MoJ formally rules out review of legal regulation and complete independence for regulators

Keen: The current framework is not consistent

The current framework of legal regulation is “inconsistent”, the Ministry of Justice (MoJ) accepted today, but said it could not commit to the formal review sought by the Competition and Markets Authority (CMA) and others.

Issuing its long-overdue response to the CMA’s review of legal services – which was published almost exactly a year ago – the MoJ also said it would not take forward its plan to completely separate legal regulators from representative bodies, leaving it instead for the Legal Services Board (LSB) to strengthen its internal governance rules.

But it did agree to review the case for extending access to redress thorugh the Legal Ombudsman to consumers using unauthorised providers.

The LSB and frontline regulators have spent the last year working to implement the CMA recommendations aimed at them, such as to increase the transparency of lawyers’ fees and quality standards.

Among those recommendations aimed at the MoJ, the CMA said MoJ should review the current regulatory framework for legal services.

In his response today, justice minister Lord Keen said the MoJ agreed with the view that significant improvements to the current framework could be achieved through incremental change.

But noting the CMA’s concern that it may not be sustainable in the longer term, he said: “We recognise that the current framework is not consistent, with a disparity in the regulatory burdens on authorised and unauthorised providers potentially offering some of the same services, as well as in the related protections for consumers.

“While this may impact on competition between regulated and unregulated providers, it does also provide greater consumer choice.

“We also note the widely held view that the current reserved legal activities should be reviewed, to ensure that regulation is appropriately targeted to ensure the right balance between consumer protection, wider public interest and competition is achieved.

“While we cannot commit to a formal review of the regulatory framework at this time, we agree that we will continue to reflect on the potential need for such a review, particularly as the market develops following the steps taken by regulators to address the transparency and consumer knowledge issues that your report identified.

Legal Futures understands that former Lord Chancellor Michael Gove had agreed to a review prior to the EU referendum, but he lost his job in the reshuffle that followed Theresa May becoming prime minister and it was not taken forward.

Though a review of the independence of legal regulators was announced two years ago, nothing has happened on it. The CMA called for it to be taken forward but Lord Keen said the sector itself could do more within the existing framework.

The LSB is currently reviewing its internal governance rules, and the outcome of its investigation into the governance arrangements between the Law Society and the Solicitors Regulation Authority is awaited.

“The investigation is also expected to consider the balance between appropriate oversight by the Law Society as approved regulator and the ability of the SRA to operate independently as intended by the Act,” Lord Keen wrote.

“We therefore believe that now is not the right time to consult on legislative change, and that there is scope to make more progress within the existing framework…

“We will closely monitor developments in this area and will keep the case for further action under review.

The CMA recommended that the MoJ should review whether there was a case for extending redress to consumers using unauthorised providers, and if so, how best to achieve this.

Lord Keen accepted this recommendation, saying the MoJ would review “any case made for” such a move.

“We recognise that there is a disparity in the redress available to consumers depending on their choice of provider, with those using authorised providers having access to the Legal Ombudsman scheme, while those using unauthorised providers may have access to other redress mechanisms depending on their choice of provider.

“We also recognise that consumers may not understand the implications of their choices on the consumer protection available to them should there be a problem with the service they receive.”

He noted that all service providers must detail their approach to ADR under the EU ADR Directive, but there was a “general lack of data” on the scale and range of unauthorised providers, the extent to which those providers are members of ADR schemes, and the variance in the protections offered by those schemes.

He said the MoJ would work with the Department for Business, Energy and Industrial Strategy, which is responsible for the ADR directive, “to review the existing provision and consider whether further steps are necessary and proportionate”.

Law Society president Joe Egan welcomed the government’s decision: “As the UK faces one of the biggest constitutional challenges in living memory, uncertainty for business should be reduced, not increased. Any unnecessary disruption of the legal sector is not in the national interest.”

Sheila Kumar, chief executive of the Council for Licensed Conveyancers, said: “The support from the Ministry of Justice for the CMA’s recommendations on price and service information for should leave the legal sector in no doubt about the importance of implementing them.

“Work on the transparency of price and service information is progressing well between the regulators. It is really important that all of the regulators in the legal services market work together towards a whole-of-market solution.  

“This letter from Lord Keen and the Ministry of Justice’s tailored review of the Legal Services Board challenge the regulators, including the oversight regulator, to use all of the powers that we currently have to secure the separation of regulation from representation.”

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