Justice Committee
Oral evidence: Regulation of the legal professions, HC 266
Tuesday 5 December 2023
Ordered by the House of Commons to be published on 5 December 2023.
Members present: Sir Robert Neill (Chair); Tahir Ali; James Daly; Edward Timpson.
Questions 78 to 244
Witnesses
I: Nick Emmerson, President, The Law Society; and Ian Jeffery, Chief Executive, The Law Society.
II: Anna Bradley, Chair, Solicitors Regulation Authority; and Paul Philip, Chief Executive, Solicitors Regulation Authority.
III: Alan Kershaw, Chair, Legal Services Board; and Matthew Hill, Chief Executive, Legal Services Board.
Written evidence from witnesses:
Legal Services Board (RLP0006)
Witnesses: Nick Emmerson and Ian Jeffery.
Chair: Welcome to this session of the Justice Committee—the second of two sessions looking at regulation of the legal profession. The subject was last examined in 2016, so some time has passed since our previous work on it, which is why we think it is timely.
I welcome all our witnesses. We shall hear today from the Law Society, the Solicitors Regulation Authority and the Legal Services Board.
I thank the considerable number of people—representative bodies and a significant number of individual practitioners and interested parties—who have supplied written evidence.
Before we begin, we must, as we do in every session, make our declarations of interest. I am a non-practising barrister and a former consultant to a law firm.
James Daly: I am a practising solicitor and partner in a firm of solicitors.
Edward Timpson: I am a barrister and former Solicitor General with a practising certificate. I am not currently undertaking any court work. I am a former chair of CAFCASS and former chair of the Child Safeguarding Practice Review Panel. My brother is chair of the Prison Reform Trust.
Chair: Mr Ali hopes to join us shortly but does not have any declarations to make.
Q78 Chair: I welcome Mr Emmerson and Mr Jeffrey, the president and chief executive. It is the first time we have seen you since your appointment as the president. Congratulations! We look forward to working with you.
We can be fairly focused because we have seen the written evidence that the Law Society and others have provided.
A lot has changed in the world, including in the legal world, since the Legal Services Act 2007. Is it still fit for purpose?
Nick Emmerson: The Law Society believes that the Act’s overall regulatory framework is stable enough and works effectively enough to meet the needs of the regulation of the solicitor profession in England and Wales.
We had to develop good working relationships with the LSB and SRA, and we strived to do that. Our relationship now is very good, but we wish to make sure that the focus of the regulator and the professional body is through the framework of the Act and what the Act tries to achieve.
Of course, change does occur. Some of it is imposed on us from the outside, and some of it is the consequence of events. Three subjects are live issues for us, and you may or may not wish to explore them. The first is the unlimited fining powers that the SRA has requested. CILEX is another one, and the developing situation is Axiom Ince.
Q79 Chair: We will touch on all those. You are satisfied with the broad statutory framework. I therefore take it that a review of the Act is not necessary.
Nick Emmerson: No, and I know that there have been requests to review the LSB’s role. We think that it broadly works and our relationship with the LSB is good. We think that the LSB, as an arm’s length body, from time to time would probably welcome, and we would not object to, an MOT of their performance and how they are doing, but we do not think it is necessary substantially to change the Act or their role.
Q80 Chair: You do not have any issue with a review of operational matters.
Nick Emmerson: No, we do not.
Q81 Chair: That is well understood. For those who do not follow this as closely as we all do, will you describe how the regulatory arrangements for solicitors work between the Law Society and SRA, and how the Solicitors Disciplinary Tribunal fits into it?
Nick Emmerson: The Solicitors Disciplinary Tribunal is a key element of everything we do in regulation. The SRA, our regulator, will refer the most serious matters to the Solicitors Disciplinary Tribunal. Solicitors are officers of the court. The Solicitors Disciplinary Tribunal acts as a court of law, if you like, and is an important element of what we do.
Through the Act, we have the LSB at the top and for the solicitor arm we have ourselves—the Law Society—as the approved regulator, with the regulatory body, the SRA, alongside the Solicitors Disciplinary Tribunal.
Q82 Chair: You mentioned fining powers. While you may welcome a review, do you have other comments on the nature of the Law Society’s relationship with the Solicitors Regulation Authority?
Nick Emmerson: Some things are requested of us, such as CILEX, that we don’t agree with. We have opportunities to speak directly to the SRA on a number of occasions and have regular meetings. These things come into the public domain and we are required and want to respond to them. We find that some of what they do we don’t agree with. It is a very mature relationship that we have. We discuss it between ourselves and in a wider public domain, especially when it comes to policy when things like the RGRs—
Q83 Chair: RGRs? Explain that to us.
Nick Emmerson: IGRs—sorry.
Q84 Chair: For the benefit of the layperson, will you tell us about them?
Nick Emmerson: They are the internal governance rules that govern our relationship that the LSB imposes on us and govern our relationship with the SRA so that the SRA can act independently of us as the representative body.
Q85 Chair: What areas do those internal governance rules touch upon?
Ian Jeffery: The primary point is that the regulatory body—in our case, the SRA—must be allowed to act independently and take decisions around its governance structure, around enforcement mechanisms and around similar arrangements. We are restricted from interfering or seeking overly to control those.
One aspect that has come out from previous witnesses to the Committee is the extent to which it allows us as the representative body to comment on the regulatory performance of the SRA. It is pretty clear that we are not allowed to comment—certainly not freely—on aspects of the SRA’s performance. To do so would undermine its ability to perform its regulatory function. That is not to say that we are not able to comment appropriately at an appropriate time on policy angles that the SRA may be pursuing, and it is not to say that we cannot seek assurance from them about their performance as our delegated regulator.
Q86 Chair: Does that inability to comment result from statute, or is it part of an agreement?
Ian Jeffery: The statute—I think it is section 30—requires the Legal Services Board to set the internal governance rules, and it is the rules themselves that provide the clear lines on what we can do in that relationship.
Q87 Chair: They set the rules that state, “You cannot criticise us publicly.”
Ian Jeffery: That’s right, but they do so in the broader spirit of the Act, which is to separate representation from regulation.
Q88 Chair: I can see the purpose. I note that some other regulatory bodies—CILEX springs to mind—seem to comment quite freely on what they think about each other, between the regulators and themselves.
Ian Jeffery: Indeed, although, as I recall, they were reluctant in this Committee to comment on the performance of their regulator.
Q89 Chair: Does this relationship get in the way of your having an effective relationship on behalf of your members?
Ian Jeffery: No, the president has characterised it very well: the relationship is a professional and respectful one. We are able to do business with each other, but we are each able to stand up, in our case, for our members and, in the SRA’s case, the broader public interest and make those points quite freely.
Q90 Chair: You raised concerns about granting the SRA unlimited fining powers. What are your concerns?
Nick Emmerson: The Solicitors Disciplinary Tribunal has the power to issue unlimited fines and to strike people off the solicitors’ roll so that they can no longer practise.
