Legal Services Board makes the case for regulatory independence

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Vara: lost legal services brief

The lack of independence between the legal regulators and representative bodies risks undermining the credibility of regulation and allows the likes of the Law Society and Bar Council to delay reforms that would benefit competition, the Legal Services Board (LSB) said yesterday.

In its thematic report on regulatory standards, reported separately on this site, the LSB said it welcomed the government’s plan to consult on making the regulators independent from their representative arms.

This affects the Law Society, Bar Council, Chartered Institute of Legal Executives, Chartered Institute of Patent Attorneys, Institute of Trade Mark Attorneys and Association of Costs Lawyers. It is not yet clear whether the Institute of Chartered Accountants in England and Wales will be caught.

The move was announced in the Autumn Statement last November, but not repeated in this year’s Budget, unlike the other reform unveiled at the same time – changing the rules on licensing alternative business structures to make it easier for new providers to enter the legal market.

Nonetheless, a consultation is still expected after the pre-referendum ‘purdah’ period – which restricts government announcements in the run-up to the vote – expires on 24 June.

The LSB said the lack of independence was “fostering complex governance arrangements to manage relationships between regulatory and representative functions which do not achieve full independence of regulation and which distract senior management attention on both sides from regulatory and representative matters respectively”.

Further, the LSB said, it risked undermining the credibility of regulation, “in that the public is likely to perceive that the profession is policing itself (and therefore inferentially to be ‘protecting their own’)”.

Other concerns were that the lack of independence:

• “Creates scope for professional bodies to delay reforms which would benefit competition and consumers, generating regulatory uncertainty and deterring investment”;
• Hampers the transparency of the cost of regulation, “as a result of some of the regulators sharing resources and costs with their representative arms and income from the practising certificate fees being used for non-regulatory permitted purposes”; and
• Risks confusing other parts of government as to which body is responsible for wider regulatory functions.

It has emerged that the legal services brief in the Ministry of Justice (MoJ) has passed from one-time solicitor Shailesh Vara to Lord Faulks QC, who also has the civil justice brief. There has been no explanation for the change and no indication of whether it signals any change in policy.

Meanwhile, the question of independence was also raised last month in the Treasury’s plans to shake up the anti-money laundering regime. It recorded that the National Risk Assessment published last year found a risk that conflicts of interest could compromise professional body supervision of anti-money laundering and counter financing of terrorism, “as these bodies represent and are funded by the firms they supervise”.

While the evidence did not indicate that this potential conflict of interest was undermining supervision, “the perception of risk remains very real”, the Treasury said.

“Furthermore, it may make it easier for law enforcement to share information with supervisors if the supervisory arm is distinct from the representative arm and is established with appropriate safeguards and firewalls to give confidence that sensitive information would be protected.”

The consultation asks whether the government should mandate the separation of representative and AML/CFT supervisory roles, or whether further safeguards need to be put in place.