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Independent regulation

Regulation that is independent of the professions and government is important in delivering confidence to consumers, legal services providers, investors and society as a whole.

Background
LSB business plan 2018/19 - IGR outcomes
Other relevant work:
Compliance certificates
Practising fee rules
Investigations
Anti-money laundering supervision

Background

Concern about self-regulation by some categories of lawyers was one reason why the Legal Services Act 2007 was introduced. Section 30 of the Act places a duty on the LSB to make internal governance rules (IGR), which set out requirements to be met by approved regulators for the purposes of ensuring that:

  • the exercise of their regulatory functions is not prejudiced by any representative functions; and
  • so far as reasonably practicable, decisions relating to the exercise of regulatory functions are taken independently from decisions relating to the exercise of representative functions.

Putting IGR in place in 2009 was one of the LSB's first priorities. The IGR were then amended in 2014 to update the rules on Board appointments and reappointments).

The approved regulators implemented their arrangements for securing independence in line with the current IGR.

Key publications on regulatory independence:

  • our vision for legislative reform document (published in September 2016) explained why the current lack of full independence between approved regulators and their frontline regulatory bodies is unlikely to be sustainable and noted the potential scope for representative bodies to delay reforms that would benefit competition and consumers
  • the CMA legal services market study final report (published in December 2016) identified a number of issues arising from the current regulatory structure. It considered that full regulatory independence from providers and government is a fundamental principle for the regulatory framework and consequently that the government should undertake a review of the independence of regulators
  • following its tailored review of the LSB (published in July 2017), the Ministry of Justice recommended that:
    "To ensure continued public and international confidence in the regulation of the legal sector, the LSB should use all of its powers to provide robust assurance on the separation of the frontline regulators from the representative functions of the Approved Regulators, including the use of its investigative powers where appropriate. Any changes, including those as a result of the review of internal governance rules, should be made within the existing legislative framework."

LSB business plan 2018/19 - IGR review

In light of our experience and developments in the legal sector, we considered in 2017/18 whether changes were needed to the IGR.

Reporting on the findings of our review of the IGR and implementing the outcomes is part of the promoting the public interest through ensuring independent, effective and proportionate regulation strand of our work programme for 2018/19, the first year of our three-year strategy.

In July 2018 we published the findings of our review of the IGR. This took account of evidence on the current IGR, including that set out in our November 2017 consultation document, responses to that consultation, evidence from the LSB investigation report into the Law Society’s oversight and monitoring arrangements for the Solicitors Regulation Authority and views expressed to the LSB on the IGR following in light of the investigation report.

In November 2018 we published a consultation on proposed new IGR and supporting statutory guidance. The consultation is open until 21 January 2019.

The proposed rules take a principled and outcome-focused approach with the inclusion of more detailed obligations where the evidence shows these to be necessary. Moreover, the proposed rules are clear and understandable as well as enforceable. The proposed new IGR would apply to all approved regulators, albeit that some obligations will only affect those with both representative and regulatory functions.

The timetable for these next steps is:

  • Q4 2018/19 – new IGR in place.
  • Q3 2019/20 – Transition phase to new IGR ends .

Other relevant work

Compliance certificates

Between 2010 and 2012, the approved regulators produced certificates on compliance with the IGR.

Independence certificates produced by approved regulators and the LSB's assessment of them against the IGRs are available for the following years.

The last dual self-certification exercise was undertaken in 2013. Since then issues relating to independence have been considered on an individual basis.

Practising fee rules

The LSB has also made the Practising_Fee_Rules_2016. These rules explain what approved regulators are allowed to spend money on, given that this money comes from fees paid by lawyers as a mandatory condition of being authorised to practise. They also explain how the LSB will consider and approve applications from approved regulators when they want to set the level of such mandatory practise fees.

Information about the annual applications made by the approved regulators to the LSB under section 57 of the Act can be found on the Section 51 - practising fee pages.

Investigations

Where the LSB considers that there may be a breach of the IGRs, it can launch a formal investigation. You can find details of all formal investigations launched by the LSB here.

Anti-money laundering supervision

Following a request from the SRA the LSB has considered whether being a supervisor under the anti-money laundering regulations is a regulatory function. Our response can be found here.

Further information

For more information on this work, please contact the principal project manager Angela Latta.