A new Legal Services Act?

To the surprise of some, the Lord Chancellor, Michael Gove, has confirmed there will be a review of the Legal Services Act in the next parliament. A few days after this statement, the Legal Services Board (LSB) told the government there was a ‘compelling case to introduce a new regulatory settlement’ for the legal sector. 

The Law Society will be viewing these developments ?as a cause for some concern. ?If the new legislation actually becomes law, it may signal a major loss of power and influence for Chancery Lane.

The LSB set out options for ?the reform of legal regulation ?in a paper at the end of July. Ominously for the Law Society, the report stated it was increasingly clear the absence ?of full separation between the representative bodies and the legal regulators was proving to be ‘a strong impediment?to progress’. 

Some readers may be ?puzzled by this, assuming ?that the Solicitors Regulation Authority (SRA) and the Law Society are already separated. However, the two are not quite as distinct as they appear. The SRA is not a separate legal entity from the Law Society; in effect it is a trading name. 

Law Society influence

When the 2007 Act was being formulated, the Society decided against full separation and set up the SRA with separate governance but not independence. Even this separate governance is actually under the Society’s control as it has the power to appoint the SRA chair and board. When the first SRA board was thought to be a little too independent and ‘difficult’, the chair and board were replaced by appointees who were (initially at least) more sympathetic to the Society’s interests.

When the SRA was created, the Society sought other ways to safeguard its position of influence and be perceived as the ‘senior partner’ of the two. For instance, the chief executive of the Law Society has always received a significantly higher remuneration package than their SRA counterpart, despite the SRA’s having more staff and a bigger budget. 

Most importantly, the ?Society was able to persuade the government to continue with the notion of ‘permitted activities’. This is enshrined in the Legal Services Act itself and allows the Society to receive part of its funding via practising certificate fees, even though the activities in question are not regulatory in their nature. In this way, the Society does not have to generate all its income from commercial activities or membership fees. 

Without the ‘permitted activities’ money, the Society would be smaller and less influential. In 2015/16 the Law Society is looking to raise £105.8m from practising certificate fees. Of this, £54.1m goes to the SRA and £35.3m to the Law Society. In 2014, the Society made a £33m surplus; it also has cash reserves of £130m. Not all solicitors are comfortable with these figures.

Super-regulator

Michael Gove appears to ?think there are too many legal regulators, and he is joined in that view by Sir Michael Pitt, ?the LSB chairman. In front of ?the justice select committee, ?Mr Gove said: ‘I do think that there is a danger of regulators falling over each other’s feet.’ 

The most likely option for the regulation review is to create a new super-regulator for legal services, along the lines of the Financial Conduct Authority (FCA) in financial services. ?In numerical terms, solicitors constitute about 85 per cent of all lawyers, although the Bar has more political influence. Neither will want an FCA-style regulator, and nor will the Law Society. 

The outcomes of the review will almost certainly necessitate a new Legal Services Act, and the biggest problem for the Lord Chancellor may well be finding the parliamentary time and effort to enact the new legislation. There are many lawyers in parliament, particularly in the House of Lords, and Mr Gove may find that he runs into considerable opposition when he takes on the interests of solicitors ?and barristers. 

He has already shown in his political career that he is not easily swayed by such opposition, but government colleagues may question the effort necessary to enact legislation, which is hardly likely to be a major vote winner in the 2020 general election. The Law Society, in particular, will be hoping that this proves to be the case. SJ

Stuart Bushell is the managing director of SIFA @Sifa_Pro www.sifa.co.uk