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UK regulatory regime 'hinders innovation' in law firms

SRA is failing to clarify its expectations under OFR, says Law Society  

4 September 2013

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By Manju Manglani, Editor (@ManjuManglani)

Innovation in UK law firms is being held back by an expensive and bureaucratic regulatory regime, the Law Society has said.

In its response to the Ministry of Justice’s review of legal services regulation, the Law Society criticised the structure governing the regulation of the profession as ‘complex’, ‘opaque’ ‘burdensome’ and lacking in ‘accountability’.

It added that the current regulatory regime hinders innovation in the legal profession because of a lack of clarity as to the Solicitors Regulation Authority’s expectations of law firms under outcomes-focused regulation.

This problem is compounded by the SRA’s increasing usage of a ‘one-size-fits-all’ approach to regulation, the Law Society said.

“The burden of regulation is too high and we want to see it reduced,” it said.

The Law Society highlighted four problems with the current regulatory regime.

First, it said that neither the Legal Services Board nor the Law Society are effectively able to monitor, manage or control the Solicitors Regulation Authority’s performance.

Second, it said that “regulation is too detached from the profession” and does not focus on addressing market challenges. “Much current regulatory activity is duplicated elsewhere or is irrelevant,” it said, adding that the SRA often attempts a ‘one-size-fits-all’ approach to regulation that leads to “significant burdens and bureaucracy” for law firms.

Third, it said that the high costs of maintaining the regulatory system, which is underwritten by law firms who have no say in how their funds are used, hinders innovation in the legal profession.

Fourth, it said that the current regulatory arrangements are “perceived internationally to compromise the independence of the profession”, affecting the nation’s attractiveness and competitiveness as a centre for legal services.

“The SRA has no incentive to use or take notice of the expertise within the profession,” nor does it have an incentive to “take account of the impact of its work on the profession and, therefore, the costs of practice,” the Law Society said, adding that “the level of concern demonstrated by all sectors of the profession is worrying”.

In the SRA’s response to the call for evidence, it also noted that the current regulatory regime is “clumsy, complex, costly and obscure to consumers” and is “capable of significant improvement”.

“The difficulties caused by the over-prescription of regulatory requirements in primary legislation… are a direct driver of cost, a barrier to better regulation and tend to be a barrier to development and innovation by law firms,” it noted.

It said that change is needed to support the development of the legal services market and the “progressive innovation of providers aimed at delivering more consumer focused and competitive services”.

However, it also called for full operational independence from the Law Society, noting that the independence it currently enjoys had been “given grudgingly and constant vigilance is required”, backed up by the prospect of intervention by the LSB.

The SRA said the status quo required “complex and expensive governance arrangements” that consumed time and management attention and added delays.

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