Beyond the Legal Services Act

At his appearance before the Justice Select Committee on 15 July, the Lord Chancellor indicated that there would be a review of the Legal Services Act 2007 during this Parliament.  It is therefore perhaps timely that, as part of the follow-up to the Ministerial summit called by his predecessor a year earlier, the regulators had already been working together on a number of issues that could improve the lot of both regulator and regulated, and contribute to any such review.

For present purposes, the most relevant of the work done is the exploration of legislative options for reforming the Act.  The Legal Services Board has now published the paper that results from cross-regulator discussions held between January and May, and which it was my privilege to chair.  The paper has already been shared with Ministers, and is intended to frame and inform further debate about reform of the Act.  

It is important to stress that the paper does not set out the sum of the views of the regulators or, indeed, the views of any individual regulator.  Rather, it considers a number of fundamental issues that have been collectively identified and discussed, and which would need to be addressed in any replacement or significant amendment of the Act.  The options explored are therefore not so much a Framework A or Framework B approach, with a recommendation or preference (in the way that Sir David Clementi presented his report in 2004), but instead identify approaches that might be available in addressing and resolving the fundamental issues that would arise in revising the current regulatory settlement.

The paper begins by summarising the current framework for legal services regulation (and a separate paper submitted to Ministers has set out what has already been achieved within the terms and framework of the Act).  It then articulates a case for change: this is deliberately pitched in relation to the shortcomings of the Act as legislative output instead of trying to make a broader political case founded on, say, economic growth or the reduction of regulatory burden and cost – although these might well follow from addressing the limitations of the Act itself.

The case for change therefore cites:

  • the fixed list of reserved legal activities as an unnecessarily outdated and limiting foundation for regulation;
  • the consequential regulation of all legal activities carried on, including non-reserved activities, once an individual or entity is authorised for one or more of the reserved activities;
  • the ‘regulatory gap’ which allows those who are not authorised for a reserved activity to carry on non-reserved activities beyond the scope of sector-specific regulation, with no protection or redress available to consumers beyond the general law; and
  • the preservation of the historic link between professional bodies and regulators, which can undermine consumers’ perceptions of independence between regulator and regulated (as well as being increasingly challenging as multidisciplinary practices are created).

The paper also presents the case for maintaining sector-specific regulation, rather than leaving legal services to be covered only by general consumer and competition protection.  It is a key part of this case that there are compelling public interest justifications for some regulation, not least the public good of supporting the rule of law, the administration of justice, and the role of English law and lawyers in ‘UK plc’, as well as the need to offer specific consumer protections – especially where there is the potential for irreversible loss, misuse of clients’ funds, or abuse of a privileged relationship.

The paper then explores the scope of regulation (from all legal services, along the lines of the US notion of the unauthorised practice of law, to little or no regulation), the focus of regulation (activity or provider, including individuals, titles, or entities), and forms of regulatory intervention (one or more of before-the-event, during-the-event, or after-the-event).

The final section of the paper looks at regulatory infrastructure (including independence of regulation from both government and representative bodies), consumer representation, and how one or more legal services regulators could be structured (including regulation by professional groups, or by activities, with or without independence from representative bodies, and with or without an oversight regulator).

This preliminary work in ‘mapping’ as neutrally as possible the choices and options that arise in the design or redesign of a regulatory settlement for legal services therefore covers a lot of ground, and I think offers much food for thought.  It highlights the breadth and depth of thinking that is needed to reach an appropriate, proportionate and cost-effective approach to regulation.

Clearly, any decision on whether or not to reform the legislative framework and, if so, to what extent, lies entirely with the Ministry of Justice.  Nevertheless, I believe that this paper should help to frame future debate and perhaps explain why some decisions are not as straightforward as they might otherwise appear.

I have said on many occasions in recent years that the Legal Services Act will not be sufficiently fit for purpose much beyond 2020 – as it happens, the duration of this Parliament.  I therefore welcome the prospect that it could be seriously reviewed within that timeframe.  With that in mind, let me end this post by echoing the words of the Chairman of the Legal Services Board, Sir Michael Pitt, in today’s announcement:

Whilst there may not be a ‘burning platform’ for emergency action, there is a compelling case to introduce a new regulatory settlement for the medium-term.

Regulation has the potential to make a very real contribution to unlocking growth, increasing productivity and addressing the significant unmet need for legal services.  To do so, the regulatory framework must be more efficient and effective in seeking to promote strong and fair competition.  It has to be capable of responding to rapidly changing conditions in the market whilst also maintaining necessary protections for consumers and the public interest.

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