Changes, trends and ABS in England and WalesChris Kenny, Chief Executive
Regulatory Reform for a 21st-century Legal Profession, Dublin 6 July 2012
Agenda
– The history of the reforms in England and Wales
– The regulatory architecture
– Progress to date
– Alternative business structures (ABS)
– General observations
The history of the reforms
– March 2001: “Competition in Professions”: Office of Fair Trading: open competition
– July 2002:“In the Public Interest?”: Lord Chancellor's Dept: competition to give best consumer service
– July 2003: Conclusions on “In the Public Interest?”
– December 2004: “Clementi”(Report of the Review of the Regulatory Framework for Legal Services in England and Wales)
– October 2005: “
Putting Consumers First” (Dept for Constitutional Affairs)
– May 2006: Draft Legal Services Bill
– July 2006: Joint Report (both Houses of Parliament) on the draft Bill – chaired by Lord Hunt
– October 2006: Full Bill published
– October 2007: Royal Assent
– January 2009: Legal Services Board formally created
– January 2010: start of full powers for the Legal Services Board
The history of the reforms
Drivers of change– Collapse of confidence in self-regulation
– Perceived anti competitive restrictions
– The ‘regulatory maze’
– Regulatory failure in complaints-handling
The new regulatory landscape
Regulatory Objectives– Protecting and promoting the public interest
– Supporting the constitutional principle of the rule of law
– Improving access to justice
– Protecting and promoting the interests of consumers
– Promoting competition in the provision of services
– Encouraging an independent, strong, diverse and effective legal profession
– Increasing public understanding of the citizen’s legal rights and duties
– Promoting and maintaining adherence to the professional principles
The new regulatory architecture
Legal Services Board– Oversight regulator for the sector
– Independent of both the profession and government
– Sponsored by the Ministry of Justice - Memorandum of Understanding
– Paid for by levy on lawyers
– Duties and enforcement powers
– Small – staff of fewer than 30, budget of less than £5m
Vision
– Greater competition - development of new and innovative ways of meeting demand
– A market that allows access to justice for all consumers, helping those whose incomes exceed legal aid thresholds but who need support
– Better empowered consumers, receiving the right quality of service at the right price
– An improved customer experience with effective redress if things go wrong
– Greater innovation and partnership between lawyers and other professionals
– Clear, proportionate and targeted regulation
Early priorities and progress
– Certifying independence in regulation
– Liberalising the market to increase competition
– Ensuring redress for consumers when things go wrong
Results
– Second round of certifying governance standards against Internal Governance Rules
– Solicitor and Conveyancer-led Alternative Business Structures opening for trading
– Successful full year of operation for the Ombudsman, plus progress on first-tier complaint handling
The development of ABS
The Legal Services Act 2007 set out a framework
– Approved regulators applied to be “Licensing Authorities” (LAs) of ABS
– Detailed requirements – structure and ownership
– Clearly set out the roles for regulation of entities
– Strong uniform powers for all LAs
Financial penalties (£50m for individuals, £250m for entities)
Enforcement powers
Exception to the Rehabilitation of Offenders Act
– Two LAs operating – CLC and SRA. Others working towards applications
– Regime started with first licence on 6 October 2011
The approval process
The ownership and management
– Material interest holders need to be approved
Those who hold 10% of shares or voting rights
Those who exercise significant influence over the management
– Three tests. The holding:
Does not compromise the regulatory objectives
Does not compromise the duties on regulated people
Is “fit and proper”
– Approval and ongoing monitoring – sanctions on owners including forced divestiture
The approval process part 2
Organisational evaluation
– LAs looking more at funding and business models
– Are the right people involved?
– Are the systems right?
– What else is the business doing?
Conditions on licences covering non-reserved activities
The HoLP and HoFA
Two new statutory roles required by ever ABS
– Head of Legal Practice (HoLP)
All reasonable steps to ensure compliance with rules, duties of managers and professional principles
Duty to report failure to LA
– Head of Finance and Administration (HoFA)
All reasonable steps to ensure compliance with accounts rules
Duty to report failure
– Can be the same person
– SRA using the roles in all firms – CoLP and CoFA
Impact of ABS on the rest of the sector
Market reacting to ABS – even before ABS started
– Level playing field between ABS and non-ABS
– New Code of Conduct for Solicitors
– Taking opportunities that have been open for some time
– New business models more aligned to modern business management
Emerging models
New models already coming to light
– Franchise models – Quality Solicitors
– Fixed fee law-as-a-service (LaaS?) – Riverview Law
– Alternative remuneration strategies – Scott-Moncrieff & Associates
– Retail providers – Cooperative Legal Services
– New intermediaries – Eddie Stobart
– Small firm models – partnerships, succession planning
– Accountants are on the way
Numbers and expected uptake
Small numbers of ABS to date but many more interested
– 8 licences issued
– 30 completed stage 2 of application process
– circa 130 in stage 2
– circa 180 at stage 1
– LDPs – stepping stone to ABS about 320 will need to transfer to ABS by mid 2013
General observations
– Outcomes-focused regulation
– Regulation is better focused on risk – by subject and firm
Better data flows will enable more targeted interventions
Lower-risk businesses will be treated with a lighter-touch
– LSB has help change the dialogue in the market – evidenced based.
– Exciting research into consumers and providers showing the way
– Real independence from the MoJ – no powers of Ministerial direction
Questions?
– Questions now
– Panel discussion later