Government plans to subject regulators to a duty to have regard to growth could lead to challenges of any decision to refuse approval of a new law firm or alternative business structure, the Solicitors Regulation Authority (SRA) has warned.
The SRA also expressed concern that such a duty “might have an impact on the decision whether to impose and how to calculate penalties – a larger penalty is likely to impact on growth”.
Responding to the government consultation, the SRA said: “The introduction of a requirement to consider growth might be used as basis for challenge of any decision to refuse or restrict authorisation or approval of a business or individual.
“This could lead to increased cost in staff time if regulators are required to provide evidence in all their operations and policies of compliance with the new duty (as suggested in the consultation paper). Increases in appeals and applications for judicial review will incur direct costs.
“This increased regulatory burden on the regulators will add to the costs of regulation which will ultimately have to be paid by the regulated community. Thus, though well intentioned, the proposed new duty may paradoxically have an adverse impact on economic wellbeing.”
If a duty to promote growth is introduced, the SRA continued, it should be subordinate to rather than complementary to the Legal Services Act’s existing regulatory objectives.
Also, it should apply only “to the formulation of regulatory policy generally rather than operational decisions concerning specific businesses”.
The SRA argued that the regulatory objectives laid out in the Act “are designed to achieve a carefully balanced approach which could be disturbed by the introduction of an additional duty to have regard to growth in separate legislation”.
It said several of the regulatory objectives encourage economic growth already, such as improving access to justice and promoting competition in the provision of services.
“Furthermore the Act clearly imposes a duty to have regard to any principle representing best regulatory practice. This enables the SRA to have regard to the promotion of growth or economic progress in its operations and decision making.”
The SRA also pointed to the suggestion in the consultation that enforcement should “be done in a way that minimises the burden on the business”.
The SRA asked: “Does this mean the regulator must incur greater costs if a particular way of enforcing would suit the business more even if it is potentially more expensive and time consuming for the regulator? This of course could throw extra costs on compliant businesses.”
In its response to the consultation last week, the Legal Services Board welcomed the government proposal but said the duty must not be used to probe the business plans of new entrants to the market or block “risky business models”.