Economic crime: New expectations of regulators
The Legal Services Board (LSB) has made a series of relatively minor changes to its new statutory guidance on how legal regulators should implement the new regulatory objective to tackle economic crime.
It follows a consultation to which a dozen organisations in the legal profession and campaign groups like Spotlight on Corruption responded.
The Economic Crime and Corporate Transparency Act 2023 added the new regulatory objective to section 1 of the Legal Services Act 2007, namely to “promote the prevention and detection of economic crime”.
The guidance [1] “is intended to help make legal regulation a key piece of a strong response to economic crime across the UK” by helping regulators understand what the LSB considers they should do to implement the objective.
While giving them leeway on the detail of how they do it, the guidance sets out four outcomes for regulators: they need to understand and act to address risks that may lead to those they regulate facilitating economic crime; support lawyers to understand how to identify and avoid economic crime risks; monitor compliance; and regularly evaluate standards and procedures.
The regulators will need to show the oversight regulator that “evidence-based decisions have been taken to determine what measures are appropriate” to meet these outcomes.
The LSB said in a response document to last November’s consultation [2] that most respondents welcomed the guidance, with broad support for the four outcomes.
The City of London Law Society (CLLS) said the outcomes “though broadly appropriate, should be more focused on prevention and education around economic crime risks” and the policy objectives “focused on regulatory bodies supporting lawyers to detect crime, rather than regulatory bodies focusing on detecting crime themselves”.
The Law Society backed the outcomes but also agreed with the CLLS that they should “focus predominantly on raising awareness and understanding of the economic crime risks”.
The SRA proposed a further outcome around assessing and making the profession aware of the risks that economic crime poses to them personally.
Instead, the LSB has updated its expectations around the first outcome to specify that “areas of concern may include, but are not limited to, the targeting and/or involvement (whether knowingly or unknowingly) of legal professionals”.
On the second outcome, the LSB accepted the comment of the Council for Licensed Conveyancers (CLC) that the original wording – that regulators “ensure” lawyers understand their duties –implied that regulators were required to assess their regulated communities to confirm the level of their understanding of duties and risks.
Now regulators instead have to “support authorised persons to understand their duties and the risks related to economic crime”.
The CLC and the Law Society disagreed with the inclusion of outcome 3 on monitoring and enforcement, with the CLC saying it duplicated existing requirements and the society that it went “beyond what is required by the new regulatory objective”.
Retaining it, the LSB said section 28 of the Legal Services Act required all the regulatory objectives “to inform the regulatory functions undertaken by the approved regulators, and this includes monitoring and enforcement”.
In response to feedback from the Legal Services Consumer Panel, the LSB added a new paragraph on enforcement, requiring regulators to identify how they will “consider the public and consumer impact of their implemented approaches, as part of their evaluation of its efficacy”.
Richard Orpin, interim chief executive of the LSB, commented: “This guidance helps regulators and the broader legal services sector understand what regulators should do to better prevent and detect economic crime.
“It will help ensure regulators take a proportionate, risk-based approach that supports the legal sector’s significant contribution to economic growth.”