The Solicitors Regulation Authority has called on the Government to hand it structural – and not just operational – independence from the Law Society.
In its response to the Ministry of Justice’s review of legal services regulation, the SRA said: “It is important to note that the statutory provisions regarding operational independence in the [Legal Services Act] LSA (s.30) are not, in themselves, particularly strong.
“The professional bodies remain the Approved Regulators and, from the SRA's direct experience, are still capable, within the statutory framework, of exercising, or attempting to exercise, a degree of influence over ‘independent’ regulators.”
The SRA highlighted its application to become a licensing authority for alternative business structures, which required the approval of the Law Society Council.
“This was obtained but the process consumed a very significant amount of time and energy and there was considerable pressure to adopt an approach to licensing which, in the view of the SRA Board, was unjustified on purely regulatory grounds,” it claimed.
The submission argued that the there were good reasons to believe – “both in terms of general regulatory experience and in terms of the specific position of legal services regulation” – that structural independence would yield greater benefits than operational independence.
“This is because overall regulatory costs will be lower under structural independence, as certain structures and activities needed to ensure operational independence can be avoided.”
The SRA said that for as long as the current arrangements existed, there would be an absolute requirement for the presence of the Legal Services Board in order to ensure that operational independence was maintained in each of the approved regulators.
“The SRA's experience has been that the delegation of operational independence from the Law Society has been given grudgingly and constant vigilance is required, backed up by the prospect of intervention by the LSB, in order to ensure that the SRA is able to operate independently as required by the LSA 2007,” it argued.
The SRA’s submission claimed that the current structures for operational independence required “complex and expensive governance arrangements that consume time and management attention and add delay into regulatory decisions”.
The regulator also questioned the costs incurred by representative bodies using the ‘permitted purpose’ provisions of the LSA 2007 as a cost to the regulated market.
“The entities regulated by the SRA since the introduction of ABS are evolving rapidly and we are now licensing many commercial entities (accountancy firms, insurance companies, major high street consumer brands) that would not consider themselves as solicitors firms and having little association with the Law Society and its activities undertaken on behalf of solicitors,” the SRA said.
“Nevertheless they are required, as a condition of practice, to pay fees to fund the Society's activities. In the SRA's view this compulsory levy is now, and will increasingly become, unsustainable: not just for new business models but for all of those regulated.”
The SRA said that “to illustrate the magnitude of the costs involved and burden on the sector arising from the current settlement”, in 2014 it would require £53.7m in practising fees from individuals and entities for regulation, “…in addition we will charge £31.8m (plus a further £10m for reserves) for the Law Society's permitted purposes – this is in addition to the fees that must be levied to fund the LSB, the Legal Ombudsman, and the Solicitors Disciplinary Tribunal.”
It added: “When there is a real pressure to reduce regulatory costs across all types of regulation, can compulsory levies of this magnitude continue to be justified (in addition to the other additional costs of operational rather than structural independence) when there might be a more effective alternative?”
The SRA said it was the case that little or nothing was added to the commitment [of the professions to good regulation] by placing the regulatory body within a body that saw its purpose, and was seen by many of its members, as overwhelmingly representative in nature.
“In addition there is, to put it at its lowest, scope for confusion in the eyes of the public and consumers as to the independence of the SRA given that it is legally and structurally a part of the Law Society.”
The submission insisted that it would be possible to put in place a regulatory entity that was both independent of government and independent of the profession. “In our view a model involving an independent appointments panel for an independent regulator, accountable to Parliament, could be developed.”
However, the SRA also claimed that should a structurally independent model be developed, the existing arrangements for the LSB would not be appropriate. “For example, the Chairman and members of the Board are directly appointed by the Lord Chancellor. A structurally independent frontline legal services regulator could not have such a close accountability to a member of the executive.”
The submission continued: “Therefore, the SRA's view that consideration should be given to the benefits and disbenefits of a structurally independent legal services regulator should not be read as advocating that the LSB as currently constituted assume that role.”
The SRA added that it believed that all options should be considered as to whether there should be a single frontline regulator or a number of regulators.
In other points in its submission, the authority said the current arrangements, implemented following the LSA, had resulted in some significant improvements in legal services regulation. Also, existing regulators had yet fully to modernise their regulatory approaches to maximize the benefits that might flow from the LSA.
However, the SRA argued that the current regulatory settlement and the legislation that underpinned it remained "clumsy, complex, costly and obscure to consumers, and thereby hamper[ed] the achievement of the regulatory objectives set out in that Act".
Significant flaws – in addition to the issue of regulation not being fully independent – were:
- Inflexibility and over-prescription: “in a rapidly evolving legal services market, too many requirements are specified to a significant level of detail in primary legislation hampering regulators' ability to meet the regulatory objectives and the principles of better regulation”;
- Complexity of primary legislation: “The SRA has to operate under three major pieces of primary legislation; the Solicitors Act 1974; the Administration of Justice Act 1985 and the LSA. The other approved regulators also work under a multiplicity of legislation”;
- Inadequate and irrational foundations for regulation: “The whole of legal services regulation is founded on the regulation of six ‘reserved’ activities which have accumulated in a piecemeal fashion and have never been the subject of an objective, evidence based, review”;
- The multiplicity of regulators: “Largely based around the historic regulation of titles (albeit in some cases with titles relating to distinct functions – for example licensed conveyancers) – which creates fragmentation of regulation across the legal services market and the need for rules to manage the boundaries of the various regulators. Not only are there eight approved regulators, there is also a layering of regulation with the LSB sitting above all of them. These features add to both complexity and cost.”
The SRA warned that the whole system of legal services regulation was provider-centric, and that the legal services market it was seeking to regulate now and in the future bore no resemblance to that on which the core current foundations were based.
It pointed out, amongst other things, that legal advice was increasingly being delivered by non-regulated individuals and non-legal proessionals.
It also warned that the rate and extent of change within the market would make the current system “more and more unsustainable”.
The Legal Services Consumer Panel has meanwhile concluded in its submission to the MoJ review that the existing regulatory framework did not provide a sustainable model in the long term to offer consumers the best system or support a competitive market place.
It suggested that, based on current evidence, a single independent regulator was its preferred model to replace the current arrangements.
The Panel added that consumers should also have guaranteed access to the Legal Ombudsman for resolving disputes about all legal services transactions.
Elisabeth Davies, chair of the Panel, said: “The current system isn’t delivering the outcomes consumers need, offering instead a confusing maze where consumers can find themselves at a dead end due to gaps in redress and regulation. The patchwork of regulators is an expensive duplication of effort that no-one can afford to persevere with.
“A single regulator, entirely independent of the profession, is most likely to give consumers confidence that regulation is protecting them, not lawyers.”