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LSB eases pressure on Law Society over governance rules – for now

SRA uses opportunity of super-regulator investigation to renew push for complete independence

1 February 2019

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The Legal Services Board (LSB) has accepted undertakings by the Law Society that its revised oversight rules of the Solicitors Regulation Authority (SRA) will safeguard the regulator’s effectiveness.

The decision brings to a close an investigation prompted by SRA claims in February 2017 that Chancery Lane’s rules and practice impaired its regulatory autonomy.

It resulted in a censure decision by the LSB against the Law Society in May 2018, which committed in a subsequent undertakings note to provide assurances in relation to a number of areas.

The processes for the appointment of SRA board members and the lack of an independent chair on the Business and Oversight Board (BOB) came under particular scrutiny by both the LSB and the SRA.

The SRA had also singled out possible abuses of provisions in the General Regulations – the rules governing the relationship between the SRA and the Law Society – that require the SRA to provide information to the BOB and other Law Society committees.

In her letter concluding the investigation, the oversight regulator’s chair Dr Helen Phillips said the Law Society had fulfilled its undertakings for the time being but she stressed “the importance of embedding the behaviour change prompted by the LSB investigation”.

The undertakings were drawn up by the Law Society’s new board, set up in December 2017 and chaired by former president Robert Bourns.

They are detailed in a letter dated 30 November 2018 and include; a new protocol for the BOB, revised rules for the audit and remuneration committees, evidence that the general regulations have not impaired the SRA’s effectiveness, and the introduction of a new ‘culture code’ aimed at ensuring positive behaviours throughout the organisation.

“We welcome the steps taken as set out in your report and note that the new governance arrangements and emerging culture change remain a work in progress”, the LSB’s letter to the Law Society said.

The letter also pointed out that the super-regulator was “more concerned with The Law Society’s culture of compliance with the internal governance rules”.

The LSB also specifically addressed the issue of information requests from the SRA, insisting that they should not extend beyond the remit of the agreed protocol.

“The chairs of the relevant boards and others at The Law Society who request information from the SRA must ensure that these are justifiable in regards to your assurance responsibilities”, it said. “We expect The Law Society to ensure that this practice is monitored on a regular basis.”

Consulted as part of the investigation, the SRA said in submissions it welcomed the efforts made by the Law Society but that further steps should be taken towards “truly independent and effective regulation”.

In its response to the Law Society’s undertakings, the regulator issued a warning over “inadvertent scope creep by governance committees”.

Its comment echoed concerns previously notified to the LSB that a number of information requests went “wider than the committees’ terms of reference” and that this needed to be “continuously and proactively managed”.

It also called for the abolition of the BOB. SRA chief executive Paul Philip said: “The time has come to remove BOB and for the residual assurance role to be carried out by the Law Society Council, through the mechanism of an annual SRA report to Council.”

In a renewed push for complete independence, Philip added: “It is time to move to complete separation within the current statutory framework – with the SRA being established as a corporate entity with a separate legal personality.”

The LSB did not specifically respond to the SRA’s points but chair Dr Helen Phillips (pictured) said the assessment of the steps taken by the Law Society had been considered in the context of the recent consultation on new internal governance rules (IGRs), which closed on 21 January 2019.

However, in an interview with Solicitors Journal last month, Phillips said that while there was no appetite in government for any fundamental reform of the legal services framework, the LSB would “make the best use of the currently available levers” to achieve the objectives in the Legal Services Act 2007.

“One of these is the internal governance rules”, she said, suggesting the super-regulator would be more directive in its drive to secure greater independence for the regulatory function.

 

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