We see the SRA asking for that power as duplication that may prevent serious cases from going to the SDT, which acts as a court of law. They would stop at the SRA, which in effect becomes investigator, prosecutor and enforcer, which we think is not correct.
Q91 Chair: Do you see any argument in favour of it? They have argued that it could be run in parallel.
Nick Emmerson: The SDT does a good job. It is very transparent. It is open. It has the right to appeal. If it ain’t broke, don’t fix it.
Q92 James Daly: You, president, used a curious phrase when asked about your view on the Legal Services Act: it is “stable enough”—hardly a ringing endorsement. The use of “stable enough” clearly means there is a better way of doing it. What is that better way?
Nick Emmerson: It is a framework and we have to operate within that framework. The separation of the representative and regulatory function has natural tensions. We are there to represent our members and sometimes we want to speak up against—
Q93 James Daly: We are here, hopefully, to find the best solutions that we can recommend. Phrases such as it “is stable enough” and “effective enough” suggest that the current situation is less than satisfactory. Is that correct.
Nick Emmerson: We think that overall it works.
Q94 James Daly: That is as much praise as you are willing to give it, is it?
Nick Emmerson: Yes.
Q95 James Daly: It is fair to say, is it not, that many of your members do not share your view on the SRA as articulated to the Chair? From your experience as a solicitor and in your role now, do many solicitors come to you and make plain their concern regarding the behaviour of the SRA?
Nick Emmerson: It’s a balance.
Q96 James Daly: I understand that, but that’s not the question I am asking. It is quite clear, is it not, that many members of the profession think that the SRA is doing a very bad job and make it clear to you and your organisation that that is what they feel?
Nick Emmerson: I don’t think that the SRA needs to be popular. In fact, if it was, I would be quite worried.
Q97 James Daly: I am asking whether members of the profession you represent tell you—Mr Jeffery can answer this as well—that they have severe concerns about how the profession is regulated by the SRA. These are the people on the frontline.
Ian Jeffery: There are certainly some members who have those concerns.
Q98 James Daly: Can you tell us what concerns they have and what they have said to you as the chief executive of the organisation?
Ian Jeffery: The concerns that come through to me and to the society, more often than not, are around specific issues. We will talk, I am sure, about the compensation fund, Axiom Ince and unlimited fining powers, which we touched on, and redelegation of regulation, which are strong current examples of the concerns—
Q99 James Daly: Do you think that there is a breakdown in trust between SRA members and the Law Society?
Ian Jeffery: If I may draw on my own experience as a practising solicitor for 30 years in a commercial law setting, I would characterise it this way. I think that of the 165,000 or so practising certificate holders the very large majority are focused on their core work, the business of their firm and the things they need to get done.
To the extent that they hold views on the SRA—
Q100 James Daly: I appreciate what you are trying to say, but we are trying to establish some base frameworks in respect of where we are going.
The three of us know that members of the solicitor profession have great concerns about how the profession is being regulated. You have come here today, Mr Emmerson, and the most lavish praise you can find of the regulatory system is “stable enough”. That suggests that the profession has very strong views that the SRA is not doing its job properly, but the best you can come up with in describing where we are is to say that it is “stable enough”.
Ian Jeffery: I think that the president was commenting on the statutory framework, but the question has moved on, if I have understood it, to the performance of the SRA.
I don’t think there is widespread mistrust or dissatisfaction with the SRA, although I accept, of course, that there are parts of the solicitor profession where you would find those sentiments.
Nick Emmerson: The Law Society reflects the views of our members on this. A lot of our members are very angry about it. We do not yet know whether that should be directed entirely at the SRA. There will be a review of what happened. This is a live issue. It was fraudulent behaviour. I am not making any excuses for the SRA or the people who did this.
The compensation fund operated by the SRA currently has about £18 million of our members’ money in it.
Q102 James Daly: It’s not enough, is it?
Nick Emmerson: It’s not enough—depending on what the £60 million looks like in reality. The compensation fund does not necessarily have to refund everybody. There may be insurance. There may be other sources.
Q103 James Daly: Your membership have to abide by all the rules and go through everything to be SRA-compliant. They are burdened by regulation on the high street and many places, and are struggling in some instances to make a good living. If, due to these circumstances, they have to pay a financial penalty, that is not acceptable, is it? There’s a breakdown in regulation, quite clearly.
Nick Emmerson: If the compensation fund is to survive—a key part, I think, of what it is to be a solicitor and of the confidence the consumer can have in us being solicitors—it will need to be funded. However, I absolutely agree with you that not a penny should go into that until we know what has happened and that it won’t happen again.
Q104 James Daly: If it is the SRA’s fault, through a lack of regulation, what should happen?
Ian Jeffery: With respect, I don’t think it is for us to express a view here today.
Q105 James Daly: Your members might want you to express a view.
Ian Jeffery: I will express a view, but I will not express a view on whether the loss of that money is the fault of the SRA. It would be premature to reach that judgment. Many agencies are looking into these questions.
The people who will primarily make that judgment—certainly in the first instance—will be the Legal Services Board; it is their role to hold the SRA to account for their performance.
I do not want to trouble you too much with the internal governance rules, but when the Chair asked me to explain them earlier I said we were constrained from commenting on the performance of our regulatory body in a way that could undermine its ability to function. With respect, I think we might be in that territory.
Q106 James Daly: One of the things that we can take—not as a minor point—is that the Committee should look at regulation of that area. You would feel as an organisation that if there is justifiable criticism of the regulator you should be able to express it on behalf of your members.
Ian Jeffery: This is plainly a very serious situation for the profession and for all those involved. We want to see it investigated fully—
Q107 James Daly: I am talking about the general principle. You say that there is an issue regarding what you can say about the regulation of your member firms. I assume that you as an organisation want to be able to say what you think is necessary about regulation, in the interests of the people you represent. Is that right?
Ian Jeffery: It is, and we will have a chance to do that when the SRA consults on future compensation arrangements. The point they make—I am sure they will make it better when their turn comes—is that the landscape has changed, the structure of the industry has changed and more systemic financial risk is now presented.
Q108 James Daly: My last question follows the logic of what you have said. What is your view—both of you—of the proposal to change the name of chartered legal executives to chartered lawyers?
Nick Emmerson: We did a YouGov survey and 76% of people said they associated that term with solicitors, 61% with barristers, 12% with legal executives. If you go into the market and you are not a solicitor, and you call yourself a chartered lawyer and you are regulated by the SRA—the SRA will not change its name as a result of the CILEX proposal—I put to you: would you think that was a solicitor or a legal executive? I would think that was a solicitor. It will bring confusion to the market, so I do not agree with that.
Q109 James Daly: What is your organisation’s view on CILEX’s proposal to re-delegate its regulatory functions to the SRA?
Nick Emmerson: We are against that very strongly, the reason being the confusion to the public but also regulatory fragmentation. There are 17,000 CILEX members; 9,000 are regulated. It is that 9,000 who will come across and 8,000 will be left behind, probably surrendered to the unregulated market. You will have confusion about how this will operate and having one regulator.
