SRA hits out at LSB approach to regulation and ABS licensing

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Townsend: important that this issue is squarely on the table publicly

The Legal Services Board (LSB) has overstepped its bounds, distorted the Legal Services Act’s regulatory balance, aligned itself too closely with the government, and intervened in matters beyond its competence, the Solicitors Regulation Authority (SRA) has charged.

The pair are also at odds over how to speed up alternative business structure (ABS) licensing, it has emerged.

Rejecting the LSB’s approach to regulation in its response to the board’s draft business plan, the SRA accused it of taking “too interventionist and directive [an] approach which, in our view, is inconsistent with the role of the LSB envisaged by the legislation, as an oversight regulator.”

In by far its most outspoken attack on the board, the SRA said the LSB showed a “propensity for interventionism and micro-management” that presented risks to the public interest.

The SRA underlined as of “significant concern”, the “tendency… for the LSB to seek to intervene in the front-line regulators’ exercise of their discretion, thus risking undermining the regulators’ proper independence, skewing regulatory activity away from the highest risks, and leading to unhelpful and wasteful duplications of function”.

Elaborating, it said the LSB was “ill placed, in terms of capacity and capability” to intervene in the work of frontline regulators “as it has sought, and continues to seek, to do”. The board was “too far removed from the information and day to day knowledge available to the frontline regulators to second guess their decisions on relative priorities to mitigate regulatory risk”.

Referencing the recent failure of regulation in the financial services sector, the SRA warned that in that case political pressure to adopt a ‘light touch’ had been brought to bear. It was “critical” that the SRA ensured the same mistakes were not made in legal services.

It continued: “There is a risk that the LSB could be perceived as aligning its own, economic liberalisation agenda too closely with the political objectives of the government of the day. Whether or not it does is a matter for the LSB, and we take no view. However, it is critical that the approved regulators are able to resist any such influence by ensuring that the LSB holds them to account against the statutory objectives but no more.”

The criticisms echo those made by the likes of the Bar Council (most recently earlier this week), the Bar Standards Board and the Law Society in the past year.

Speaking to Legal Futures, SRA chief executive Antony Townsend said: “This is a regulated sector and it’s very clear if you look back at the parliamentary debates on the Legal Services Act that what was not envisaged was a kind of free for all. It’s a managed liberalisation.”

He admitted the language of the authority’s response was “quite stark” but said it was “because we think it’s very important that this issue is squarely on the table publicly”. However, he insisted that it was not a “declaration of war” and that “we are nonetheless absolutely committed to working with the LSB and the other regulators to get this right”.

Addressing recent suggestions by LSB chief executive Chris Kenny that approvals of ABS should be speeded up now that fears about the applicants had subsided, Mr Townsend said he agreed the process had been too bureaucratic and slow.

But he added: “The LSB’s position has seemed to us to be ‘let them all through and then deal with problems as they arise’, whereas we say the Act makes it very plain that… [we have to ensure] that those coming into the system don’t pose an unacceptable risk – and that’s more than just taking names and addresses.”

In a letter to Mr Kenny accompanying the response, Mr Townsend said that “significant revisions to both the draft plan and the LSB’s approach” are required. But despite its concerns, “the SRA remains committed to a productive working relationship with the LSB to deliver the regulatory objectives, to which we have a shared commitment”.