Legal Services Regulation Reform Elephant left in the Room

Legal Services Regulation Reform Elephant left in the Room

The Legal Services Regulation Reform Elephant was left in the room when the Scottish Government published, on 22 December 2022, their response to the findings of the legal services regulation reform in Scotland consultation analysis report [PDF].

Whilst the Scottish Government made much in their press release of the fact that the term “lawyer” is to be protected the real story is that there will not be one independent single regulator as recommended by Esther Roberton (the primary recommendation) in her Report of the Independent Review of Legal Services Regulation in Scotland. Thus:

  • The Law Society of Scotland will continue to regulate legal services in so far as carried out by solicitors.
  • The Faculty of Advocates will continue to regulate legal services in so far as carried out by advocates.
  • The Association of Commercial Attorneys will continue to regulate legal services in so far as carried out by commercial attorneys.

The Law Society of Scotland, and the other current regulators of legal services in Scotland, received an early Christmas present as a result.

Evenly Split or Manipulated Views?

The response states:

The analysis of the consultation responses shows that views were evenly split between support and opposition to the primary recommendation. However, there are many areas where there is broad agreement between stakeholders.

That ignores the point made in the analysis of the consultation response that:

There was evidence of coordination of responses. Mostly, this was respondents supporting the Law Society of Scotland’s organisational response.

Modern and Forward-Looking?

The response states that a key aim should underpin a revised model for the regulation of legal services:

to implement a modern, forward-looking model for legal services regulation, which will build on the existing framework. This should allow for a proportionate approach that seeks to balance and deliver the key priorities of all stakeholders. The existing regulators should retain their regulatory functions, with a greater statutory requirement to incorporate independence, transparency and proportionate and risk-based accountability within regulatory approaches. Evidence of improvements in the way in which legal services are regulated and how the legal complaints system operates in Scotland must be gathered.

Is pretty much retaining the status quo the same as “to implement a modern, forward-looking model for legal services regulation”?

Independence of a Sort?

However, the Scottish Government does propose an element of independence for first tier regulators. Those are “those regulators with a significant membership or whose members provide largely consumer-facing services”.

In that first tier:

regulatory functions would be required to be delegated to an independent regulatory committee comprised of legal and non-legal members, chaired by a non-legal member. The regulator would be required to ensure that the regulatory committee is sufficiently resourced in the exercise of its regulatory functions. A register of members would require to be publicly available.

A second tier regulator is “those regulators whose membership is less consumer facing or more specialist in nature in terms of the legal work undertaken, and whose membership is comparably less in number”.

They would not be so obliged to delegate functions to an independent regulatory committee:

In this tier, it would be considered disproportionate to the size and lack of direct consumer contact for such regulators to delegate to a regulatory committee.

I assume that the Law Society of Scotland will be a first tier regulator but that the Faculty of Advocates and the Association of Commercial Attorneys might not be.

Whilst for the second tier regulator there is no real independence created does the proposals for the first tier really create the independence necessary to avoid the conflict of being a membership representative body and at the same time regulator of the members that you represent?

The Legal Services Regulation Reform Elephant

The elephant in the room has perhaps not really been tackled. As a commentator tweeted during the Debate on the Review of Legal Services Regulation in Scotland:

No real rebuttal around the point that good regulation should be independent of those it regulates, which seems to be the elephant in the room.

This is a point that the Law Society of Scotland and the Faculty of Advocates have been consistently unable to address in any shape, form or fashion.

Esther Roberton stated in her Report:

On balance, the majority believed a move towards independence of the regulators from those they regulate, as recommended in the Competition and Markets Authority report is inevitable.

Whilst it appears to be inevitable in other jurisdictions who have tackled regulatory reform of legal services it clearly is not in Scotland.

Independence of the regulator was perhaps the main driving force behind the creation of the Legal Services Board in England & Wales following on from the Legal Services Act 2007. The Legal Services Board’s website states:

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.

Whilst at odds with the position in England & Wales as formulated there back in 2007, the Scottish Government’s position is also at odds with current thinking in England & Wales.

Professor Stephen Mayson in his Independent Review on Reforming Legal Services [PDF], published in June 2020 following a two-year review, recommends that:

There should be an independent, single, sector-wide regulator of legal services, though with the power to delegate the exercise of defined and limited regulatory powers to other bodies. The current Legal Services Board, approved regulators and regulatory bodies would be replaced.

He states:-

Like the CMA [Competition and Markets Authority] … I am clear that it is “a key principle of better regulation that a regulator should be independent of those whom it regulates”.

Professor Mayson also states in his report:

Those with an interest in regulation, its scope and its effects on their daily practice probably cannot ever be truly independent or not wish to exercise whatever influence they can muster.