Q110 James Daly: Your view, in a nutshell, is that you regulate the profession, not the service.
Nick Emmerson: Absolutely; it is the Clementi way rather than the Mayson way.
Q111 Chair: The internal governance rules to which you refer are publicly available, I take it.
Ian Jeffery: They are on the LSB’s website.
Q112 Chair: So we could check them out.
I should in fairness raise with you the matter of the unlimited fining powers. You will have seen the SRA’s arguments—in essence, that the Solicitors Disciplinary Tribunal can deal with and sanction individual solicitors. Their contention, in summary, is that they can go after the firms, which would drive regulatory behaviour and change more effectively, and that it would be quicker to do so. What is your response?
Ian Jeffery: We don’t see the evidence for that; it would be for them to make the case for that. The ability to sanction individual practitioners is already quite sufficient, in our view, to enforce professional discipline.
Q113 Chair: You don’t see a need to go after firms.
Ian Jeffery: No.
Q114 Chair: Why?
Ian Jeffery: Because of the adequacy of existing arrangements.
Q115 Chair: It has been suggested in other areas—for example, changes to corporate liability in criminal matters. The ability to go to the corporate body will sometimes cause the board of directors or partners to change their processes to ensure they never get into that situation.
Ian Jeffery: The SRA has made rules that will impose personal obligations on those managing firms to see that things are done well within their firms. A recent example is the conduct and workplace bullying rules that have been made. If as a manager of a firm you tolerate that kind of practice in your organisation, you can be personally sanctioned. It is not necessary in that example for there to be corporate liability.
Q116 Edward Timpson: One thing we do know—and, hopefully, so do others outside the legal profession—is that there is not one homogeneous group of lawyers; there are lots of different branches and specialisms.
One of the growing groups is in-house lawyers—about 34,500 in 6,000 different organisations, so a significant part of the legal profession. Some of the evidence to the Committee suggests that the pressures that they face are different from those faced by solicitors working in private practice.
From the Law Society’s perspective, will you give us a little more insight into what you find those differences and pressures to be?
Nick Emmerson: Twenty-six per cent. of all practising solicitors are in-house, and that number is increasing, while the number in private practice is going down. The trend is for more people to go in-house.
The conundrum is that they are wearing two hats: one as a solicitor and regulated professional and the other as an employee. It can be very difficult to manage those two relationships, so we try to support in-house solicitors so that they as professionals are able to say to their employers, “You can’t do that,” or, “That’s not what you should be doing.”
We do that through a variety of ways. We have practical support helplines. We have an ethics hub available. We try to give them practical support in managing that situation, but ultimately they are professionals, first and foremost, and that is how they should manage their relationship with their employers. We appreciate the reality gets in the way sometimes.
Q117 Edward Timpson: If I am an in-house solicitor and I want some support from the Law Society, what should I do?
Ian Jeffery: We offer a variety of services to members. We have an in-house solicitors network, for example, that will regularly draw people together to discuss the issues and to help us to focus on policy and services that support them.
There has been recent focus on the important topic of professional ethics. We conducted a number of roundtables, including specifically with general counsel across a number of different sectors, on the premise of your question. The issues facing in-house solicitors being different came through strongly in the roundtables, so we launched an ethics hub through which we are providing additional insights and information for members of the community.
A number of services and initiatives are going on, but we know we have to build further on that, not least because, as you correctly say, that proportion of the population is growing year by year.
Q118 Edward Timpson: In-house lawyers are part of the SRA’s regulatory responsibility. From member feedback, your own experience, perhaps, and the roles you have currently, how effective do you see the SRA in regulating in-house lawyers?
Ian Jeffery: I know that the SRA has been looking to work harder in this area and, as we have, has been doing more to connect with that community through things like its thematic review, which it will talk about, I am sure, if you ask, and dedicated events.
I imagine it will accept it is a work in progress. The rules of conduct that apply to solicitors in general will need some development, adaptation and potentially additional guidance for the specific concerns of that community.
To answer the direct question, it is broadly effective but it is very much a work in progress because of the changing demographics and demands.
Q119 Edward Timpson: So a work in progress; work harder. What needs to be done that isn’t being done, and why hasn’t it already happened?
Ian Jeffery: For a representative body and regulatory body, it is understanding more deeply the additional pressures that in-house lawyers feel. They have duties to the regulator and duties as officers of the court, but they also have duties to their corporate employers. They are directly exposed to quite conflicting demands at times. It is understanding that generality and understanding its specific application in the context of different industries, ensuring that there are services and that the regulator’s rules and policies fit nicely with those circumstances.
Q120 Edward Timpson: As we sit here today, how confident are you that the SRA is tailoring its regulatory requirements, depending on the context in which solicitors work? As you have pointed out, that is a changing picture and the SRA needs to be able to keep up with it. How confident are you that it is able to do so?
Ian Jeffery: I am confident that it has the focus and that it will continue to support the community in the years ahead.
Nick Emmerson: Without doubt, there is a lot of work to do. The in-house community feels neglected. They tell us that, so we are responding. They have additional pressures and we must respond, and we are responding as best we can.
Q121 Edward Timpson: In practical terms, how would you review progress on this? It may be another four or five years before the Committee looks at this again. I hope it will be a shorter period, but there needs to be clear improvement, from what you are saying, in how the SRA is able to regulate this growing part of the legal profession.
Ian Jeffery: The way I would try to put it is that there needs to be continued focus on developing the regulatory arrangements on their side and services on our side to support the developing needs of that community. It is not a journey with a defined starting point and endpoint and I can say we are halfway through; it is a continually receding horizon and we both need to work hard to keep up with it.
Q122 Edward Timpson: For instance, are you planning a review in 12 months against some of the pressures articulated by in-house lawyers and whether the regulatory framework is helping or hindering them in dealing with those?
Nick Emmerson: We have regular engagement. I tour the country and meet in-house lawyers. We are actively listening to them. We have groups that target them, so they will give us the feedback. They are not shy about coming forward, so we will get feedback from them and they will give us the review.
Q123 Tahir Ali: What concerns do you have around the role played by unregulated providers of legal services?
Nick Emmerson: I travel the world. A lot of legal markets do not have an unregulated sector; they are just regulated lawyers who can give legal advice. They think our system is different and are very interested in how it works. We are not scared of the unregulated sector because it can offer huge value. Citizens advice and that entry level into how people can understand whether they have legal rights or a claim is very important. We do not feel that we have to interfere with that, except for the fact that AI is now coming into focus and that may give unregulated providers greater access to the general public. If that happens, we have to think about that in particular. I do not know whether my colleague wants to say anything about AI.
Ian Jeffery: Not unless there are specific questions on it.
Q124 Tahir Ali: What do you think the effect of regulation is having on access to justice? Is it having an effect?
