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Hannah Gannagé-Stewart

Deputy Editor, Solicitors Journal

Regulatory supervision at the crossroads

Regulatory supervision at the crossroads


Legal Services Board chair Dr Helen Phillips talks to Jean-Yves Gilg about improving regulation, the role of representative bodies, and the super-regulator's latest plans to enhance professional competence

The separation of regulatory and representative functions was a key recommendation of the Clementi report on the legal services market in 2004, along with the setting up of a new supervisory regulator, the Legal Services Board (LSB).

The initial compromise saw regulatory authorities being established as arm’s-length bodies within the representative organisations under a set of internal governance rules (IRGs).

Since then, no government-backed review of the new framework has taken place despite regular calls to do so, most recently in 2016 by both the Competition and Markets Authority, which found the system was “not working well” for consumers or businesses, and by the Legal Services Board.

True, there are more pressing issues on the current government’s table right now, but it’s also true that the liberalisation of legal services is not a major vote winner, and it has been left to the LSB, within the remit of its jurisdiction, to press for greater autonomy for regulatory bodies mostly on its own, making the best of the tools available.

Available levers

“We published our vision document in 2016 but then it became obvious that there was no appetite in government for any fundamental reform, so the answer was to make the best of the currently available levers”, says LSB chair Dr Helen Phillips.

“One of these is the internal governance rules.” Exploiting the IGRs’ potential, the LSB is set on pursuing its drive to ensure “effectiveness and appropriate independence”, “if not full, then at least appropriate separation”, Phillips says. New rules are expected to come into effect in the spring following a consultation, which closed on 21 January.

According to Phillips, the responses available at the time of writing reveal widespread support for change, with the only significant resistance coming from the Bar Council, which is taking “a more conservative view”. One possible explanation for the Council’s reluctance, she suggests, is that they have not undertaken their own reflection about what the profession stands for.

“It’s not for [the LSB] to be working out what the residual function of the representative body is, but we would be foolish not to have an interest in making sure that there is a strong vibrant profession.”

The new rules will mostly continue with the principles-based approach “giving the regulatory bodies the opportunity to think about how they would comply with the outcomes we were trying to achieve in their own way” but the LSB is also being more prescriptive in some areas, such as the requirement for regulatory bodies to have an independent chair and the ability to make their own appointments to their boards.

“You wouldn’t think this would be hugely contentious, but it can be”, Phillips remarks. “You don’t want not to be sensitive to what the profession thinks is important, but you wouldn’t want undue influence by the profession over that appointment.”

Redefining functions

Much of the initial criticism of the post-Clementi order was that it reduced legal services to commerce, ignoring the nature of the issues lawyers deal with, and introducing competition for the sake of it without taking account of the legal profession’s own concerns and with little consideration for public protection.

Phillips acknowledges there may have been a disconnect and that as long as frontline regulators such as the Law Society are responsible for discharging the duties of their arm’s-length regulatory body, they will still feel a degree of ownership and oversight of them.

“We can’t mandate or require legal separation and there’s something about having that sense of ownership and oversight”, Phillips says, “but that must be appropriate and it mustn’t be a duplicate”. So how would the power dynamics change between Chancery Lane and the Solicitors Regulation Authority?

One proposal is to change the rules allowing the representative body to mandate the regulatory body to take their services, such as payroll or buildings, from the representative body.

“It should be in the gift of the regulatory body to decide where they would be accessing those services from”, she says, “so they have more autonomy about setting up and using their budget, and the representative body will have less potential to inappropriately curtail that budget-setting process”.

Some fear that this could hold the representative function to ransom, which Phillips agrees is a risk. “We’re not preventing [those involved] from having a constructive relationship or finding good ways of working together, but yes, we are deliberately changing the dynamic”, she says.

And to those concerned that this could create confusion and lead to a rise in the practising certificate fee, Phillips suggests that the fee shouldn’t in any event be used to forever fund representative functions via the permitted purposes provisions.

Instead of holding on to the fact that regulation used to be part of its remit, she says, representative bodies should be asking themselves what their constituents want to pay for.

“There could be something really quite exciting there”, she points out with determined conviction. Regulator shopping Whether the representative bodies will follow her lead with the same enthusiasm is not altogether certain.

There are, however, serious concerns in relation to the regulatory playing field, especially for solicitors, for whom the regulation burden is particularly onerous compared with other parts of the market.

Phillips is of the view that shopping around, including for a regulator, is “a good thing, because it creates a market” but she says there has been very little regulator swapping.

Nevertheless, it seems the LSB has acknowledged the potential problem – to an extent at least – and it is rolling out a new performance assessment framework for all regulatory bodies.

“We were taking too much of an interventionist approach in how the regulators were carrying out their functions”, Phillips comments.

Instead, the new approach will focus on testing the competence and capacity within a frontline regulator to deliver its regulatory function, looking at its governance and at how well led it is. “If that is in good order, we can rely to a greater degree on those assurances”, she says.

