LSB lays out blueprint for radical reform of regulation

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Pitt: need to tackle the tensions in the current framework

The Legal Services Board (LSB) has today outlined its blueprint for radical reform of legal regulation, including regulation by activity rather than professional title, and a single regulator for the entire profession.

It said that together the changes it proposed would contribute to lower costs for both providers and consumers – regulation currently costs the profession around £70m – give more freedom for providers to “grow, innovate and deliver better services”, and generate greater confidence in regulation and legal services more broadly.

The oversight regulator said its plan was intended to be a “durable solution rather than a further stepping stone to liberalisation”. It is not known, however, whether the new ministerial team at the Ministry of Justice has any appetite for major reform of this nature.

Answering questions from the justice select committee last week, Lord Chancellor Liz Truss did not commit either way when asked if she would take forward the review of the Legal Services Act 2007 that had been promised by her predecessor, Michael Gove.

Building on a paper it published in July 2015 that looked at options for reform of the Act, the LSB proposed scrapping the eight regulatory objectives, which are in no order of priority, with an overarching regulatory objective “to safeguard the public interest by protecting consumers and ensuring legal services deliver outcomes in the interest of society as a whole”.

It said there could be a small number of secondary objectives, such as promoting competition, preserving and enhancing the overall economic and public value of the sector to the country, promoting and maintaining adherence to the professional principles, and empowering consumers by enabling informed choice of legal services provider.

However, the current objective to encourage an “independent, strong, diverse and effective legal profession” was problematic for several reasons, it said, not least that the profession’s concerns did not always coincide with the needs of the public interest or consumer protection.

The LSB said regulation should be targeted at the particular risks to the public interest, meaning that the current list of six reserved legal activities needed to be revisited.

“We consider that an independent and evidence-based review should be carried out to determine from first principles which activities should attract sector-specific regulation in future,” it said. “For other activities, it would be sufficient to rely on private and public enforcement of general consumer law, and alternatives to regulation such as voluntary schemes.”

The LSB recommended that this review should take place as soon as possible given the time it was likely to take, with the aim of having properly targeted regulation that was proportionate to the harm it sought to remedy.

The paper gave examples, identifying legal advice to asylum seekers as one area that could be seen as a high overall risk, given the importance of the issues, the likely vulnerability of the consumer, the “knowledge imbalance” between consumer and provider, and that consumers have no choice about using legal services to resolve these sorts of problem.

Legal advice on problems arising from the sale of consumer goods could be low risk. “Activities in this area seem less likely to carry the risk of significant or irreversible loss for consumers or to engage wider public interest considerations.”

Family law, meanwhile, could fall in the middle. “Activities can vary from providing advice in uncontested divorces through to litigation involving vulnerable parties (eg victims of domestic violence) and children, in which significant consumer protection and public interest considerations are engaged. This means that different levels of regulation might therefore apply to different elements of family law.”

The focus of regulation, the LSB continued, should be based on activity, not on professional title. It used the word broadly, so it could refer to the area of law, the legal activity/skill (eg advocacy), or the “importance or consequences of activities given the type of consumer” (eg individual, SME or corporate), or any combination thereof.

The level of regulation would depend on how risky the activity was – requirements could be before the event (eg, individual or entity authorisation), during the event (eg, CPD) and/or after the event (eg, access to a redress scheme).

This would mainly be focused on the entity except where the nature of the risk made individual authorisation essential.

But the LSB recognised that this shift would take time: “The strong brand power of some protected titles (eg solicitor and barrister) means that transitional arrangements will be required during a further shift to activity-based regulation.

“Award of professional title should therefore continue to be the responsibility of the relevant regulator for the time being, where this is currently the case.”

It said that handing control of the award of titles to representative bodies at present – as the Law Society has been lobbying for – “could result in gold-plating of entry standards, less competition and choice for consumers, and might even provide opportunity for de facto rolling-back of liberalising reforms in the market”.

The LSB went on to reiterate its support for regulation being entirely independent of representative bodies, saying that it should be accountable through Parliament, such as the justice select committee, and subject to scrutiny by the National Audit Office. It also said there needed to be an independent consumer voice through the regulatory framework.

The final piece of the jigsaw was the shape of the regulatory infrastructure. While changing this should not be the sole or main aim of reform, the LSB said, the regulatory approach it was suggesting was best suited to a single regulator covering the whole sector.

It said this would reduce the duplication and fragmentation of the current system, increase transparency and clarity for consumers and providers, increase accountability by simplifying governance arrangements, enhance consistency of regulation, and ensure there was a more coherent over-arching framework, avoiding “a situation where resources are spent on issues of low overall consumer or public impact simply because a dedicated regulator exists for that part of the market”.

LSB chairman Sir Michael Pitt said: “There is a need to tackle the tensions inherent in the existing framework. A new legal framework will help secure the important public interest outcomes that the legal sector delivers, such as maintaining the rule of law and ensuring access to justice.

“It will also strengthen the contribution the legal sector makes to the reputation of the UK as a great place to do business.”