The Bar Standards Board (BSB) will be unable to regulate alternative business structures (ABS) effectively until it learns more about users of barristers’ services and undergoes “significant cultural change”, according to the Legal Services Board (LSB).

The stark verdict on the BSB’s shortcomings was made in an LSB assessment of its performance, the last of a series of evaluations of the frontline legal regulators.

As well as raising doubts over the BSB’s understanding of consumers, the LSB also questioned whether the regulator was – or was perceived to be – sufficiently independent from the profession and the Bar Council.

Responding to an LSB request for a self-assessment of its performance and goals, the barristers’ regulator outlined a number of strategic aims, including taking “a more risk and evidence-based approach” to regulation.

Earlier this month the BSB submitted its new Handbook to the board for approval, which paves the way for it to regulate entities, and subsequently it will submit an application to become a licensing authority for ABSs.

It follows an extended period of bad-tempered public exchanges in which, among others, the BSB accused the oversight regulator of going beyond its remit – a claim the LSB robustly denied.

In a 35-page document, the LSB welcomed the BSB’s “frankness” and while it raised concerns about the scope of the regulator’s ambitions, it noted that “such ambition is welcome”. The BSB had indicated that it was “serious about delivering risk-based regulation”.

But the LSB highlighted recent problems caused in enforcing disciplinary tribunal decisions by errors made by the Council of the Inns of Court (COIC) as evidence the BSB had been forced onto the back foot.

The LSB was sceptical the regulator could meet its own timetable for moving towards outcomes-focused regulation (OFR). “We consider that the BSB has painted an overly optimistic picture about the progress it has made in moving towards OFR”, it said, adding that “the timescales the BSB has set itself [are] particularly challenging.”

Elaborating, the LSB said: “One major deficiency that the BSB will need to overcome to deliver OFR is its lack of evidence about those who use the services of those it regulates and how they deliver those services to consumers. This evidence must form the basis for an effective risk-based regulatory regime.”

It continued that the regulator’s supervision is “currently more reactive than proactive and enforcement has been hampered by the poor performance of [COIC]”. The BSB would need to overcome “significant challenges”, including “the need for significant cultural change to deliver on these ambitions.”

It noted that “a significant number of improvements are reliant on a successful IT upgrade, with the risks that implies.”

If it is to regulate barristers conducting litigation,as well as ABSs, “we will expect the BSB to demonstrate significant progress in embedding the regulatory standards into their day to day operations when it submit its applications”.

The LSB warned it would “be monitoring the BSB’s adherence to its action plan closely and will, where appropriate, take action for failure to keep to its plan without good reason”.

On the issue of independence, the LSB said: “Over 2012/13, our general observation is that the BSB has sought to maintain its independence from the Bar Council. However, there have been incidents where the LSB has been concerned about the Bar Council’s attempts to fetter this independence.”

LSB chairman, David Edmonds, said: “The BSB work programme outlined in this self assessment is amongst the most challenging I’ve seen…

“We are pleased that the BSB is seizing the opportunities offered by the Legal Services Act… to free barristers to offer their services, and new services, to consumers in new ways. However, with change comes risk and challenge. The BSB must do more to embed the regulatory standards and an outcomes-focused regulatory approach into its day-to-day operations.

BSB chair, Baroness Ruth Deech, responded: “We have been very frank with the LSB about the challenges we face and I am pleased their report welcomes our honest and constructive approach.

“The legal services landscape is evolving rapidly and we aim to ensure barristers can work more flexibly to take advantage of a liberalised market and bring benefits to their clients.

“Our recently published strategic plan sets out how we will make progress towards becoming a more modern and efficient regulator.”

Tags: ABS, Alternative business structures, bar standards board, Legal Services Board