Regulation: be careful what you wish for

The American economist JK Galbraith once said: "Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable."

Solicitors may feel that this applies directly to the power struggle that exists in the field of legal regulation. The Legal Services Board (LSB), in two recent announcements, has raised the stakes in its relationships with the legal regulators and representative bodies.

First, the LSB said that the frontline legal regulators will be compelled to have lay chairs, despite opposition from virtually all the major players. The Board said that lay chairs "will contribute to better regulatory outcomes. It will enable faster progress towards the development of modern risk and outcomes-based regulation that is likely to deliver the regulatory objectives and principles of risk-based regulation".

Second, it proposed to take away the Law Society's responsibility for appointing the chair and board of the Solicitors Regulation Authority (SRA), undermining significantly the Society's influence. The LSB's rules on the subject require that the appointments process be "demonstrably free of undue influence from persons from representative functions".

So, how did we get here and why is it so important for the Law Society?

Approved regulator

When negotiating the terms of the Legal Services Act with government, the Law Society was careful to ensure that it, and not the SRA, was named as the approved regulator.

The SRA continues to be separate from the Law Society in governance terms only and the Society managed to retain the power to appoint its chair and board. In 2009, this proved to be important for the Society when it faced discontent from the City firms about how the SRA was developing as a regulator. The first SRA chair, Peter Williamson, stood down at the end of 2009 and was replaced by Charles Plant, who has a City litigation background.

The make-up of the board also changed and was perceived by many as being more "City-friendly". The LSB said nothing publicly at the time, but privately appears to have been concerned at the Law Society's ability to determine who presides over the SRA.

Charles Plant finishes his term as chair at the end of 2014 and the LSB seems keen to ensure that the SRA itself, not the Law Society, will control the appointments' process in future. This is already the case with the Bar Standards Board.

The proposal for lay chairs may prove to be just as controversial. The majority of responses to the LSB's consultation on the subject were against change.

Opponents, including the Law Society and Bar Standards Board, pointed out that the regulatory boards were already required to have lay majorities and that the proposal would limit the available pool of talent for appointments.

The SRA wrote critically to the LSB and appears to be, at best, ambivalent about the need for a lay chair. Many barristers and solicitors are strongly opposed to the move, with one barristers' group alleging that the LSB may be going too far, and threatening judicial review.

Radical change

The LSB is concerned here with its mission to radically change the way in which legal services are being delivered. It has always been worried that lawyers lack the will to make the necessary changes for themselves and appears to see lay chairs as more open to the "freeing up" of those means of delivery.

For the Law Society, the effect could be very significant indeed. In order to maintain its influence in legal politics, the Society needs to control the SRA as much as possible. If it can't have a big say in the appointment of the SRA board and is compelled to work with an unfamiliar lay chair, that influence potentially seeps away.

It may well lead to a scenario where the SRA is a separate legal entity, mainly under LSB control, and becomes the approved regulator under a revised Legal Services Act. Such a possibility might have a 'liberating' effect on the Society, which could then become the sort of campaigning representative body many solicitors want.

In terms of its relationship with the SRA, though, complaining about the size of the SRA budget each year may be a poor substitute for its current position.

Solicitors may need to be careful what they wish for.