The Legal Service Board has published its draft Business Plan for 2011/12 for consultation. Whilst it speaks of moving beyond the initial phase of activity marked by its initial three year plan, and sees 2011/12 as a year of transition, the Plan hints at the future whilst also underlining some unfinished business. It is firm, for instance, in its commitment to introduce ABS licensing on time (6 October 2011) and to provide licensing itself where approved regulators fail to do so. I’m not going to try and summarise the entire document but point up a few of the issues which excited my interest before turning to one or two problems which continue to worry me about the LSB’s approach. First then, some points of interest.
Of significant note is the continuing emphasis on the need for front line regulators (read here, in particular, the SRA and the BSB) to ensure independent regulatory processes. For those of us watching the tussle over the Internal Governance Rules with interest (and in particular the BSB and SRA resistance to the LSB’s desire to see more immediate lay majorities), there is an apparent refusal on the Board’s part to let the matter of independence lie. In particular they promise to review the implementation of regulatory independence. A key quote is found at para. 72:
“It will be important that we shift the focus from reviewing the newly established governance arrangements towards, instead, insisting on practical and effective measures to embed those arrangements in systems and the conduct of personnel. In other words, independence needs to be happening in practice as well as on paper. This is important as obstacles to independent regulation may be cultural just as much as they may be systemic.”
In other words, self-certification of governance arrangements will not be enough. The LSB will seek to ensure that frontline regulators develop a culture of genuine independence. Incidents like the Bar Standards Board’s standards committee breaking down along lay-barrister lines on a regulatory matter, of modest significance in isolation, will accrue greater significance as and when they accumulate.
The Plan also promises a review of first tier complaint handling, a closer look at disciplinary rules and processes and a more fundamental look at reserved activities. On the latter it is particularly important to highlight some elements of the LSBs regulatory philosophy. One element of this is that they are disinclined to intervene and regulate unless there is evidence that a need for regulation is demonstrated. A second point is that traditional regulatory tools, particularly where they inhibit competition, are regarded with some scepticism. Reserving matters to specific groups of lawyers is explicitly regarded by the LSB as an extreme regulatory response:
“An important qualification is that reservation to specific groups of lawyers is at the most extreme end of the range of regulatory tools – meaning we should look beyond this to both look at whether existing reservation continues to be justified and also establish when it is appropriate to initiate more limited interventions.”
Thus we can expect the LSB to look at (say) will writing and need persuading not only that there is harm being caused to consumers, but also to require a much harder look at how regulation (and what kinds of regulation) will ameliorate that harm. Specifically in this field the Plan promises a ‘new kind’ of regulation. That space will be watched with some interest!
In a similar vein, there is an interesting section on conveyancing. The Plan refers to a consultancy report recommending the SRA undertake a review of regulation in this area (because of the high number of claims arising in the field). It also points to the apparent growth in fraud in the area (as occurred during the last recession) and points to the wide range of regulators already interested in this particular problem (hinting perhaps that regulation is dealt with adequately elsewhere). The Plan does not explicitly link this section with the deregulatory agenda but it does raise the question of, “the extent to which legal services regulation might be an appropriate vehicle through which to tackle harm….” I would not be surprised to see the SRA struggling with a dilemma: demonstrate a regulatory approach that delivers competence (say, genuine and effective specialisation) or face further deregulation (de-reservation and light touch service specific regulation). A key part of the professional regulator’s armoury will be demonstrating that its methods work. This is not something at which they have proved themselves adept so far.
There is also an important section relevant to the review of education. There is particular encouragement to the professions that they encourage regulatory requirements needed post-qualification and an interesting statement that, “We have also made clear that we will address any gaps we see emerging in the review of education.”
Let me turn then to my concerns. The first is an unease that no one really knows how the deregulation of legal services will work out. The LSB are committed statutorily, but also it seems philosophically, to increasing competition. There are good reasons to do so, but there are also good reasons for some caution and restraint. One key problem for those urging restraint is that the professions have tended to rely on a priori argument and ‘war stories’ rather than evidence in urging restraint. For the professional regulators to have a significant influence (should they wish it) on the debate they need to become much more rigorous in terms of demonstrating both the need for and benefits of the regulatory models they propose.
My second concern may be influenced by my current reading matter. I am currently enjoying Andrew Ross Sorkin’s thoroughly readable account of the Banking Crisis ‘Too Big to Fail‘. Lawyers pop up from time to time, as they have in numerous other scandals. These crises remind us of the public interest in professional regulation and how this can differ from the clients’ interests. The LSB pays little attention to this kind of problem because it takes a very client-oriented approach to its job. That, coupled with the normal view that City-clients can look after themselves, tends to lead us to forget that very large issues may be at stake when we deregulate legal services but also that the current frameworks may not be working adequately. Put another way, not all risks lie in the high street: what should regulators do about them? That’s a question I’d like to see higher up the agenda.