It seems to me that the real objective here is that the regulator should not be – or be perceived to be – ‘captured’ by the regulated community. In this sense, I would adopt the definition of ‘regulatory capture’ offered by Carpenter & Moss (2014: page 13):

“the result or process by which regulation, in law or application, is consistently or repeatedly directed away from the public interest and toward the interests of the regulated industry, by the intent and action of the industry itself.”

On this definition, the robust expression of views by professionals would not necessarily lead to capture, even if it was clearly the exercise of influence. It could also accommodate cooperation and collaboration, without inferring capture.

While a system of self-regulation would almost certainly appear to the public and consumers to be captured, we have now moved beyond that. Perhaps it is time for a more developed understanding of capture and how best to avoid it.

Whilst in England & Wales they may have moved beyond the concept of ‘capture’ in 2007 we did not do so in Scotland. I am unsure that the provisions governing the proposed first tier regulator comes even close to dealing with this issue.

The question of independence (or indeed why the primary recommendation was not adopted) is not addressed in any real way in the Scottish Government’s response and thus appears destined to remain, at least in Scotland, the elephant in the room.

Equality with England & Wales in other Areas

Whilst ignoring the steps taken in England & Wales with regard to independent regulation the response, by the Scottish Government to the findings of the legal services regulation reform in Scotland consultation analysis report, appears to want equality with England & Wales in other areas.

In particular with relation to Alternative Business Structures (ABS). They also oddly, in comparison to the elephant in the room, quote and agree with the Competition and Markets Authority in this regard. More detail on that will follow in a future blog post looking specifically at what the response says with regard to ABS.

Scotland on the Back Foot?

Esther Roberton in her report stated:

Jurisdictions across the world are grappling with regulation across all professions. This Review has therefore been timely as I have been able to draw on how thinking on regulation has been developing in recent years both domestically and internationally. There are similarities in the approaches that are being considered, across professions and jurisdictions. Change is happening with aims of delivering proportionate, risk-based, principled and independent regulatory systems, with varied degrees of ambition. None have so far taken the transformational approach that I propose, but many of them are moving in that direction. Scotland can be at the forefront of a new modern framework of regulation, leading the way for others.

Scotland often lead with legislative reform but when it comes to Legal Services Regulation Reform we have lagged sorely behind and look set, unfortunately, to be left behind yet again.

More Blog Posts on the Scottish Government’s Response

There are five Blog Posts on the Scottish Government’s response:-

Blog Posts on Legal Services Regulation Reform

Prior to the response by the Scottish Government I published eight posts on Legal Services Regulation Reform in Scotland:-

Reactions on Social Media on Legal Services Regulation Reform Elephant

On LinkedIn the following comments have been made:-

Simon Heaney (Barrister at St John’s Buildings Barristers’​ Chambers):

Would it not just add another bureaucracy layer? I still don’t understand what this brings to the table in E&W.

Me:

With three current regulators in Scotland plus the SDT and the SLCC there are five layers of bureaucracy. I believe even more layers in E&W? Perhaps one layer is better than many? And should a member organisation not be there to assist you with any legitimate gripes you may have over regulation? Can they do that for you when they are also the regulator?

Simon Heaney:

re the last bit; I think the Law Soc (E&W) lost their way and are still sharing at their shoes after ‘losing’ their regulation ‘bit’ and haven’t really stepped up on the representation bit (I think the Bar Council in contrast do that better).

I am not too sure of the dynamics in Scotland, but for example a single regulator down here would be the SRA in all but name and I am not sure that would be a good thing; it’s quite a ‘machine’ really (CILex opting to be regulated by them seems a move that will come back to bite for example).

At the same time multiple regulators aren’t evidently clear to the public?

Me:

You would think that Law Soc (E&W) would / should have stepped up on representation now that is (or should be) their sole focus! Although these member organisations do seem to get themselves unnecessarily or too heavily involved in matters that they would be better steering clear of (e.g. LawTech).

As long as the regulatory ‘machine’ is not allowed to get out of control. I have seen examples in E&W where that does at times seem to be the case. That is an area that would potentially concern me with a single regulator in Scotland. Checks and balances would need to be in place.

David Flint (Commercial Law Consultant at Inksters; Visiting Professor at Creighton University School of Law):

My initial take on the comments from The Law Society of Scotland is that their concern seems to be more about expanding their reach and power and less about looking after the interests of their members. Of course the inherent conflict in the legislation (obvious to everyone but them) of having to look after the interests of their solicitor members and of the public may be behind this, but empire building and a statutory monopoly which solicitors are paying for with no real say in a massive function creep over the last 70 years is a more likely reason.

Quis custodiet ipsos custodes? as they say in Glasgow.

Me:

Well put, David.

Caroline S. (Consulting):

The silence over the conduct of the Law Society of E&W and the failure of the SRA to regulate what the LS has made unjusticiable is astonishing. And must be fragile.

