Legal Profession: Regulation

Lord Gold Excerpts

Monday 3rd December 2012 Lords Chamber

[Lord Gold]

My Lords, I start by thanking the noble Baroness, Lady Deech, for bringing this debate forward this evening. Perhaps like the noble Lord, Lord Phillips, I was somewhat sceptical of the Legal Services Act and what was intended by it, but I was not here then. Maybe I would have joined in voting against it. But we are where we are, and we must have a properly regulated legal profession that ensures that all providers of legal services meet high standards of competence and behaviour. This is even more important now as the first alternative business structures start providing legal services. I share the concerns of the noble Lord, Lord Phillips, about where that takes us, but we will see.

The present system reflects the proposals in Sir David Clementi’s 2004 report, as we have heard from earlier speakers, for which there was general parliamentary support on all Benches as well as support from both the Law Society and the Bar. High on Clementi’s recommendations was the separation of representative and regulatory functions.

The Legal Services Board was created to provide oversight of a variety of different regulators to ensure that the right regulatory objectives are achieved and to secure some independence from the Government. The current regulatory framework has been in place only since 1 January 2010, when the Legal Services Board took on the majority of its powers under the Legal Services Act. In a review published in July this year, the Ministry of Justice was supportive. It concluded that the LSB should continue to deliver its functions in its present form. Recommendations for some improvement to its corporate governance were made but, by and large, it was to carry on operating as before.

Despite the endorsement from the Ministry of Justice, there has been some criticism of the LSB. We heard some this evening. The noble Baroness, Lady Deech, identifies criticisms made by the Bar Standards Board, notably that there is overregulation and duplication, leading, among other things, to unnecessary cost which inevitably is being picked up by the consumer. While generally supportive, the Law Society, representing 120,000 solicitors in the UK, is also critical. It believes that the LSB has not got the balance right and that the objective to promote competition in the provision of services is given greater emphasis than improving access to justice, encouraging an independent, strong, diverse and effective legal profession and promoting and maintaining adherence to the professional principles.

The regulatory arm of the Law Society, the Solicitors Regulation Authority is a bit more supportive, but also believes that the balance is not quite right at the moment. The SRA approves of the LSB’s emphasis on putting the consumer and public interest at the heart of regulation and its role in the appropriate co-ordination of standard setting across the various front-line regulators. The SRA also considers that the Legal Services Board has made significant progress in achieving its objectives, including making the market more diverse, as seen in the licensing of ABSs, and developing a regulatory regime that is both independent and transparent. However, the SRA believes that the LSB now needs to work closely with regulators to develop a common understanding of its role. It considers that the LSB must focus on properly developing its oversight role and, in doing so, reduce its approval, enforcement and investigatory functions. However, the SRB acknowledges that there have been improvements.

The main thrust of the complaint against the LSB is whether it is truly performing the role of oversight regulator, which was what was intended, or whether, in the words of the Bar Council, there has been “mission creep”, with the LSB now duplicating and overlapping the work of the front-line regulator, micro-managing the activities of those regulators it is meant to oversee. Front-line regulators, such as the SRA, are much more in touch with the profession, so why should we defer to something much more remote, where I do not believe that there are any legal practitioners involved? Critics claim that this duplication and the LSB’s micro-management have greatly increased the cost burden. It seems, from other speeches this evening, that that is indeed supported. Although it might be said that the fact that there is some tension between the LSB and the regulators over which it has oversight, or at least some of them, is not a bad thing—it might keep both sides on their toes—the extent of the serious criticisms that are being made suggests to me that we really need to look again at the balance.

I have spent the past two years immersed in the world of corporate governance. This has demonstrated to me that finding the right balance is key. While businesses must adopt a proper governance regime, it is essential that governance does not take over and damage the very business that the organisation is promoting. So those responsible for regulation must be practical and sensible in their outlook. Regulation for regulation’s sake cannot be right. Any regulation that is put in place must be appropriate and proportionate to achieve the required result. Its purpose must be understood and supported by those being regulated.

I am also sure that, if at all possible, finding the right balance should be achieved through greater dialogue and perhaps compromise between the relevant parties. Those concerned may need to demonstrate that they understand the issues raised by the other parties and are willing to be flexible. In the perfect world, by working in partnership and accepting that each side may be making valid points, the LSB and the regulators will be better able to deliver excellence in the regulation of legal services. This is far better than seeking to impose a solution on the regulators or the LSB. However, I understand there has been considerable dialogue between the LSB and the regulators and that little progress has been achieved. That is unfortunate and harmful to the legal profession and the administration of justice.

Under the circumstances something more is needed; it has been suggested that even late on there should be post-legislative scrutiny of the effectiveness of the Legal Services Act in order to test whether the original objectives have been achieved. I suggest to the Minister that this is something that should now be looked at seriously. The Bar Council wants such a review, and I do not think that the solicitors’ profession would have much difficulty in supporting it. Despite this, I think that the LSB has a continuing role, particularly as we have alternative business structures coming into place. Until we see where that actually takes us and how these new bodies operate, the LSB should remain, but I think the sort of review I have mentioned is necessary.