Revising legal services regulation: threat or promise?
Posted on 20 May 2019
Whether there ought to be a single independent legal regulator or just greater transparency requirements on anybody providing legal advice, lawyers should take an interest in how their sector should be regulated, says Emma Walker.
Last month, Law Society board chair Robert Bourns invited delegates to the society’s Risk and Compliance conference to consider Steven Mayson’s Independent Review of Legal Services Regulation (IRLSR). Should you?
Stephen Mayson is Honorary Professor at UCL’s Centre for Ethics & Law. His review intends to explore issues raised by the Competition and Markets Authority (CMA) 2016 study of the legal services market, to assist government to evaluate the current system of legal services regulation. The review will comprise three stages of work and five working papers assessing the existing framework and exploring the rationale, scope, focus and structure of legal services regulation.
The review is currently in its second phase and all five papers can be found on the UCL website, www.ucl.ac.uk. The third stage will see the publication of revisions to all papers and an interim report of findings, planned for September 2019. Meetings and discussions will follow, rounded off by a final report due to be published and submitted to the Ministry of Justice in January 2020. Professor Mayson is inviting contributions addressing the questions raised in the working papers.
The IRLSR’s starting point is that the current regulatory framework suffers from a number of shortcomings and limitations; this follows the CMA’s conclusion that it is “insufficiently flexible to apply a proportionate, risk-based regulation to reflect differences across legal services markets and across time”. Flexibility in the framework is considered important to enable it to target activities carrying greater risk more effectively and respond to market and technological changes. But how did we get here and where do we go next?
Legal services regulation aims to assure the integrity of those providing legal advice and representation and give protection to consumers where general and consumer laws fall short. The most recent overhaul of the regulatory framework in England and Wales came in the form of the Legal Services Act 2007, which enshrined the following themes:
Eight regulatory objectives regulators must promote;
Six reserved legal activities deliverable only by qualified and authorised individuals;
Participation by those in law firms who are not legally qualified, resulting in the formation of alternative business structures (ABS), to create a more effective and competitive market;
- the Legal Services Board (LSB) as oversight regulator (which now oversees not just the original eight but ten frontline regulators: Solicitors Regulation Authority, Bar Standards Board, CILEx Regulation, Master of the Faculties, Council for Licensed Conveyancers, Intellectual Property Regulation Board, Costs Lawyers Standards Board, Institute of Chartered Accountants in England & Wales, Institute of Chartered Accountants in Scotland, and Association of Chartered Certified Accountants);
- the Office for Legal Complaints (to administer the Legal Ombudsman scheme), as a single point of resolution and redress for dissatisfied consumers;
- the Legal Services Consumer Panel, to represent consumer interests;
Independence of regulation of professionals from their representation.
What follows is an introduction to these themes and some of the issues they raise. It isn’t a substitute for reading the IRLSR, but it provides a preface to the questions posed at the end of each working paper, to help focus on ways in which legal services regulation could be revised.
Taking the last of the above themes first, some say separation between the representative and regulatory functions of some of the approved regulators has taken too long and hasn’t gone far enough.
Public confidence in the administration of justice and legal services exists when regulators are free from undue influence by third parties, including providers and consumers of legal services. Currently, the SRA bids for funds from the Law Society, which arguably prevents true independence of the regulatory and representative arms of the profession. The relationship does, however, enable the SRA to benefit from savings through economies of scale, achieved by sharing some services with the Law Society, which would otherwise likely increase the cost of regulation for the regulated community.
At present, appointments to the LSB and rule changes must be approved by the Ministry of Justice. This has prompted comment from overseas that the regulatory structure in England and Wales is a creature of government and so not independent and changes are therefore needed.
The different histories of the approved regulators produce diverging approaches and duplication of resource across the sector, coupled with differing cost implications for the regulated communities and confusion for clients.
The CMA states in its study that: “…independence of a regulator from the providers that it regulates is a key principle that should be taken into account in any review of a regulatory framework.
We also recognise that an independent legal profession is important for securing many of the public interest concerns [relating to the rule of law, access to justice and consumer protection].
As such, preserving the profession’s independence from government is also a key consideration in assessing any potential changes to the current regulatory structure.”
Under the current framework, individuals who wish to carry on reserved activities for a member of the public must first be authorised by an appropriate regulator. The principal route to authorisation is through the award of a professional title. While, in practice, this award carries authorisation for five of the six reserved activities, the complexities of modern legal practice, which sees entire careers focused on niche specialisms, make it difficult to see the approach as risk-based. In an interview with the Law Society Gazette, Professor Mayson said the reserved activities approach was “anachronistic” and “founded on a fundamentally flawed basis”.