Nick Emmerson: It is important people understand that, when they speak to a solicitor, a CILEX-regulated person or a barrister, they know they are getting regulated legal advice. The problem is that that costs money and businesses are being run and people are charging fees. Therefore, it is often to the unregulated sector that people go for either free or cheap advice, although a lot of our members do a significant amount of pro bono work.
Ian Jeffery: Promoting access to justice is one of the regulatory objectives under the Legal Services Act and is something that the whole regulatory and representative community certainly should and will have had in focus for the past 15 years or so.
In answer to a question about the effect on access to justice, our concerns as the Law Society are that there are much bigger barriers to access to justice than anything to do with the regulatory framework, principally the state of the courts and justice system and the funding of legal aid.
Q125 Tahir Ali: Do you think that users of legal services in England and Wales are getting a good deal?
Nick Emmerson: As for legal aid, especially criminal legal aid, you may know that we are judicially reviewing the Government's decision on the increase in fee rates. They did not follow the Bellamy review’s 15% proposal. We do not think they are getting a good deal on criminal legal aid, and obviously there are delays in the courts and the pressure that puts on victims, defendants and the whole system. Therefore, in terms of legal aid I think our members are doing their best, but it is a very difficult place in which to work. People are leaving the profession.
Civil legal aid is having a review that will report in 2025, but there has not been a rise since 1997. I do admission ceremonies for a lot of young solicitors; I probably do 65 at a time. It is rare to find anybody who is going to do legal aid work; they just do not see it as a future. Is the profession serving the public well on that? It is not at the moment because of the systematic destruction of legal aid.
Ian Jeffery: The legal services industry in this country is one that certainly we as the Law Society are very proud of as a whole. I think wider society has good reason to be proud. It is a world-leading industry and huge contributor to GDP. There are many examples of exceptionally good practitioners doing exceptionally good work for clients. Therefore, when we discuss some of the problems around lack of provision in certain areas we have to make that important balancing point.
Q126 Tahir Ali: You mentioned people leaving the profession. Do you have the figures for that?
Nick Emmerson: To give one example, we have lost 1,700 duty solicitors since the late 1980s. I cannot give you the exact figures, but I remember that 72 duty solicitors left between April and July of this year. These people are quite elderly and are not being replaced by young people. I think the average age of a duty solicitor now is over 50. While Ian says that the rest of the sector is booming and doing very well, there are these core legal aid-focused practices that need our help. That is where I think access to justice is not denied, but certainly the people are getting a very difficult deal.
Q127 Edward Timpson: On access to justice, the Legal Services Consumer Panel, with which I am sure you are familiar, raised concerns about antiquated regulatory architecture; price transparency; lack of consumer focus and how this may be making it more difficult for people to access justice over and above the points you have made in relation to legal aid and some of the advice deserts we see in areas like housing law and social welfare law, which is particularly troubling because that tends to affect the most vulnerable. From the panel’s own responses and concerns it has raised, is there anything that the Law Society itself can do to help address those so that they are less prominent in the future?
Nick Emmerson: There is the legal aid sector and those who can access it, and then there is a huge gap before people have got money in their pocket to pay for lawyers. We have launched a 21st century justice project. We have published what we call a green paper and brought together not just lawyers but stakeholders from everywhere to think about how we can help people in that middle part access justice, in particular the use of AI as a signpost.
In the unregulated sector you have legal advice from CAB and all those organisations to which we can direct people. It is a big project for us. We are going to report on that later this year.
We do see there is a problem about access to justice, not just for individuals but small businesses. They have up to eight claims a year that they never make because they do not feel they can or in which they do not have an easy process. We are looking at everything, even what we call the unbundling of legal services. Instead of the solicitor being involved from the start to the end, it may be—we are consulting members on this—that the solicitor can surrender the days. There may be some kind of AI function whereby a member of the public can issue a letter and get it going and it can then be passed to regulated legal advisers to advance it. We are very focused on that and see it as a big issue.
Chair: We are very grateful to you, gentlemen. That is most helpful. Thank you for your time and your evidence.
Witnesses: Anna Bradley and Paul Philip.
Q128 Chair: Welcome, Ms Bradley and Mr Philip; it is good to see you both. Perhaps you would introduce yourselves for the record.
Anna Bradley: I am chair of the Solicitors Regulation Authority.
Paul Philip: I am chief executive of the Solicitors Regulation Authority.
Q129 Chair: I am going to start with broadly the same question as I have done with all the witnesses so far. From your perspective, do you think the 2007 Act is still fit for purpose?
Anna Bradley: Fundamentally, it is absolutely fit for purpose. It was set up to achieve a number of things. It has broadly achieved those and continues to provide the basis on which we can regulate.
However, as the Law Society just said, there are a number of shifting agendas out in the world over which we have no control but which may have an influence over the future of the provision of legal services. I think it would be normal to take time out every now and again to see whether we need to tweak or adjust statute to be able to accommodate some of those changes and be sure we can continue to regulate appropriately. We are not calling for a review, but 20 years on one might think it worth taking stock.
Q130 Chair: It is about taking stock, but falling short of a review. How would you envisage that taking stock might be put together?
Anna Bradley: In most respects, one would expect that kind of taking stock would be done through Parliament and Whitehall. The sort of thing you might have is a review under the auspices of the Ministry of Justice about the context in which we are operating to see whether or not the Act continues to be fit for purpose. They would take views on that and we would describe some of the things that are happening around us which might contribute to their thought processes, but that is the kind of thing.
Q131 Chair: What other things would you tell them that might contribute to the thought process?
Anna Bradley: As regulators, a lot has changed and been added to our responsibilities. Some of the things we are much more focused on now—that is not to say they were not under our auspices before but they have become much more significant—are to do with behaviours related to the development of the MeToo movement and the development and use of tech. The Law Society has just talked about AI and what that might mean for the delivery of legal services. AML was not such a significant part of our work when we set out in 2007.
Q132 Chair: For those who are not in the business, perhaps you would explain what AML is.
Anna Bradley: Anti-money laundering. That has become a very significant element of our work. More recently, we have been looking at both SLAPPs and sanctions. These are all driven by external events of which we must take account. The question is: are we able to do that in the most appropriate way? Does there need to be any tweaking to deal with that?
The single most important shifting set of plates is around tech. None of us knows, but, if you look at the financial services industry maybe 10 or 15 years ago, tech seemed quite slow in developing. We are perhaps a bit in that place ourselves now. It could move very fast going forward, and we need to do some of that thinking before we get to that point rather than at the end of that road.
Q133 Chair: That is helpful. In your written evidence you refer to your view that the SRA should have unlimited fining powers in relation to solicitors’ firms. You will have the evidence from the Law Society on why it does not agree with that proposition. I would be interested in your response to its points. Perhaps you would want to amplify your written evidence as to why you think there is an added benefit in that.
Paul Philip: You have already received our main arguments in writing. I think the key one is that most regulatory frameworks would provide for a sufficient or material deterrent to deter people from undertaking the wrong type of behaviour. In terms of unlimited fining powers, at the moment we can fine firms £25,000, which is an uplift from £2,000 a number of months ago. That appears to be working well, but it is still insignificant in relation to the turnover of a very significant number of law firms in England and Wales.
