal Services Board (LSB) has announced a change in its practising certificate fee (PCF) rules, which will put the spotlight on spending by professional bodies such as the Law Society and Bar Council.

Though most of what lawyers pay in practising fees goes to the regulators, under the ‘permitted purposes’ provision of section 51 of the Legal Services Act, the professional bodies can use some of it for certain non-regulatory activities, such as law reform work and practice support.

Of the £105.8m raised from solicitors in practising fees in 2015/16, £35.3m went to the Law Society as a result.

The LSB has to approve PCF fees, and an addition it has made to the rules which govern this process says that regulators will have to provide “clarity and transparency on the allocation of all the approved regulator’s financial resources, whether or not those resources arise from permitted purposes”.

The change follows a consultation on the issue. The LSB said four legal regulators – the Solicitors Regulation Authority, the Bar Standards Board, the Council of Licensed Conveyancers and Costs Lawyer Standards Board – “broadly agreed” with the move.

However, it was opposed by the Bar Council and Law Society. In its decision document, the LSB said the Bar Council thought that the rule “went beyond” the LSB’s obligations under the Legal Services Act.

“Its view was that the LSB should concentrate only on activity falling within the permitted purposes and should not extend to activities that have no bearing on the permitted purposes.

“It sees the introduction of the new rule as an inefficient use of LSB resources, as the rule would mean that the LSB would need ‘to consider extensive detail’ about non-PCF expenditure.”

Meanwhile the Law Society “challenged the LSB’s legal remit in requesting details of an approved regulator’s financial resources arising for non-regulatory permitted purposes and/or arising from non-permitted activities and whether approval of the fee level could be refused based on clarity and transparency of such information”.

In response, the oversight regulator said: “The LSB is aware that an approved regulator engages in activities that are not permitted purposes and are not funded by PCF; we would not be interested in these activities unless they affect the practising fee.

“Against that background we consider that it is both reasonable and within the scope of the Act, for the LSB to require clarity and transparency of such information both for the fee payers and to assist the LSB in its statutory decision making.”

Neil Buckley, chief executive of the LSB, added: “The rules are there not just to help the LSB assess applications relating to the level of the PCF, but also to contain requirements that ensure approved regulators are clear about the proposed fees and the budgets that determine them.

“As the LSB’s cost of regulation project identified, improved levels of financial transparency by the regulators could help address low awareness amongst legal services providers about the cost of regulation.

“We believe that the emphasis in these revised rules on providing clarity on financial resources is an important factor in helping the LSB make decisions on fee levels.”

Assuming the government presses ahead with its proposal to give the frontline regulators complete independence from the professional bodies, it is thought that the ‘permitted purposes’ provision will have to be reviewed. See blog: Would you give the Law Society £250?

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