Which regulator would you prefer, madam?

On 5 January 2015,
the regulatory arm
of CILEx opened its doors to applications from
new and existing law firms
for authorisation as legal businesses.

This means that, for the first time in history, two important bridges have been crossed. First, chartered legal executives can set up their own law firms. Second, ILEX Professional Standards (IPS) is able to give firms of solicitors a straightforward choice as to who they want to be their regulator. So why does the LSB, which has approved these changes, think they are good ideas? And will it make any difference?

Historically, legal executives have mainly operated as employees of firms of solicitors. Since the Legal Services Act came into full effect in 2011,
a small number of legal executives have become directors, compliance officers for legal practice (COLPs) and compliance officers for finance and administration (COFAs) in their firms.

However, in late 2014, parliament gave its approval for the two major changes and cleared the way for legal executive law firms. Perhaps the most important element of the package agreed by parliament was that the legal executives could undertake all of the 'reserved legal activities' set out in the Act. The list of reserved activities is now exactly the same for solicitors and legal executives and, in the eyes of the Act, solicitors and legal executives are two equal, but different, types of lawyer.

Choice of regulator

IPS has not been slow to promote itself as a regulator for all lawyers, not just legal executives. The IPS chair Alan Kershaw, who is a former SRA Board member, said: "For many new and existing firms, this presents a great opportunity.
For the first time they have a choice of regulator". In mid-January, IPS announced that there had been strong interest from both types of firm in being overseen by the regulator. It indicated that it had received nearly 50 expressions of interest from businesses hoping to be run by CILEx members, as well as "several enquiries from existing legal firms" looking at switching to IPS from their existing regulator.

The obvious assumption is that the existing regulator is the SRA. IPS is keen to say that its regulatory regime is risk-based and does not involve lower standards than other regulators, while being 'attractive' to existing law firms. This clearly plays to the perception among many solicitors that the SRA is expensive and unnecessarily complex. I have listened to solicitors say for several years that if they had a real choice, they would choose the non-SRA candidate. Until now, no other regulator could 'compete' with the SRA on equal terms because they did not have permission
to regulate across the same reserved activities as the SRA.
It would be surprising if there were not a number of 'defections'.

It is difficult to know how many legal executives will strike out on their own now that the opportunity is here. It can be argued that the timing is not auspicious, with over 1,000 fewer firms of solicitors now than there were in 2012. Many solicitors also appear relatively complacent about the threat
to their business. The line
of thought that, given the increasing difficulty in running
a viable 'general practitioner-type' high street practice, legal executives will find things
even tougher than solicitors.

Industry competition

Some readers may also be puzzled as to why the Ministry
of Justice (MoJ) and LSB like
the idea of competition between regulators. The former LSB chair David Edmunds said the LSB would not approve new regulatory powers just for the sake of competition, but would do so if it thought that new or re-tooled regulators brought something extra and different to regulation. In the parliamentary debate on the CILEx changes, speakers mentioned better services for small businesses,
the move being "good for clients" and giving a wider choice.

The most important reason, however, may well be the diversity that chartered legal executives bring to the legal profession. This was praised by peers, with 74 per cent of CILEx members being women and
16 per cent being from black
and minority ethnic backgrounds.
The legal executives therefore have a good deal of cross-party support from the MoJ and the LSB. While IPS might not take
over the lead for lawyers in the regulation, it may find that its sphere of influence gradually increases in the changing post-Legal Services Act world. SJ

Stuart Bushell is managing director of SIFA