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Graeme Johnston (Software to map work – before that a lawyer):

Interesting, thanks for flagging it Brian. Quick thoughts –

1. On the main proposal – independent LSS Regulatory Committee – is it clear to you what the difference would be from the current set-up? – https://www.lawscot.org.uk/about-us/who-we-are/ourcommittees/regulatory-committee/

2. FWIW, the SRA’s powers are in theory delegated from the LSE&W. I would say devil is in the detail on questions of ‘independence’ (e.g. who appoints, by what process, who’s appointed, how much time do they spend, who else is at the table, how well-resourced is it…)

3. Entity regulation sounds sensible, but I don’t know how big a problem the ‘loophole’ is.

4. ABS section seems vague on for-profit ABSs – second bullet point of para 48 just says ‘greater potential for’ outside investment.

5. On the proposed ‘lawyer’ title restriction, I think that the definition of ‘legal services’ is something to take care over. If restricted to the activities reserved to solicitors/advocates, that’s one thing. If it creeps into something broader (e.g. advice, help) there could be some competitive traps e.g. consider Rocket Lawyer and Lexis PSL (would the use of PSL be banned as ‘L’ is short for ‘lawyer’?). Noteworthy that the term is unregulated in E&W.

Me:

Thanks Graeme

I didn’t realise that re. 1, the latest proposal mirrored what The Scottish Government had already done under the Legal Services (Scotland) Act 2010! Maybe they were getting confused with all the other bits of the Legal Services (Scotland) Act 2010 that remain, 12 years later, still unimplemented 😉

Also didn’t realise that SRA’s powers are in theory delegated from LSE&W. The reality does, however, appears far from that.

3, 4 and 5 I’ll not comment on just now as I will be blogging further, over the next few days of Twixmas, on those areas and others covered in the Scottish Government’s response.

Graeme Johnston:

Thanks Brian! On point 2 (SRA history), it’s a long and rather convoluted tale, but the essence can be picked up conveniently from Legal Futures pieces over the years.

Looking forward to reading your thoughts on 3, 4 and 5!

Me:

Thanks. I put “SRA delegated Law Society” into the Legal Futures search function and found some interesting articles. If you are going to make something independent you really need to make it completely independent.

Graeme Johnston:

Yes. It’s not an easy topic. There’s a useful OECD publication which seeks to identify aspects of it – https://read.oecd-ilibrary.org/governance/being-an-independent-regulator_9789264255401-en

Me:

Thanks again Graeme.

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Michael Burne (I love helping people to start, grow and exit their law firms. Like taking photos too.):

Lots of small law firms reinvent the wheel. Why not let multiple regulators do the same? 😂

Me:

Indeed! From the comments with Graeme Johnston it would certainly appear that the wheel is being reinvented 12 years or so later in Scotland. We wait with baited breath to see if The Scottish Government actually introduce a Bill in 2023 that mirrors legislation they enacted in 2010!

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Brian Rogers FCMI (Regulatory Director, The Access Group (Legal Division)- helping law firms and lawyers meet their regulatory and compliance obligations. Lawtech founder. Veteran.):

How can it be said that the legal regulatory regime is working in E&W when the LSB is being accused of overstepping the mark by the BSB/BC, the LSB is having to investigate the conflict between CILEx and CILEX Reg, and the CLC is actively trying to poach those regulated by the SRA, CILEx, etc.!

Me:

Perhaps that is the ‘machine’ that Simon Heaney referred to?! And the Quis custodiet ipsos custodes? that David Flint referred to.

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On Twitter the following comments have been made:-

Jonathan Brown – Advocate at the Faculty of Advocates – (@Broonjunior):

I think the problem with this analysis, and I say this from experience in dozens of regulatory prosecutions of lawyers, and substantial experience of how other professions do it, is that independence – perceived, ostensible or actual – is important, but not an end in itself.

What ultimately matters is the quality and effectiveness of the regulation: does it root out the wrong ‘uns; does it deliver effective redress to those with genuine cause for complaint; does it sift out malicious or just misguided complaints swiftly?

The SLCC has been an expensive failure. I believe it has been appealed successfully more often than all other professional regulators in Scotland combined. That is mostly due to poor quality decisions in individual cases, but also a reluctance to seek guidance from the court.

Giving it charge of the difficult stuff – which is what in reality a single regulator would be – would be a curious response to it massively flunking a lengthy audition on the simpler stuff.

Along the way there have been profoundly harmful side effects. There is much more defensive medicine. Clients who look like they might be difficult are turned away more readily and more often. (Though counsel have no such luxury). Stress and poor mental health are increased.

And largely in consequence I think of all of this, the Law Society’s end of things is a shadow of what it once was, shorn of accumulated expertise, underfunded and trying to make do on the cheap.

All of that being so, should we not start by asking two questions: what are we trying to achieve? How do we achieve it while striking the optimum balance between cost and quality?

Me:

All good points. But plenty of stories out there of the Law Society of Scotland being overzealous. Also they seem to have plenty of cash for ivory tower schemes! Your two starting questions are good ones for the Law Society to ask themselves.

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