March of accountants halted as Lidington rejects bid to handle tax litigation and advocacy

Lidington: independence concerns

The Lord Chancellor, David Lidington, has unexpectedly rejected the Legal Services Board’s (LSB) recommendation that chartered accountants should be able to handle litigation, advocacy and legal instruments in taxation work.

It is the first time the Ministry of Justice has rejected a regulatory extension of this nature, although as Lord Chancellor Chris Grayling did refuse an LSB request to make will-writing a reserved legal activity.

The Institute of Chartered Accountants in England and Wales (ICAEW) is already an approved regulator and licensing authority (of alternative business structures) for reserved probate work, and wanted to extend the scope of what legal work its members could do.

Though it planned to restrict the extra rights to taxation work, the Legal Services Act does not allow for a partial award and so the ICAEW applied to become an approved regulator of all the reserved legal activities.

Mr Lidington cited five reasons for his decision, the first of which was that the legal services committee which would oversee regulation “would neither be, nor be seen to be, suitably independent from the ICAEW’s main board and governing council, both of which cover regulatory and representative matters and do not have requirements around lay participation”.

All the approved regulators are expected to be fully independent from their professional bodies and the Law Society in particular has criticised the ICAEW’s set-up for not meeting this standard.

Mr Lidington said he found the concerns of the Legal Services Consumer Panel – which said the safeguards in place were sufficient when the ICAEW was just regulating probate but may not stand up to a broader test – “particularly persuasive”.

Second, the strong objections of the Lord Chief Justice, Lord Thomas, raised “valid and material points”, especially in light of the ICAEW’s decision in January that it would not initially train its own members in litigation and advocacy. It said accountants would instead have to employ a lawyer to offer the services.

Mr Lidington said he concurred with Lord Thomas that it was therefore premature to designate the ICAEW as an approved regulator.

“It does not appear to be in the public or consumer interest to encourage a situation where an individual providing reserved legal activities would need to be regulated by a separate legal services regulator to the entity that they worked within.

“Such an approach would not appear to be beneficial as it would add complexity to the regulatory landscape by encouraging layers of legal services regulation, which in turn may increase the likelihood of regulatory conflict and ultimately lead to consumer confusion in the case of misconduct.”

His third objection was that limiting its regulation to tax work would be “difficult to manage in practice and challenging to communicate to consumers”.

The fourth concern was about the negative impact ICAEW-regulated firms could have on the international standing of English and Welsh notarial acts, which notarial bodies warned could lead, in the worst-case scenario, to them not being recognised in overseas jurisdictions.

Whilst the LSB considered this to be a low risk, the Lord Chancellor said the ICAEW had not provided sufficient evidence to show there would not be an adverse impact.

Finally, he questioned the ICAEW’s contention that there was a natural link between the additional reserved activities and the current services provided by accountants. Rather, Mr Lidington said, there was a “material difference” between the two.

“It is one thing for accountancy practices to be an expert in taxation, but quite another to be proficient in the conduct of civil or criminal litigation in the courts.”

He ended by telling the ICAEW that he would be happy to consider a further application if all of these concerns were met.

However, the institute has previously made the independence issue a deal-breaker.

Duncan Wiggetts, the ICAEW’s executive director of professional standards, said: “We are very disappointed at the Lord Chancellor’s unprecedented decision and struggle to understand the basis on which he has reached it.

“The LSB encouraged our application and recommended it to the Lord Chancellor. The decision also cuts across the recommendations of the Competition and Market Authority which, in its market study in 2016, had found that competition in legal services for individual consumers and small businesses was not working well and had indicated their support for the application.

“The Lord Chancellor and the Ministry of Justice have not seized this opportunity to liberalise and regulate the market for legal services in England and Wales, to encourage more competition and to create better options for the consumer.

“We now need to study the detail contained in the Lord Chancellor’s decision notice to determine our next steps.”

Dr Helen Phillips, interim chair of the LSB said: “Our recommendation to the Lord Chancellor reflected our assessment of ICAEW application and the criteria which apply to such designations. The LSB carried out its statutory role, which was to assess the application in accordance with what is laid out in the Legal Services Act.”

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