Consultation on Regulation of Solicitors
The following article was intended to reach the membership in time for members’ responses to be returned in time for the closure of the consultation on 10 October 2014. However, due to a delay in production we have not managed to deliver this edition in time for you to respond to the above consultation before it closes on that date. We have therefore (a) requested an extension of the consultation period and (b) published the above article ion the Society’s website on 6 October with a request for early responses
A consultation was published by the Regulatory Committee of the Law Society on 23rd July 2014 under the above title for response by 10 October 2014. No solicitor from whom I have inquired was aware of or had read the consultation which outlines proposals to regulate entities as well as individual solicitors and to increase the costs of regulation accordingly.
While this consultation bears to have been drawn up within the profession and issued by the Law Society of Scotland, it has to be considered how far that is the case. The Law Society of Scotland is a professional body for solicitors and the Regulatory Committee is a statutory body in which solicitors are excluded from the majority and from the chair.
This objection may seem puerile but the point is that the Regulatory Committee may well be entitled to create a regulatory system but perhaps not in the name or on behalf of Scottish solicitors.
While the simple question which has been asked relates to the regulation of Scottish solicitors, the actual proposals clearly contemplate the regulation of a much wider category of personnel including paralegals and ABS and employees of ABS etc.
The objectives are described as (a) the promotion of the interests of the consumers and of the public, (b) the promotion of access to justice and competition in the provision of legal service and (c) the promotion and maintenance of adherence to the professional principles (defined). At least there is no problem of conflict with the interests of the legal profession because, in fact, there is no mention of the interests of the legal profession.
The paper claims that entities are already recognised in connection with (a) the Master Policy, (b) the rolling programme of compliance inspection, (c) the SLCC action upon service complaints against firms and (d) the rules governing incorporated practices and LLPs but points out that the traditional partnership model is not regulated as an entity.
It is clear why the practice of law should be regulated but not clear why the business arrangement of going in to partnership should be regulated.
The paper describes lawyers worldwide as having moved on from sole practices to legal entities. In Australia, there is no restriction upon lawyer and non lawyer ownership of legal practices and these are regulated as entities. That, however, is very much not the case in Scotland and this project therefore appears to seek to promote ABS in to Scotland, to which our Society remains firmly opposed.
There have been partnerships in Scotland for many years without any apparent requirement for entity regulation.
In England, under the Legal Services Act 2007, both individuals and entities are regulated as is the case with chartered accountants and surveyors. They have ABS and we do not.
From the figures presented, the costs of regulating entities as well as practices will result in approximately 22% increase of costs for sole practitioners and either marginal increases or marginal savings for larger businesses.
Council has considered the consultation and proposes the response outlined below. We are looking for input from members for confirmation that this response reasonably represents the views of the membership and also to develop the terms of this response.
Slas Response to Consultation
(a) To propose the extension of the consultation period by a further three months. Considering that the consultation was issued in late July, during the high holiday period and was distracted by the Commonwealth Game ,and by the most successful Edinburgh Festival ever and then by the melt down of the referendum campaigns and, prospectively by the outcome of the most important political issue to affect Scotland in centuries, it is not surprising that many, if not most, solicitors have not addressed the consultation. Without seeking to condone professional apathy it has to be borne in mind that the consultation suggests fundamental changes in the nature of professional regulation and the omission of proper consultation at this stage, while it makes life easier for those who seek to promote change, it probably stores up problems for the future if many practitioners are to feel that the process has not been inclusive.
(b) To object to the attribution to the Law Society of a regulatory scheme which has been devised effectively outwith the profession by the Regulatory Committee from which solicitors are excluded from the chair and from the majority.
(c) To reject the proposed regulation of entities as being inappropriate because it involves the regulation of non-solicitors which is not an activity in which the Law Society or the profession of solicitors should be involved and which may be ultra vires in relation to the current constitution.
(d) To object to the proposed burdening of sole practitioners with the cost and administration of the regulation of entities when they clearly are not entities themselves.
(e) To object to the recognition, expressed or implied, of the operation of ABS when these have not been authorised by regulations and when the reasons for the creation of ABS have now been overtaken by the flight from Scotland of the ownership and control of the firms for whom ABS were devised and when their authorisation is likely to further dilute the Scottish identity of the profession in Scotland. The membership of Slas remains opposed to the implementation of ABS,
inter alia, on grounds of
i. Inconsistency with professional independence
ii. The adverse consequences of deregulation in other sectors eg banking
iii. Consumer detriment in threats to Guarantee Fund and Master policy
iv. Loss of solicitor control of legal practices
(f) The proposed scheme raises issues which require further consideration in relation to the constitutional contention that the solicitors’ profession is separate from and independent of the legislature which, in this case includes a statutory body such as the Regulatory Committee. There is no challenge to the statutory competence of the Regulatory Committee to create regulations but it is queried whether these can be characterised as the product of the Law Society which is the professional body for the Solicitors’ profession when they have been issued by perhaps the only public body from which solicitors are excluded from the majority and from the chair. Solicitors are officers of the court and, as such, in terms of the constitutional separation of powers, fall within the judiciary rather than the legislature. This could be relevant if solicitors wished to challenge such regulations but found themselves seeking to challenge their own regulations when, in fact, the regulations had been imposed effectively from outwith the profession.