“It is unsurprising,” he commented, “that it cannot sustain the weight of a modern regulatory framework. Some activities have not been tested for risk, while others – such as will-writing – have been declared risk free, which is so obviously wrong. A badly drafted will can cause serious problems for future generations.
“It defies logic, but former justice secretary, Chris Grayling, was not convinced that will writing needs regulation. He is part of a government that wants to see less not more regulation. He is missing the point. The debate is not about more or less regulation, but about what is the right regulation.”
The Legal Services Act 2007 has created potentially competing regulatory focuses: an activity; the individual; and the context, including activity in an entity. Whether regulation should attach to any one of these focuses over another is not easy to see, but a proper risk-based approach would allow for before, during and after-the-event regulation, proportionate to public interest needs and consumer circumstances.
The conceptualisation of reserved and non-reserved legal activities, combined with authorisation and regulation flowing from professional title, creates a “regulatory gap” that carries the potential to disadvantage qualified lawyers. Once a professional title is awarded to a lawyer, all their activities are subject to regulation, even if they only is awarded to a lawyer, all their activities are subject to regulation, even if they only practice in non-reserved legal activities do not require authorisation, someone who is not legally qualified can offer those services to the public for payment without being subject to regulation.
Authorisation brings additional protections and access to redress for clients; these safeguards are not in place where the adviser does not need to be authorised. The regulatory gap results in a mismatch between reality and public expectation about the extent of expertise and availability of protections and redress. Should the goal be to remove the regulatory gap or raise consumer awareness of its existence?
Greater awareness could be achieved by requiring all providers, whether authorised or not, to declare their regulatory status and the availability of protections and redress. If before-the-event authorisation is combined with during and after-the-event regulation, the need to characterise legal activities as “reserved” would fall away. The CMA has suggested the Legal Ombudsman’s jurisdiction could be extended, because to date it has effectively been linked to providers with a professional title. An extension of the ombudsman’s jurisdiction could help to match consumer expectation and regulatory scope, generating greater confidence in legal services.
Across the border
Looking outside the system in England and Wales, an independent review of legal services regulation in Scotland has recently recommended, among other things, that:
- There should be a single independent regulator for all providers of legal services in Scotland, independent of those whom it regulates and of government, responsible for the whole system of regulation including entry, standards, monitoring, complaints and redress, which covers individuals, entities and activities. That independent regulator should be a body accountable to the Scottish Parliament and subject to scrutiny by Audit Scotland. [Recommendation 1]
- There should be no substantial change at this stage to bring more activities within the scope of those activities ‘reserved’ to solicitors or to remove activities i.e. will writing should not be reserved. Entities licensed by the regulator should be able to undertake confirmation as an activity. [Recommendation 28]
The first recommendation provides for a single point of regulation, which addresses efficiencies, removing risk posed to the independence balancing act and it produces a clear regulatory narrative that is more accessible to clients, instilling confidence. That all sounds very attractive. Moreover, the fact the recommendation specifies accountability to parliament helps define the single regulator as independent, dispelling the suggestion that the regulatory system is a creature of government.
The recommendation not to bring other activities into the scope of “reserved” may miss the mark, at least in England and Wales, and whether activities need to be characterised as ‘reserved’ at all seems the more pertinent question to address.
The IRLSR reports a perception from outside the jurisdiction that the approach inside it is too liberal and therefore “susceptible to their perceived concerns about maintaining quality and avoiding undue interference when ‘non-lawyers’ are involved in legal practice”.
Such sensitivities are important because they impact on engagement with the system, through choices about governing law clauses and the appropriate forum for the resolution of disputes. With that in mind, the proposals being considered in the IRLSR for all providers to declare their regulatory status and to extend the ombudsman’s jurisdiction seem justifiable. Looking again to our cousins across the border, the suggestion that complaints and redress become the responsibility of a single independent regulator may be an even better way to drive efficiency and trust.
As the UK faces a future outside of the EU, the need to attend to questions of the rule of law and access to justice is more pressing than ever. If we do not, the UK cannot maintain its claim to be a legal world leader. While legal services regulation is only one piece of the puzzle in that positioning, it is essential it is played out effectively. For that to happen, creating a comprehensive and robust system must be a priority, which is why all providers of legal services should take up Robert Bourns’ invitation to consider and communicate how their market should be regulated.
Emma’s article was originally published in the Solicitors Journal online on 2 May 2019 and in the April 2019 edition of the journal (Volume 162 No. 4, pages 30-33).