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LSB calls for sole independent regulator to oversee legal profession

Risk-based approach and full independence forms basis of new legislative framework to protect consumers and practitioners

13 September 2016

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The Legal Services Board (LSB) has proposed a radical shake-up of legal services in England and Wales which would see just one independent regulator oversee the legal profession.

The LSB’s vision was published yesterday in a 46-page report and announced by the chairman, Sir Michael Pitt, at a Westminster Legal Policy forum event.

In a statement, Pitt said: ‘Any new legislative framework should take a risk-based approach to regulation and focus on the activities undertaken by providers. It must also be fully independent of the professions and government.

‘The existing arrangements are confusing and complex. We believe that a single regulator, covering the whole legal services sector and accountable to parliament, would be best placed to deliver improvement, deregulate, save cost, and act strategically.’

The new model would represent the biggest change to legal services since the Legal Services Act 2007 – described by Pitt as a ‘clever piece of legislation’. In accepting that its role would be abolished under the proposal, the LSB said the time had come for fundamental reform as improved outcomes had been slow to emerge in recent years, harming consumers and practitioners.

Risk-based approach

Expanding on the risk-based approach, the report called for an immediate independent review of sector-specific regulation based on the risks to the public, which would allow any regulation to be properly targeted and proportionate to the harm it seeks to remedy.

The LSB believes that the flexible approach would support ‘the reduction of net regulatory burdens and cost’ and boost competitiveness and innovation while ‘improving the affordability of services and helping to address unmet legal need’.

The LSB said the review should also decide whether the new regulator would become a public body or not.

The activity undertaken should be the basis of any regulation, the LSB posits, where ‘activity’ is used broadly and could relate to: the consumer’s legal need; the legal skill involved; the vulnerabilities of the different types of consumer; or a combination of the three. Such an approach is not without challenges, however, and the LSB stressed the importance of outlining ‘robust definitions’ for those activities. Concern was also raised over the possibility of having to authorise the provider conducting higher-risk activities.

The LSB wants to move away from a profession based on title over fears that it acts as a barrier for many market entrants, which may not hold the title of solicitor or barrister, and therefore may find it difficult to gain market share. It fears this has led to less competition and choice for consumers. However, it did recognise the longer- term benefits of consistency and suggested any transitional changes were likely to happen over the next decade.

Independence

The LSB also called for the new regulator to be independent from the profession and government and to be accountable to parliament. It fears the lack of full independence between the legal services regulators and their associated professions is unlikely to be sustainable for a number of reasons: it risks undermining the credibility of regulation in the public eye; it creates scope for representative bodies to delay reforms which would benefit competition and consumers; and it results in a lack of transparency over the cost of regulation.

The LSB was against solving these issues by combining regulation and representation functions in one body. It added that the tensions between the two distracts management attention, delays the pace of reform, and fails to deliver the clear separation that consumers, investors, and the public expect.

Protecting and empowering consumers is at the heart of the LSB’s plans and it set out the need for consumer representation. It wants legislation to require the new regulator to consult and engage with consumers through a statutory consumer panel. The model would incorporate expertise on legal services regulation, bring in a range of perspectives, and offer the regulator advice at the early stages of policy development. The success of similar panels that operate within the Financial Conduct Authority and Ofcom were given as examples.

The LSB hopes its latest intervention will feed into the government’s considerations of the legal services market. Last November, the Treasury announced that it would consult on making regulators independent from their representative bodies. The Competition and Markets Authority (CMA) supported this in its interim report and stated it was ‘open to more fundamental change’ of the regulatory framework but warned of the risks of increased regulation and any transitional costs.

The competition watchdog had suggested that regulatory intervention may improve price transparency and service information, which is inhibiting competition and harming consumers’ decision-making ability, but deemed a formal market investigation unnecessary.

The LSB acknowledged the possibility of short-term extra costs and uncertainty that a transition to a new regulatory framework would bring. Further, it accepted the key consideration is whether the expected long-term benefits of change are likely to outweigh these costs.

The current oversight regulator also recognised it could still have a ‘much reduced or even removed’ role to play if the situation arose where fewer regulators existed in an alternative model.

As for the other regulators, of which the Law Society and Solicitors Regulation Authority have both advocated market-driven solutions rather than any structural changes, the profession awaits their response.

 

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Legal Services Board