Competition vs Regulation

The SRA have produced a very thoughtful paper on the LSB’s approach to regulation.  It advocates a halt to the proliferation of overlapping responsibilities of regulators and the reservation of all legal services, rather than the patchwork of reserved activities that currently exists.  Points about complexity from the public’s perspective, regulatory arbitrage (the risk that regulators will race to the bottom to compete to regulate providers) are well made and important.  There is a very interesting critique of the LSB’s presumption in favour of competition and the related but distinct issue of whether it is appropriate to regulate by activity or title.  I have a lot of sympathy with the view that the LSB’s approach is, or at least is presented as, overly in favour of competition (you could argue that the LSB’s reaction to the Wills issue is not consistent with that though).  I also strongly endorse the idea that there is a distinct public interest in regulation which is separate from the consumer interest in effective regulation.  Consider, for example, whether some of the ethical problems emerging through Hackgate are evidence of this.

I have some questions about the SRAs analysis too.  Reservation of all legal services creates problems of its own.  There is a significant risk of stifling innovation.   The paper addresses these in part through cleaving to  proportionality and in part through a patchwork of its own of exceptions to who regulates what.  One regulator’s proportionality is another’s over- 0r under- regulation.  Both the LSB and the SRA would advocate proportionality but the implication of their analysis is that they must mean something different by it or, perhaps more accurately, proportionality is directed by different presumptions (for/against competition/regulation).

They emphasise also the importance of information as a regulatory tool.  I’d have liked to see a stronger acknowledgement of the problems of information as a regulatory tool.  It is not enough to say “it is better to inform than to curb freedom of contract” when the evidence points quite forcefully to the problems of using information as a regulatory tool.  Information needs to be simple and meaningful for it to influence consumer behaviour: it is heartening therefore to see the SRA seeing specialisation as a key signal in a competitive market.  The devil is in the detail though: a proportionate approach to specialisation which genuinely stands as a proxy for higher levels of quality is no mean feat.  They quote John Vickers (OFT) saying, “But improving consumer information is often easier said than done, especially information that is of immediate and direct practical use…”  It will be very interesting to see how they intend to take those words to heart in designing and testing information based regulation.

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About Richard Moorhead

Director of the Centre for Ethics and Law and Professor of Law and Professional Ethics at the Faculty of Laws, University College London with an interest in teaching and research on the legal ethics, the professions, legal aid, access to justice and the courts.
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One Response to Competition vs Regulation

  1. Stephen Pett says:

    I like the system which many of the old insurance company direct salesforces used to use. Before you could offer a specific product/ service, you have to take training and an exam in that SPECIFIC area, with annual refresher exams to make sure you were keeping up to date.

    The day of the generalist is (sadly) over, and it is no longer good enough to pinch a precedent from a very generalised handbook. Where is the harm in conveyancers / will writers / solicitors all being judged by the same yardstick on – for example – Lasting Powers of Attorney?

    Uniform basic standards of competence would cut out many people who think they know what they are doing but actually don’t! However, the system does depend on those setting the exams knowing what they are doing, and not just trying to feather their own nests or biasing exams to keep out the competition. Experience in financial services has demonstrated that incompetent, jobsworth regulators can decimate the availability of advice with no overall benefit to the public who are merely deprived of choice – over 400,000 advisers reduced to around 60,000 and their is no way even the majority of the lost 340,000 advisers were rogues, just the victims of confused regulators trying their best to regulate an area they just couldn’t understand.

    So how Legal Services is regulated is vital to all concerned, and it is far from the case that solicitors are competent and everyone else isn’t – they will suffer the same fate as financial advisers if regulation is not wisely designed, and the current 130,000 odd could be down to 30,000 in 10 years time!

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