LSB and SRA accused of putting too much emphasis on competition

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28 February 2017

Passmore: current rules out of step with diversity of the market

Both the Legal Services Board (LSB) and the Solicitors Regulation Authority (SRA) are putting too much emphasis on promoting competition at the expense of the other regulatory objectives they are meant to uphold, the Law Society has claimed.

At the same time, the SRA has said its plan to allow practising solicitors to operate from unregulated businesses is “overdue”.

Responding to the LSB’s consultation paper on its 2017/18 draft business plan, the society said it has “concerns” that the oversight regulator was “applying undue weight to the objective to promote competition in the provision of services”.

The society said: “It is important not to assume that all change which increases competition will benefit consumers. Competition may result in lower prices, but this must be balanced against any risks that result from competitive pressures (eg, reduction in consumer protection or trust in the legal system), which may bring competition into conflict with the public interest: the two not always having the same outcomes and remedies.

“While we entirely support competition within the legal services market, we are concerned that the LSB is not sufficiently balancing this with the welfare of consumers, the public interest, rule of law and access to justice.

“Competition in of itself is not always the best way of ensuring that optimum services are delivered to consumers whilst safeguarding the public interest.”

The attack on the SRA was the Law Society’s latest broadside over the SRA’s plan to allow practising solicitors to be employed by unregulated entities.

“It is the society’s view that this is a dangerous step that sets the tone for a race to the bottom in regulatory standards. If solicitors were to offer legal services from unregulated companies, as is also suggested in the Competition and Markets Authority’s recent report, then their clients would no longer enjoy a raft of protections – from confidentiality to compensation – offered by every solicitor in an SRA-regulated solicitors’ firm.

“No quantitative assessment has been made by the SRA to demonstrate that these proposals will result in more people seeking and obtaining legal advice; it seems the SRA is prioritising competition objectives over its duty to ensure the public and consumer interests are served.”

The society said that as work of claims management companies handling PPI work showed, “some business practices, including pressure selling, have been to the detriment of some consumers”.

It continued: “The creation of an environment in which unregulated entities could employ solicitors, who would in turn be subjected to commercial pressures but would be unfettered by regulatory checks and balances, would erode the fundamental consumer and professional protections Parliament legislated for in… the Legal Services Act 2007.

“The LSB has a role in ensuring this does not happen. Our assessment is that these deregulatory changes would undermine consumer protections and would therefore be more likely to increase unmet legal need as consumers lose trust in the legal system and face an additional regulatory maze.”

However, the SRA’s plan – which would see the individual solicitor still subject to the Handbook – was robustly defended last week by strategy director Crispin Passmore, who was speaking at a reception to mark the 25th anniversary of SIFA, the body that works to support financial advisers and lawyers working together.

He said: “We feel this reform is overdue. There are many providers of legal services that do not attract legal services regulation. Online legal advisers, document production businesses, will writers, employment specialists – there are many professional services business who can’t employ a solicitor to provide advice to their clients without becoming an alternative business structure.

“We believe the current rules on where solicitors can practice are out of step with the diversity of the market. This needs to change…

“We believe such a change will promote competition, reduce costs and improve access for consumers, while also raising standards – as businesses will be able to employ solicitors – who will bring their expertise, knowledge and professional standards with them.

“It’s a change the Competition and Markets Authority has specifically recommended we implement too. We hope this change could be introduced within the next couple of years.”

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