Better Regulation

Baroness Deech Excerpts

Thursday 7th December 2017 Lords Chamber

[Baroness Deech (CB)]

My Lords, I declare an interest as a regulator of long standing—a “quango queen”, if you like—having been involved with the Human Fertilisation and Embryology Authority, the BBC, the Office of the Independent Adjudicator for Higher Education and, most recently, as chair of the Bar Standards Board. I found them all worth while, because I had some familiarity with, respect for and interest in the organisations involved. The current belief is that only a lay person can be trusted to regulate a profession. I am not convinced; I have found that understanding and communicating with the profession are more important and that a professional person, such as a doctor or lawyer, is likely to be far more unforgiving and demand higher standards of their fellow professionals than a lay person, for they know how much is at stake for the reputation of their profession.

My conclusion is that the structure of governance, much discussed in relation to the BBC, for example, is less important than the quality of the persons set to regulate. Once you have too many strangers to the profession on the board, they take refuge in that meaningless jargon that gives the impression that they are doing something—drill down, low-hanging fruit, going forward, heads-up, pathway, challenging; noble Lords get the drift.

My other conclusion is that regulatory bodies, more specifically bodies that regulate regulatory bodies, have run wild. It is true that the Public Bodies Act 2011 set in train a movement to abolish some bodies and merge others, with some success, and that leaving the EU will save us £471 million in annual budgetary contributions to 21 EU agencies that will be completely redundant for UK purposes, according to a recent report by Fieldfisher. But the Government seem intent to row back on some of the good work by continuing to establish more bodies. We read a great deal about the failures of the relevant regulatory bodies in uncovering failing schools and hospitals; the most notable failure in recent years was the Financial Services Authority in relation to the financial crash of 2008. It is now reborn as two separate bodies, and there is a lesson to be learned there from the shortcomings of one overarching body, possibly too distant from the institutions it was to oversee.

My remarks will relate mostly to regulation of the legal profession, but one may generalise from that. In relation to the structure of regulation under the Legal Services Act 2007, there are too many bodies jostling to be master. The Legal Services Consumer Panel is now in competition with the Competition and Markets Authority, both investigating the market for legal services—although, as someone once said, why should there be only one competition authority? Not only that, but we are to have a new body, the Office for Professional Body Anti-Money Laundering Supervision, to oversee the adequacy of the anti-money laundering supervisory arrangements of the 22 professional body anti-money laundering supervisors listed in Schedule 1 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Costs will be covered by the many accountancy and legal bodies affected, adding, in the end, to the costs that have to be met by the client, in addition to the already considerable costs run up and passed on by more immediate legal regulation. Even so, the legal groups involved deny that there is any evidence pointing to legal-sector involvement in money laundering, and that this new exercise is therefore unnecessary.

Muscling into the field as well are the Regulatory Policy Committee, the Cabinet Reducing Regulation Sub-Committee, the Better Regulation Executive and the Regulatory Futures Review. This pointed out that the annual spend of the 45 regulatory bodies reviewed was £2.54 billion, of which half is grant funded. It could have looked at over 90 bodies, with a total expenditure of £4 billion, ranging from civil aviation to the Human Tissue Authority. Many were set up in response to disastrous events, such as sports-ground accidents. The review and the executive call for regulated self-assurance—as I said, trust the professionals to police themselves; the chairs of the front-line regulators should not be ruled out because they have legal qualifications. We need fewer business regulations and to reduce the costs, as they called for. The Legal Services Board, established under the 2007 Act, certainly goes far beyond that. It over-enforces and places burdens on lawyers which are passed on to their clients.

The Legal Services Board grew from an OFT report in 2000 about market competition and the Clementi report of 2004 on the regulatory framework of the legal services, which was regarded as self-serving and overcomplex. By the time the 2007 Act came into force, it was all already out of date because of the financial crash. The Clementi report highlighted consumerism, but recent events have taught us that the protection of innocent victims, the public interest and the highest ethical standards on the part of lawyers and bankers are more important than free market competition. Now we have legal services regulation—which is overregulation, duplication, interfering and sometimes without regard to the good practices of the professions—under the umbrella of the Legal Services Board.

Now that we are leaving the EU the legal profession is standing up to promote its past and future strengths and successes, with London as the choice of venue for litigation. That Brexit strategy needs a profession whose standards and integrity are beyond doubt and which is not seen as dominated by government. Yet, ever since the Legal Services Act, the perspective from the rest of Europe and North America has been that the legal profession suffers from government interference. I was shocked at a European conference when a delegate from an eastern European country only newly liberated from communism said to me that it was shameful that the British legal profession had come under government domination. There should be accountability only to Parliament, not to the Government, on the part of the Legal Services Board, and no government hand in appointments to the board.

The Legal Services Board presides over eight professional regulators with very different functions and characters. They apply to them the eight regulatory objectives in Section l of the Legal Services Act, which have no hierarchy. The Act is badly crafted, for there is no clear focus, and mission creep was bound to happen; one objective can be played off against another. Professional standards, although listed, seem to come low down. The fact that the Legal Services Board entertained the notion of abolishing the cab-rank rule and allowing referral fees went completely against the hallmark of the independent profession of the Bar, whose ethos underpins the rule of the law and citizens’ rights. Outcomes-focused regulation, as pushed, scarcely hits the mark. In its first programme of work in 2010, the Legal Services Board promised that, by 2013, legal services regulators in the UK would be seen as world leaders—the opposite, sadly, is true, as I have shown.

Reform is urgently needed, even though the Ministry of Justice reviews have shied away from legislative change. Indeed, at one stage, the Legal Services Board itself stated that its goal was to make its own existence unnecessary. But rare is the quango that self-destructs. The legal regulators’ own working party recommended one single regulator for the entire legal profession, which would make an oversight regulator redundant. It recommended the complete separation of the representative bodies and the regulatory arms because the professions cannot be seen to police themselves. This is a good principle. The Advertising Standards Authority is sadly an exception, in that it is a self-regulating body funded by the advertisers. Will the Minister start reform of this body?

The unregulated sector in law has a problem. There is an unregulated sector versus a reserved activities focus and it is both confusing and possibly harmful for the public. At the same time, it may pose overly onerous regulation on those who in fact need it least. There is no logic to which legal activities are regulated and which are not. I hope that the Minister will tell us that this needs review, too.

The Ipsos MORI veracity index shows a steady climb in the number who trust lawyers—up to 54%—while politicians remain steadily at the bottom. When I was a regulator, I said that I was more regulated against than regulating. This has to stop, and legal regulation is more than ripe for total overhaul.