If you are to deliver a sufficient deterrent to deter other people from engaging in the wrong type of behaviour, you need evidence that there is a consequence to that behaviour and that that consequence is relatively proximate to the event. As such, we believe that, if we were to receive unlimited fining powers, we would be in a better position to do that.
However, before we did that, we would need to review and consult on our fining guidance to make sure everybody understood the way in which we will apply fines. Any fines issued by the Solicitors Regulatory Authority at the moment and in future will always be subject to appeal to the Solicitors Disciplinary Tribunal. Therefore, there will always be a right of appeal against any fines that we propose. In many ways where firms accept fines from us it is because they believe it is the right outcome, or they do not want to face a full hearing in front of the SDT. That is our main argument.
Q134 Chair: You will have heard the Law Society has said that is your belief. I accept that is your view as an organisation, but what is the hard evidence for that belief?
Paul Philip: It is a bit difficult to have hard evidence on something that does not exist at the moment. We do not have unlimited fining power, but, if you look at other regulatory frameworks, such as utility regulation or the regulation of accountants through the FRC, you will see that much larger fines most definitely have a behavioural response because people sit up and take notice. For instance, a recent fine of £100,000 that we imposed on a firm in relation to anti-money laundering has created quite a considerable amount of chat in the legal press. That is the type of discussion that we think should happen so people can sit up and take notice and ensure they do not find themselves in the same position.
Anna Bradley: Perhaps I may add a couple of points. The first is about a point Sir Robert made in relation to statements made by the Law Society. Where these significant fines have a particular impact in other sectors is in relation to the behaviour of senior management and the fact they are required to pay attention because this is having a significant impact on their business. That is important in setting up the firm for success and ensuring it is doing what it is required to do throughout from the top down. Therefore, getting the attention of senior management is an important thing.
Separately but importantly, as Paul says, it is pretty difficult to prove that something you do not have can work better, but it is not impossible, and it is very important to our approach to regulation that we ensure when we do something new and different that we test it to see whether it is delivering the outcomes we would hope for. We always do research after we have implemented new regulations and approaches to our work to check that it is having the desired consequences and not some counterintuitive response. We would always undertake to do that.
Q135 Chair: I get your point about the fine of £100,000 and Paul’s point about corporate behaviours. Otherwise, are there any instances you can point to at the moment where the absence of unlimited fining powers has had any specific impact?
Paul Philip: I do not think there are. What we are saying is that it does not exist in the moment, so it is hard to prove that it would have an impact. What I would say is that the cost of fines cannot be the cost of doing business. Solicitors are professionals and they need to realise that there will be significant consequences if they engage in the wrong type of behaviour.
Q136 Chair: You mentioned that there remains the prospect of an appeal to the Solicitors Disciplinary Tribunal, but in other respects if you get those additional powers have you thought through and consulted the SDT on what impact that might have upon it?
Anna Bradley: Let me begin and then we can talk about the future. When the proposal for our fining powers to be increased to £25,000 first appeared the first thing we did was to sit down with the chair and chief executive of the SDT to talk about how this might work. We agreed what you might describe as a protocol: notwithstanding the fact we could fine more, what kinds of cases should really be subject to the SDT’s full process because they were novel or complex and deserved the weight of that process?
What was perhaps a surprisingly new arrangement—in my view, this probably should have happened before—was that we started to talk about how we could help them to see what the flow of cases was likely to be over time and what we had in our portfolio that they might get in theirs in due course. Therefore, we were seeing this much more as a joined-up system together delivering better outcomes for solicitors, for whom going through the SDT is a very difficult, long, arduous and very upsetting process. Sometimes people much prefer to have a shorter end to the process. We went through that process and we would do that again, but we would also consult.
Paul Philip: We would obviously go through the same process. Were it to be on the cards that we would receive unlimited fining powers across the board, we would hope to have an active dialogue with the SDT.
Chair: I think that has dealt with that topic. We will now suspend for a little bit.
Sitting suspended.
On resuming—
Q137 James Daly: I spoke to a solicitor who said of the SRA that it over-regulates the small firms and under-regulates the large ones. Do you think that is a justifiable criticism?
Paul Philip: I do not. We try to tailor regulation as much as possible, but there is a big but here, in that the resources of very large law firms eclipse the resources of smaller law firms. The one thing nearly all law firms complain about is that it is not really an emanation of the SRA; it is an emanation of Parliament, which is the anti-money laundering regulations. That is the No. 1 thing I hear as I speak to practising solicitors. It is overbearing and they would like it to be changed.
Q138 James Daly: You do not think that those who make that criticism have any basis for it at all.
Paul Philip: I think we need an ongoing discussion about it, but the thing about solicitors is that they are all held to account on the same regulatory principles of honesty, integrity, independence and confidentiality.
Q139 James Daly: If you are regulating a firm with a turnover of £60 million compared with one having a turnover of £1 million, do you think exactly the same regulation applies in terms of scrutiny of those two different entities?
Paul Philip: I think the application of the regulatory principles I have just described is exactly the same. Where I think there is a more legitimate argument is in relation to some of the compliance issues related to the running of firms.
Q140 James Daly: Looking at anti-money laundering audits, is it right that when the SRA carries out such an audit of a law firm it takes the opportunity to check whether the firm is compliant in other aspects unrelated to the AML audit?
Paul Philip: I would need to get back on that one, but I do not see any reason why they should not. If I were at a firm talking about AML and asked a question about general compliance with the regulatory framework, I would expect the firm to be able to answer it.
Q141 James Daly: If it is a specific AML audit, that is what the firm is expecting to be audited on. Essentially, are you spying on these firms? While telling them it is an anti-money laundering audit, are you looking at wider compliance, even though the firm is unaware that is what you are looking at?
Paul Philip: What I would say to firms is that we are always looking at overall compliance with a particular focus on AML in this instance.
Q142 James Daly: The answer is yes; you are looking at other things.
Paul Philip: We are looking at everything associated with the regulations.
Q143 James Daly: On occasions you will not tell the firm that you are looking at things other than the AML responsibilities. Is that right?
Paul Philip: We will tell the firm that a specific focus is AML.
Q144 James Daly: I think you were here when we asked the Law Society some questions. We asked the Law Society about CILEX’s proposals to be regulated by the SRA. I take it you are both aware of what I would consider to be the strong views of the Law Society in respect of this proposal. What weight do you give to those?
Anna Bradley: We are out to consultation at the moment. We have just finished but have not yet reviewed what we have heard. We have heard some of it in a public domain obviously, so we are aware of some of the views different parties hold. We will do what we always do, which is to reflect hard on comments people have made.
Q145 James Daly: I appreciate that.
Anna Bradley: I am not going to tell you now what we think about what one or other party thinks.
Q146 James Daly: You cannot give this Committee of Parliament an answer as to what you think about the Law Society's view on this.
