LSB finds that the Law Society broke internal governance rules


The Legal Services Board (LSB) has today published its report on its investigation into the Law Society of England and Wales’ (TLS’s) arrangements for monitoring and oversight of the Solicitors Regulation Authority (SRA).

After an extensive investigation we have found evidence that TLS has breached the Internal Governance Rules (IGR) set by the LSB under section 30 of the Legal Services Act (the Act) in the following ways:

Firstly, TLS’s arrangements for oversight and monitoring of the SRA were not proportionate or transparent. This was due to:

  1. an overlap and ambiguity in the terms of reference for the oversight bodies set up by TLS resulting in duplication and lack of clarity on accountability;
  2. the TLS General Regulations, in which TLS (amongst other things) sets out its arrangements for monitoring and oversight of SRA being incomplete and out of date; and
  3. a lack of a shared understanding between TLS and SRA as to what each body in the oversight arrangements should do, see and discuss and how they linked with each other.

Secondly, the SRA, as the regulatory body, was not responsible – as it should have been – for designing and managing the appointments and reappointments process for its own Board members. However the LSB has not found that the SRA’s independent performance of its regulatory functions was impaired.

Despite the more recent action by the TLS to endeavour to remedy the failings prior to the completion of our investigation, this was a serious breach of the IGRs. The LSB has therefore decided to issue a public censure, the first time it has ever had to take such action, to reflect the gravity of the findings.

TLS is a statutory approved regulator and as such should have appropriate compliance and governance arrangements in place to ensure that such breaches do not occur. The fact that such breaches happened reflects very poorly on the way the organisation was governed at the time the breaches occurred.

We have also agreed with TLS that it will report to us in November 2018 on the progress it has made on remedying all the failures identified in this report.

Interim Chair of the Legal Services BoardDr Helen Phillips said:

Our investigation has revealed serious breaches by the Law Society of the Section 30 Internal Governance Rules.

The complexity, ambiguity and burdensome nature of TLS’s monitoring and oversight arrangements for the SRA were unacceptable. Its actions have impaired the effectiveness of the SRA, thereby undermining the public interest in effective regulation of legal services. For a body which emphasises the importance of the rule of law this is a serious failing.

TLS has, since the investigation started, updated its General Regulations in October 2017 to ensure that the SRA is now responsible for designing and managing the process for appointing its own Board members. However I am deeply concerned that TLS failed to do this in 2014 when the LSB amended the IGR to require it.

Therefore the LSB decided to take enforcement action against TLS in light of these breaches. Regulatory independence is fundamental to public confidence in the legal sector. The serious failings our report has identified have led the LSB to take formal enforcement action against an approved regulator for the first time. We are therefore publicly censuring TLS for its failings. This is the first occasion the LSB has used this sanction and it reflects the extent and significance of the breaches by TLS. We expect lessons to have been learnt from our findings so that such failings will never be repeated.

ENDS

For further information, please contact the LSB’s Communications Manager, Vincent McGovern (020 7271 0068).

Notes for editors:

  1. The LSB’s investigation report and details about the enforcement action can be found here. The report covered the period from autumn 2014 to 15 February 2017.
  2. The Legal Services Act 2007 (the Act) does not create a framework in which all regulatory bodies are structurally separate from representative bodies. Rather, it creates approved regulators which may have both representative and regulatory functions. The LSB’s responsibilities include a duty under section 30 of the Act to make Internal Governance Rules (IGR) setting out requirements that ARs must meet to ensure the independent exercise of regulatory functions.
  3. The LSB did not find that the SRA’s independent performance of its regulatory functions was impaired. However, this could have happened if the risks related to certain provisions in TLS’s General Regulations in place at that time crystallised.
  4. TLS updated its General Regulations in October 2017 so that (amongst other things) the SRA is now responsible for designing and managing the appointments and reappointments process for its own Board members.
  5. Learning from this investigation has been fed into the ongoing LSB review of its IGR, details of which can be found here.
  6. The LSB’s statement of policy for enforcement can be found here.
  7. The Legal Services Act 2007 (the Act) created the LSB as a new regulator with responsibility for overseeing the regulation of legal services in England and Wales. The new regulatory regime became active on 1 January 2010.
  8. The LSB oversees ten approved regulators, which in turn regulate individual legal practitioners. The approved regulators, designated under Part 1 of Schedule 4 of the 2007 Act, are the Law Society, the Bar Council, the Master of the Faculties, the Chartered Institute of Legal Executives, the Council for Licensed Conveyancers, the Chartered Institute of Patent Attorneys, the Chartered Institute of Trade Mark Attorneys, the Association of Costs Lawyers, the Institute of Chartered Accountants in England and Wales and the Association of Chartered Certified Accountants.In addition, the Institute of Chartered Accountants of Scotland is an approved regulator for probate activities only but does not currently authorise anyone to offer this service.
  9. As at 1 April 2017, the legal profession in England and Wales comprised 148,690 solicitors, 15,281 barristers, 6,809 chartered legal executives and 5,958 other individuals operating in other areas of the legal profession such as conveyancing. The UK legal sector turnover was £31 billion per annum (2016) which is up 19% in cash terms since 2012. For more information see here.

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