In practice, this means looking at how appointments are made, whether board members are competent, whether they are fit and proper, whether the regulator’s approach to setting standards and to enforcement are appropriate, whether its approach to risk assessment is sound, and at the quality and integrity of the data feeding into the performance assessments.

“The regulatory performance assessment is all about whether those minimum standards are met so there would be an appropriate degree of consistency across all regulators with regards to those standards”, Phillips says. The LSB is also hoping that its drive to instil a sense of “continuous improvement” across the regulatory spectrum would help with raising standards. 

This encourages regulators to learn from each other and share good practice. It is also inviting regulators to look at those in other sectors are doing – an approach it is keen to develop in relation to professional competence (see New Directions section). It’s not clear whether this new approach will genuinely even out regulatory competition.

It’s a move in the right direction for solicitors worried they could be losing out to other regulated providers, including accountants, but it may not be enough overall to protect the solicitor brand.

Future of regulation

In the background is the question of unregulated providers, which the lack of government interest in reviewing the Clementi legacy and the LSB’s legislative constraints still leave out- side the reach of regulation.

Much as the LSB is in favour of regulating providers such as will writers, the issue, according to Phillips, is fundamentally tied up with the future of regulation. At the moment, she points out, legal professionals are regulated on the basis of whether they’re carrying out a reserved activity but regulated practitioners may then decide not to operate in these areas.

“The real issue is regulation by title”, she says. “The vast majority of advice being provided by solicitors has nothing to do with reserved activities, especially in the big firms.” The answer to this conundrum could be revealed in the review led by Professor Stephen Mayson for the Centre for Ethics and Law at University College London.

An update to its three working papers is expected next month (February 2019), with a final report due to be submitted to the Ministry of Justice in early 2020.

New directions

The LSB published the second business plan of its five-year strategic cycle on 5 December 2018. The plan focuses on three new policy objectives: professional competence, access to justice and public legal education, and technology.
Professional competence 
The law has occasionally been criticised as the last bastion where practitioners’ competence is not thoroughly tested in the course of their careers. Phillips recognises that there is significant CPD activity going on but also that there are varying levels of expectations. “It doesn’t work that way in other professions”, she says. “We need to go back to first principles: what do regulators do to ensure professionals remain competent throughout their careers?” Is this to say that the SRA’s switch from the old points-based CPD regime to continuing competence regime doesn’t go far enough? The answer isn’t as straightforward, according to Phillips. “We want to understand where the gap and risks currently are and we need to do that on the understanding that the practice is different from that of other professions.” Doctors, she comments, must revalidate using reflective practice and feedback from patients. 
“That gives room to pause for thought and improve reflective practice”, she says. “That may not be the solution [for solicitors] – or it may not be addressing the right problem – but the whole agenda has moved on so much in other professions that it may be time to think about going back to that first principles’ test of what does public interest demand?” The LSB’s sudden interest in continuing competence comes as client satisfaction with the service they receive from lawyers is at its highest, according to Phillips. However, she says: “Arguably consumers can only form a view on service quality. There may be a reasonable expectation that over-sight regulators may be doing something about technical quality that is more than what is currently going on.”
Public legal education 
Access to justice is one of the LSB’s oft-forgotten regulatory objectives. The super-regulator says it’s not its place to provide consumer tools such as comparison websites but Phillips says: “There is a place for us to take the lead on public legal educa-tion [PLE]”. In addition to being able to articulate a problem as a legal one, educated consumers would also be in a better position to assess what’s on offer – especially when comparing services online. For the LSB, this would also help regulate the market if more technologically astute providers are able to press a solution on consumers that could be “skewing the transparency on price and quality”, she says. “The most potent PLE,” she suggests, “is ‘just in time’ PLE and we want to think about how it really works”. The new transparency rules for law firms should help but “there is no point in greater transparency if people don’t know how to interpret it”, Phillips remarks. She puts forward a radical suggestion: what if lawyers played a part in educating the public? Busy practitioners will probably scoff at this point, but Phillips says if it can be put in a way that’s in their interest and helps route business towards law firms, then it could work.
The main three obstacles to law firms embracing technology, Phillips says, are risk about unproven solutions, lack of clarity over ethical issues, and lack of IT expertise. There could also be structural obstacles, she says, such as the partnership model, which possibly stalls long-term investment in IT. There are also a whole host of other issues Phillips says must be addressed: “If you’re using AI to generate advice, where does PII come in? What’s the responsibility of the partner signing the client letter?” But the LSB’s concerns are not about the lack of technological take-up in smaller firms as such. “What we don’t want to see happen is that it be-comes an advantage for those not in the regulated sector, while those in the regulated sector take a more conservative approach either through lack of knowhow or because of concerns about the risks”, Phillips says.
The closing date to respond to the LSB’s business plan consultation is 27 February 2019.