Anna Bradley: I am saying we have a consultation which is out and not yet concluded. We will reflect on all the views that are in front of us and say what we are going to do.
Q147 James Daly: In terms of something that will have a fundamental impact on the legal landscape, shall we say, it seems to me it is going to happen with you guys in a room deciding what your view is on the consultation and the views put forward. Is that right?
Paul Philip: That is not correct. The reality is that the consultation has just finished and our board has not considered the outcome of that consultation. We have no idea what the outcome of the CILEX consultation is and once we know the outcome we will be in a better position.
Q148 James Daly: If we invite you back to this Committee once you have come to that conclusion, we can ask you why you have come to that conclusion.
Anna Bradley: Absolutely, but, to be complete, we should also be clear that we are not the sole arbiters. If there were to be a change, applications would have to be made to the LSB for approval and the LSB would itself have a process, which you can ask them about when they are next at this table. This is not one and done; this is part of the process.
Q149 James Daly: When you talk about the parties to consultation, I take it those are the people you regulate at this moment in time, or is it literally everyone?
Paul Philip: Everyone, particularly the public.
Q150 James Daly: I take it you will give weight to the body of people you regulate at this moment in time as they have the most experience of whether you are up to the job of regulating a wider group of legal professionals. The public do not have a clue about whether your regulation is good, bad or indifferent. That is correct, is it not?
Anna Bradley: The fact is that the statute is quite clear that we are regulating in the public interest and we must have due consideration of what is in the public interest—in other words, a variety of views about what is in the public interest from a number of informed bodies.
I think that earlier you referenced the Legal Services Consumer Panel and organisations of that sort that are thinking about these things from the perspective of users of legal services. We would absolutely look at what they have to say about these things, as well as what the profession has to say about these things. It is our job to try to weigh that up and take a view about what we think best fits with the regulatory objectives.
Q151 James Daly: Please tell me if I am wrong, but as an organisation you seem to have gone some way to accepting that this is an outcome you want. It seems to me from some of the statements that have been made that the organisation essentially has put the cart before the horse and said this is something it can do and it will go through the motions of having consultation, because that is what appears to give a public gloss to this. I do not quite understand why you would want to do this. It is nothing to do with you at all as an organisation. CILEX members are regulated quite adequately by another body. Why on earth would you want to do this?
Paul Philip: We were approached by CILEX quite some time ago and asked whether we would be prepared to put forward a proposal to regulate its members. We thought about it at the time and felt there were some synergies with the regulation of solicitors. The primary reason for that is that 75% of all CILEX members already practise within an SRA firm.
Q152 James Daly: You regulate them anyway.
Paul Philip: We regulate them to an extent under entity regulations in the legal sense.
Q153 James Daly: If they work for a regulated firm you regulate them, do you not?
Paul Philip: We do not regulate them under a code of conduct; we regulate their ability to work in an SRA firm.
Q154 James Daly: You regulate the firm and hold it to account for CILEX’s behaviour within that firm’s environment, do you not?
Paul Philip: Not completely. If a CILEX member was doing something in breach of the code of conduct it would be CILEX regulation that would deal with it at that point in time.
Q155 James Daly: That being the case, you would take no action at all against the principal solicitor or firm in those circumstances.
Paul Philip: It would depend on the facts of the case and whether or not supervision was an issue.
Q156 James Daly: When you talk about synergy and the legal profession, you are making some very large power grabs, if I can put it that way. What you are basically saying is that the solicitors you regulate should be regulated in exactly the same way as paralegals and non-solicitors, are you not? Therefore, what you are trying to create is one legal profession by the back door without any form of scrutiny whatsoever.
Paul Philip: That is not true. The reality is that there are nine frontline regulators. We never canvassed this initiative; it was totally the initiative of CILEX, which approached us. We felt we had a regulatory framework that worked very well. We felt there was some synergy with CILEX members and we could apply that regulatory framework to CILEX members, with some important caveats that CILEX and the Law Society are very keen on, such as that both professions need to remain completely separate and branded; that the CILEX profession should not be seen as regulated by us as a means to becoming a solicitor which CILEX practitioners in and of themselves wish to do, and that is laudable.
Q157 James Daly: What I find strange about it is that we heard evidence—as far as I could see, there was nothing to challenge this—that CILEX members are quite adequately regulated at this moment in time. You are not in a position to say that the regulation in place is inadequate in that respect. Therefore, if the framework already exists where a branch of the profession is being adequately regulated in a professional manner it has to be a power grab. You want your organisation to be the big regulator that is effectively taking over.
Mr Philip, you could quite easily have said to CILEX, “You have your regulator. Go and speak to them. We think that regulator is doing a good job.” Instead, effectively you are saying that that regulator is not doing a good job and you think you could do a better job. There is no evidence whatsoever that you could do a better job.
Anna Bradley: We would never say that regulator is not doing a good job.
Q158 James Daly: If it is doing a good job there is no reason to do this, is there?
Anna Bradley: We would never say that. The body that is responsible for looking at the performance and effectiveness of regulators is the LSB and not us.
Q159 James Daly: Do you think the CILEX regulator is currently doing a good job?
Paul Philip: We have no evidence to say yes or no to that question.
Q160 Chair: You say that you have no evidence. The approach by CILEX, which seems to come out of the blue, is, “We would be interested in you becoming our regulator.” You have no evidence as to the adequacy of the regulation. Did you think to speak to the CILEX regulator about it before you embarked upon this proposal?
Paul Philip: We have certainly spoken to CILEX.
Q161 Chair: Did you tell them, “We have been asked to take this on by the people you regulate. What do you think about this?”
Paul Philip: No. What we did was speak to the body that represents CILEX practitioners. They asked us to do that. We developed a proposal and subsequently did speak at chair and chief executive level with CRL, the regulator, but it is fair to say that we did not do so at the beginning.
Q162 Chair: Did you speak to the CILEX regulator before or after you had developed the proposal?
Paul Philip: If my memory serves me, before we developed the proposal.
Q163 Chair: What did they say about it?
Paul Philip: We did not have a very detailed discussion at the time. That came later.
Q164 Chair: Did you say, “We are going to inquire about this. This is your job at the moment, but we have been asked for a proposal to take over your job,” and they did not have any detailed discussion with you about it?
Anna Bradley: Our discussion was with CILEX and its concern was about whether CILEX was able to re-delegate. That was a matter which, history will tell, became an issue between the CRL and CILEX. It was between them and not with us, and we have not been party to those discussions.
Q165 Chair: You already regulate the solicitors’ profession; you regulate Law Society members. Your approach is to take on some additional regulatory work of another part of the profession. Before you drew up the proposal did you consult the Law Society, the people you already regulate, and say, “We’ve been asked to take on something else, and a lot of those people work for your firms. What do you think about that?”
Paul Philip: To be honest, it is so long ago now I cannot remember, but the reality is that we are in active discussion on a weekly basis with the Law Society. I have no doubt I discussed it with the chief executive of the Law Society.
