LSB: No enforcement action for now
The Chartered Institute of Legal Executives (CILEX) has the power, in principle, to change its regulator to the Solicitors Regulation Authority (SRA), the Legal Services Board has decided.
The oversight regulator has also decided not to take enforcement action against either CILEX or its current regulator, CILEx Regulation Ltd (CRL), after the row that broke out publicly last summer over the possible move.
Each referred disputes with the other to the LSB under its internal governance rules (IGR).
These govern the relationship between the likes of CILEX, the Law Society and Bar Council – all named in the Legal Services Act 2007 as the approved regulators of their parts of the profession – and the regulatory bodies to which they delegate that responsibility. Their aim is to ensure the regulators maintain their independence.
After a six-month investigation, the LSB’s report said that, on the “core question of delegation”, an approved regulator like CILEX “retains the power, in principle, to revoke its delegation to a regulatory body and redelegate its regulatory functions elsewhere”.
It found that CILEX’s reasons for reviewing delegation were not influenced by its representative functions, as CRL had argued.
Further, CILEX had not “closed its mind” on the issue nor was its decision to continue communication with the SRA “either improper in its own right or evidence of bad faith”.
“An approved regulator, reviewing delegation arrangements, is entitled to gather information in order to take an informed decision having explored all possible options.”
The LSB said it accepted that CRL’s position – that regulatory functions are divested in perpetuity and that only a regulatory body may lawfully change the scheme of delegation – was “arguable, but not correct”.
This was in part because there was no authoritative case law and the LSB revealed that it had last year suggested bringing part 8 proceedings to seek a High Court ruling.
The report went on to criticise the conduct of both organisations as being in breach of the IGR.
The LSB said CILEX did not inform CRL “promptly” of its intention to explore redesignation, nor did it “adequately” consider how it could impact CRL while this happened.
Further, by requiring CRL’s senior leadership to sign a confidentiality agreement before discussing the proposals, “CILEX greatly constrained CRL’s ability to take steps itself to mitigate that impact”.
The LSB continued: “By way of example, the confidentiality agreement made it impossible for CRL to prepare the ground and communicate with its own staff (at least without seeking additional permission to do so). In practical terms, it made it difficult for CRL to work with CILEX.”
On a matter of “such sensitivity”, it was “important to create an atmosphere of trust from the outset”. However, the agreement made “such an atmosphere difficult, if not impossible to achieve”.
At the same time, the LSB acknowledged that there was no “road map” for how an approved regulator should conduct itself in such a situation, while it was also “not satisfied” that CRL was actually “materially undermined in the exercise of its regulatory functions”.
Equally, CRL failed to take “reasonable steps to co-operate with CILEX” on several occasions, while its correspondence was “unnecessarily confrontational” at times, including misleading public statements.
“The LSB considers that CRL has not approached its dialogue, communications and relationship with CILEX in a manner that was liable to protect and promote the interests of consumers and the public interest.”
The standard of a proposed consultation by CRL, which was not published after CILEX complained to the LSB, fell below those of an effective regulator and its handling was “likely to further damage relations between the parties”.
But the LSB said the “existential” threat of redelegation was an important and mitigating factor in CRL’s conduct.
On financial matters, the LSB agreed with CRL that CILEX could not put preconditions on the transfer of contingency reserves but rejected a request from CRL for a full review of CILEX’s management accounts.
Taking “all the relevant matters into consideration, in the round” the LSB said “the appropriate course – at this point – is to resolve these issues informally”.
CILEX and CRL had “agreed undertakings to act in accordance with the recommendations of this report” and were developing an action plan.
“The LSB will put in place measures to monitor CILEX and CRL’s compliance with the undertakings, and it will from time to time publish progress updates.”
The undertakings include an eight-week pause in CILEX’s talks with the SRA so that CRL can “consult on and develop options for changes to CRL’s regulatory arrangements”.
The LSB added in a statement: “CILEX and CRL have agreed voluntary undertakings to fulfil the recommendations in the report. At this time, therefore, the LSB does not consider it necessary or proportionate to take formal enforcement action against CILEX or CRL.”
In a joint statement, CILEX and CRL welcome the conclusion of the investigation.
“Both organisations have committed to work collaboratively to progress the LSB’s recommendations through agreed undertakings. In the meantime, we want to reassure the regulated community and the wider public that regulation through CRL continues as usual.”
Talks between the SRA and CILEX are continuing.
Leave a Comment