The jury’s still out on regulatory reform in the legal sector

Regulatory reform is back on the agenda for legal services , but does the industry really need it?

Apparently changes in the legal world aren’t happening quickly enough, as regulatory reform is on the agenda again.

Back in 2007, the Legal Services Act was brought in to shake things up. It sought to liberalise, and regulate, the market for legal services – to encourage more competition through Alternative Business Structures and to provide a new route for consumer complaints. As part of the reforms, ‘approved regulators’ were authorised and out of them, ‘independent regulatory bodies’ were created – amongst others, the Solicitors Regulation Authority grew out of the Law Society and the Bar Council created the Bar Standards Board. The Legal Services Board became a ‘light touch’ overseer, in response to judicial backlash about judicial independence, government interference and ultimate regulatory power being vested in an unelected legal services board.

It was met with mixed feelings from the legal community, with some keen to hurtle towards further change and others unsure whether the reform would work.

From ‘separation’, towards ‘independence’

During the Ministry of Justice’s ‘red-tape challenge’ of 2014, concerns were raised about the complexity of the current regulatory framework. These worries reached a head in the form of the Better Deal Plan launched by the Government in November 2015. The initiative from HM Treasury and the Department of Business, Innovation and Skills seeks to increase competition across a variety of sectors and announced a consultation to be held by spring 2016 on reducing barriers into the legal services sector for Alternative Business Structures and potentially making the legal service’s ‘independent regulators’ fully independent from representative bodies.

Another consultation was announced on 13 January by the Competition and Markets Authority; a ‘Market Study into the Supply of Legal Services’ and it isn’t good news either for the representative bodies. It mentions that ‘the current regulatory framework, including the system of multiple regulators, may create barriers to entry or distort competition’ and will be closely scrutinised.

The language has changed. The Legal Services Act 2007’s ‘separation’ of regulatory and representative bodies has shifted to more total ‘independence’ of the two. The Government seems to be trying to fix the compromise that the Legal Services Act 2007 turned out to be. The approved regulators and their regulatory bodies have evolved in different ways; compare, for example, the relatively assertive Solicitor’s Regulation Authority and the more discreet Bar Standards Board.

Innocent until proven guilty                                              

However, one must ask whether reform is necessary when representative bodies like the Law Society and the Bar Council have taken meaningful steps towards fulfilling obligations under the Legal Services Act. The Bar Council, for example, now asks for voluntary fees for activities outside regulatory purposes, and the membership fee for the Association of Cost Lawyers is entirely separate from their regulatory body, the Costs Lawyer Standards Board, in an effort to ensure financial partition.

The Legal Services Act has created differences in the legal community between the approved regulators and their delegated bodies. The regulatory bodies welcome further work, and further power, whereas their parent bodies, the approved regulators, believe things are fine as they are.

This is evident in the gulf in reaction to the Better Deal consultation:

“The Bar’s front line regulator is well able to regulate the profession in the public interest and to meet the statutory objectives”

Chantal-Aimée Doerries QC, Chair, Bar Council

“The Law Society and the regulator have separate purposes. Making us truly independent would bolster public confidence and make things easier for the Law Society to be a representative body”

Enid Rowlands, Chair, Solicitor’s Regulation Authority

There have been many rounds of regulatory reform in the legal sector, and the question lingers over whether it is really time to reform again. The legal sector has being doing well on its own. It has less regulatory apparatus than the financial sector, yet played no part in the economic crisis and rather, is a jewel in the City’s crown and attracts many around the world to the ‘jurisdiction of choice’.