Q166 Chair: Would you have any notes about that?
Paul Philip: No.
Q167 Chair: To take on the work of another regulator is a fairly major thing to do.
Paul Philip: As Anna has already said, the primary decision would be made by CILEX regulation and ultimately the LSB. We are really only a recipient. If the delegation is transferred to us we are only a recipient. We have tried as much as possible to stay out of the politics or the relationship between CILEX regulation and CILEX as a representative body.
Anna Bradley: At a very early stage in this process we did have conversations with the chair of the Law Society board and president and chief executive. We told them we had been approached. Indeed, they had conversations with CILEX representation as well. The discussions we have had with the Law Society throughout this process have all been done in the interests of ensuring that there is full and proper transparency as the parent body of the SRA, as you would expect. That is the way we approach everything in the relationship between ourselves and the Law Society, which, as Nick Emmerson said, is working very well. I would be very surprised if you asked that question of the Law Society and they said they were unaware of it.
Q168 Chair: Out of interest, before you drew up the proposal did you talk to the LSB about it?
Paul Philip: I believe we did.
Q169 Chair: You believe.
Paul Philip: If my memory serves me, CILEX already had discussed it with them and we raised it with them.
Q170 James Daly: What effect would the proposed change in CILEX regulation have on consumers?
Paul Philip: That is quite a difficult question to answer, is it not? The reality is that we would hope to regulate the CILEX profession in an appropriate manner. You will need to ask CILEX, the representative body, whether they felt it would have an impact on consumers.
Q171 James Daly: We would all hope that if there is a proposed change there would be a perceived benefit for consumers.
Let me turn to the next question. What is your view of the proposal for chartered legal executives to become chartered lawyers?
Paul Philip: That is probably not something on which we have a view. CILEX representation has been taken forward. You will have heard what the Law Society has to say, and we would leave it to the society to comment on that.
Q172 James Daly: Surely, if you want to take over as regulator you have to have a view on these things. Is that not the whole purpose of a regulator? You cannot regulate a profession and say you do not have a view on these things.
Paul Philip: The reality is that the rights, obligations and responsibilities of the lawyers would not change under the arrangements, as I understand it. Therefore, our proposal to them, were they to accept it, or were it to be agreed by the Legal Services Board, would still stand.
Q173 James Daly: Turning to Axiom Ince, obviously there is much about it we cannot discuss because of ongoing legal matters. The question I asked of the Law Society, which I think is at the forefront of the minds of many solicitors, is whether there will be a proposal emanating from you for a levy on individual solicitor firms to cover the shortfall in compensation.
Paul Philip: The compensation fund is funded by the profession. That is the position as set out by the society. The reality is that over the past five or six years compensation fund fees have been going down consistently. The number of interventions we have made in law firms during that time has also gone down. The year before last we had 25 interventions; last year we had 65 interventions: 250% greater. As a consequence of that alone, the fees are likely to go up, but, as already discussed, Axiom represents an unusually large amount of client funds going missing. Seven people are being investigated for fraud.
Q174 James Daly: The basic answer to the question is that there is a very real chance that a levy will be imposed on solicitors to pay for the disaster that has happened at Axiom Ince.
Anna Bradley: I think that—
Q175 James Daly: It is a yes or no answer.
Anna Bradley: I will answer your question, if you will let me. Paul is saying that it is quite likely there will be an increase in fees for the compensation fund because of the increase in the number of interventions and the demands on the compensation fund overall.
Whether Axiom Ince plays a significant part in that is, frankly, unknown at this point. Every time an intervention is made, we seek to retrieve as much of the costs of that intervention as we can from appropriate parties. In this case, as we have said in our paper to you, there is an insurance claim at the company, which may result in a substantial amount of money being retrieved that will go straight into the compensation fund—or not. At this point we do not know, but that would be our aim: to try to retrieve, through the insurance fund and the assets that have been seized, the funds that might be paid out in cash from the compensation fund.
Q176 James Daly: Have you engaged with solicitors, or will you engage with solicitors, when this information comes to light, on how the issues caused by the collapse of Axiom Ince may be resolved? Will solicitors be consulted if you are going to ask them financially to contribute to something that could be the result of all the things we do not know?
Anna Bradley: We have in our sights an extensive programme of policy development and consultation. We anticipate it might take us over 18 months. Obviously, we have to deal with the immediate things immediately.
We think that this change in the nature of claims on the compensation fund means that we need to consider the right balance between the consumer protection that the compensation fund offers, the level of risk management that we need to take as a regulator, the extent to which we intervene in matters rather more, perhaps, than we do at the moment, particularly in relation to changes in ownership and so forth, and whether there are policy changes that we might need to make. We think there are a number of things we need to put in the balance and we will absolutely be consulting solicitors and others on that.
Q177 James Daly: That is a very fair answer but solicitors may well take the view—this may well not be the case—that, if one of the contributory factors to what happened at Axiom is a lack of effective regulation, it would seem rather unfair that individual solicitors pay a price, if that is shown to be the case, for bad regulation.
Anna Bradley: I would just say “allegedly”. We will see whether that turns out to be the conclusion that is reached by all the parties.
Q178 James Daly: Does the solicitors’ profession you regulate think the SRA does a good job?
Paul Philip: It is a very mixed picture. Regulators of all sorts are never particularly well liked by the people they regulate. I was at a conference last week with some 100 lawyers. They were extremely happy and most of them were extremely small law firms. There will be people who have particular views and they are never slow in coming forward. It is a very mixed picture.
Q179 Chair: I have one final thought on consolidators, which is really what happened at Axiom Ince. You sent us a very detailed letter, both of you, for which I am grateful; it was very helpful. Regarding learning going forward, the suggestion that has been put to me by a colleague was: would there be merit in a system whereby, if a firm was being sold under certain circumstances, both seller and purchaser could go to the SRA and, for a fee, perhaps ask the SRA to carry out some level of due diligence around that?
Anna Bradley: It is a fair question and it is one of the questions we will put into the mix in the consultation. I am sure Paul might want to say something about the operationalisation of that. One thing we need to bear in mind is that one of the objectives we have in the statute, the regulatory objectives, is around not over-regulating and overseeing a market that is developing. You have to think about the extent to which, if we do that, it slows down the market and introduces a chilling effect. That would be the thing that one would need to weigh up at a policy and operational level.
Chair: Fair enough, operational.
Paul Philip: We will look at it, there is no doubt about it. There were 110 acquisitions during the year last year; that is quite a lot of acquisitions.
Q180 Chair: It is growing, is it not?
Paul Philip: Every other one, as far as we are aware, went very well. We will just need to see where we get to in the policy review.
Q181 Edward Timpson: Part of being an effective and relevant regulator is to be in tune with an understanding of the profession that you are regulating and the climate in which they are working. To that end, your recent survey of in-house lawyers was criticised by some senior lawyers, who work in-house, for failing to understand the reality of their working lives. Do you accept that? How would you respond to that criticism?