Finally, some correspondence which we have received is set out below.
I have now had a closer look at the consultation papers and find that there are two short sets of papers, one entitled Entity Regulation and Charging which simply sets out the proposal to regulate firms etc as well as individual solicitors and to charge for doing so and the other entitled Principle and Outcomes Focused Regulation (POFR) which proposes to replace the lengthy rule book with a short statement of principles but then to add on a much longer book of guidance, to flesh out these principles.
The other two sets of papers are much lengthier. One is a report from the SRA in England describing in 83 scintillating pages complete with pie charts and the like, describing the joys of POFR, as we have all come to know it. The second is a take on the SRA paper by the Nova Scotia Bar in another snappy 70 odd pages. I am certain we would find interesting and helpful material in these reports but, in the time available, I do not think that this can be taken on.
(Name and Address Suplied)
I have looked at the POFR section and make the following comments:-
There was considerable resistance when these were introduces in England & Wales, especially from small and medium sized firms. (No surprise there, then.)
Advantages:- Increased flexibility and consistency; greater public understanding and confidence; is more client focussed.
Disadvantages:- Lack of absolute certainty; increased burden, especially for smaller practices; may not be that different to the present rules based approach.
Independent view from the Nova Scotia Barristers’ Society:- is consumer driven; is an extensive code of conduct being replaced by 10 mandatory principles; form filling reduced by freedom to provide strong quality of service; allows solicitors to meet their objectives while allowing regulator to focus on fair and fair regulation; comprehensive decision making guides will be produced, which will lead to fairness, transparency & consistency; will encourage creativity.
(Personally I think the last two contradict each other.)
NSBS then asked if POFR worked in the public interest and responded as follows:- requires an intelligent authorisation proceed so that only fully authorised firms/individuals deemed fit; requires enhanced supervision of firms to address public interest; requires enforcement to deal with those who do not comply; requires risk criteria to enable regulator to focus on serious risks; provides fair means for public complaints & early meaningful resolution; enhances access to justice; enhances access to justice outside the traditional law firm structure.
(Loud klaxon at this point.)
Neither LSS and Rg. Committee has a fixed view at the moment. Key questions:- should practice rules and guidance the correct approach or should we be moving to a model based on principles and outcomes?
What are the advantages and disadvantages of these two?
Would POFR help or hinder efforts to protect the interests of consumer and the wider public?
Does POFR provide fairer base for the regulation of solicitors and legal firms?
What lessons can be learned from the regulation of other professions and in other legal jurisdictions?
(Name and Address Supplied)
We presently have rule based regulation so we have a fair idea of what the rules are. In some cases such as the provisions on conflict of interest which is really a series of exceptions.
If we move to principles based regulation we don’t know quite what the rules are and guidance is guidance until retrospectively conduct is deemed to contravene a principle. The FCA keeps getting firms at the moment on breaching the principle of treating customers fairly without bothering to charge the firm with the breach of any detailed rule. I am sure we would face the same.
So arguably the guidance is in fact an enhanced series of rules and even then can be extended without warning. Makes the regulator’s job much easier and ours less certain.
The only questions I think we need to ask around entity regulation are:-
- Will it be more expensive/cheaper/ the same?
- Will it involve more or less paperwork?
(Name and address Supplied)
It is pretty clear that small businesses with their more limited resources will be called upon to bear a disproportionate share of the costs of the new style of regulation. That would be understandable if it were Law Society policy to move towards a profession of large firms and to phase out the smaller entities. It seems unlikely, however, that the private sector of the profession would espouse such a policy, given that the overwhelming majority of Scottish legal firms are small businesses. Also, the UK Government has clearly recognised the value and importance of the role of small businesses in the economic recovery and took the banks to task earlier this year for imposing lending arrangements which were discriminatory towards small businesses (Lord Young reported in the Times 28 January 2014.) The new style of regulation appears to be similarly discriminatory towards small firms.
However the reality is that many, if not most, of the large and many of the middle sized firms have now emigrated to non-Scottish ownership and may welcome a system which harmonises with the system south of the border.
Moreover the inhouse sector accounts for one third of the number of Scottish solicitors and the model proposed by the Regulatory Committee is likely to win favour with them as it offers a significant reduction in fees. By contrast the model penalises the sole practitioner the most, in real as well as relative terms and unless a fresh business model can be devised (perhaps comparable to that of the Faculty of Advocates system) it seems that the proposed change will be one more nail in the coffin of the law agent.
(Name and address supplied)