Paul Philip: Yes, you are quite right. A small group of lawyers felt that we never got the tone of that correct. We did a thematic review. We looked at a variety of different lawyers and we asked them questions. The vast majority of them felt there were tensions working in-house, but they were able to manage those tensions.
The tone of the review, some people felt, was an attempt to sweep things under the carpet. Can I just put on the record that that is not the case? The reality is that we have put more resource into dealing with this incredibly important and growing part of the profession. As Nick Emmerson said, there are 34,000 or so lawyers who now practise in-house; it is a really important practice area for us.
This year, we held our first annual conference for in-house solicitors or general counsel, as they call themselves. We had 140 people there, we had an incredibly positive and productive engagement. Nobody raised those concerns at the time. The concerns, I understand, are essentially the same but in a different context to private practice.
The regulator principle is that you have to act with independence, but there is sometimes a conflict when you are working in-house for a management team and have to tell truth to power. That, I am afraid, is the lot of the solicitor, whether in-house or in private practice, when you are dealing with an important client and you are having to say to that client, “I am sorry, I cannot do that because my professional principles essentially get in the way of acting that way.”
Q182 Edward Timpson: You said in an earlier answer that you had a conference with small businesses present. Did they raise with you their concerns about the prohibitive burden of compliance they face?
Paul Philip: They did not, but they have in the past. I do not want, in any way, to belittle the fact that small businesses do feel there is a huge amount of compliance that they have to deal with.
We regulate against the same regulatory principles. All the compliance issues that we put in place are manifestations of acting honestly, with integrity, independently putting your client first and enhancing the rule of law. All these types of things manifest in different types of practices. If you happen to be in a small practice, the percentage of overheads to be attributed to that are, unfortunately, much greater.
Q183 Edward Timpson: Going to conferences is one way of engaging; there are others. Do you both visit in-house lawyer firms? When did you last visit one yourself and walk in their shoes?
Paul Philip: The last time I visited a law firm was last week. I have not visited someone in-house, in their place of work, in a couple of years.
Anna Bradley: We do it as a board. Every time we have a substantive board meeting we have a series of engagement events with solicitors in that area. We have both dinner conversations and workshop conversations to understand what is on their minds and whether there are any geographical or sectoral differences. We then take that into our discussions the next day, as a matter of course.
We absolutely do that. You are quite right, conferences are not the only way to be in touch with people. We do, as an organisation, I believe, a considerable amount of that. We also do a lot of work not just to set the rules and enforce them, but to work with the profession in a variety of ways to help them to understand them and to understand how they can apply them. This is a very important area where the collaboration between the regulator and the representative body is all important.
You heard from the Law Society a little while ago a lot about the work that they were doing to support general counsel in-house lawyers. That goes in tandem with the work that we do and, together, makes more than the sum of the parts. That is the intention. We consciously work with them in those areas where we can both have a part to play.
Paul Philip: I will give you a specific example. We have a virtual reference group of over 50 in-house counsel working with our policy teams to develop guidance for that sector of the profession. We initiated that earlier this year.
Q184 Edward Timpson: Was that a virtual reference group?
Paul Philip: A virtual reference group. We are meeting online, basically.
Q185 Edward Timpson: Sorry, I did not quite hear that.
You said that anti-money laundering work and regulation is becoming a more significant part of your workload. You referred to the recent fine that was handed to a firm in excess of £100,000, despite, we understand, an acknowledgment that there had been no money laundering and no crime had occurred.
Referring back to your earlier answers, bearing in mind your responsibilities in carrying out your regulatory function, is the current approach to anti-money laundering regulation proportionate?
Paul Philip: Yes. Most law firms would think it is excessive. From our point of view, we are regulated on AML activity ourselves by a branch of the Financial Conduct Authority, OPBAS. They drive their whole agenda and, indeed, this Parliament around AML regulation.
To a large part, we have little say in how it is implemented on the ground. It is, particularly for smaller firms, a real burden, but I have to say there is no doubt that the laundering of funds is not a victimless crime. I do say that solicitors need to pay close attention, when they are dealing with funds, around source of wealth checks and having a proper understanding of the types of actions they need to take to ensure they understand who their clients are and where the money came from.
Q186 Edward Timpson: I am not clear whether you are saying you think it is proportionate or whether it is not. Is there room for improvement in understanding there will be different levels of exposure for different businesses and firms—that they would then have the ability to meet any fine that flowed from that?
Paul Philip: Yes. What I am saying is I know that law firms, particularly smaller law firms, find this burdensome. AML is a very important issue. As I said, in relation to general compliance for small law firms, if you work in a small environment, then the proportion of overheads you have to put towards compliance is much greater and also regarding your turnover.
Some of the issues that are in the regulations that we insist that people check are really important. We consistently still find examples of them not doing that. I find it very difficult to suggest that the regime be diluted at this point in time.
Q187 Edward Timpson: Anything to add?
Anna Bradley: No. I would just add one point about the source of the regulations. It is important to note, it is a matter of fact—Paul has already spoken to it—that the approach to regulation, which is required, is slightly different in relation to money laundering from the approach that we adopt in relation to professional regulation. These are very different types of regulation; we are doing both. So, it is inevitable for solicitors that this feels different.
Q188 Edward Timpson: Proportionate or not proportionate?
Anna Bradley: It will feel different and, therefore, it may feel disproportionate, but it is what is driven by the derivation of these regulations. In this case, the anti-money laundering regulations are part of the financial regime.
Q189 Chair: We heard from the Legal Services Consumer Panel, who did not feel that there had been enough progress on price transparency or quality assurance. They felt that we really need to have the two of those together as a package to weigh up value to consumer. What steps are you taking to make sure that consumers have better access than the panel feels they have to that sort of information?
Paul Philip: The transparency agenda is a consumerism agenda coming out of the review of the legal services market that the CMA did some years ago. It is an attempt to try to provide consumer triggers or purchasing triggers to distinguish one law firm from another. We find it is a very good example of compliance, which your colleagues have already raised with us, whereby we are putting obligations on firms to do things like publish their fees, identify their complaint structures, those types of things.
We have had to push hard on compliance. One of the things we have just recently done is introduce fixed fines for non-compliance for law firms. We were certainly in the press the other day about that.
There has to be more compliance with the situation as it is. Yes, we are actively considering what further steps we might take. Our board talked about that a couple of months ago. It is on our agenda for next year.
Q190 Chair: Fair enough. There is, of course, an unregulated sector of the market. Do you have any concerns over the role played by unregulated providers of legal services? Some of them—a charity, a CAB—may be quite benign, but others may be purely in it for a commercial motive. What is your view on that?
Paul Philip: The Law Society rightly pointed to issues about legal aid here. I could easily stand up and say that regulation is the answer. The fact is that the cost of solicitor services are, at this point in time, outwith the means of the vast majority of the population. If they can get access to good legal advice in a sector that is not regulated, why would you stymy that? At the same time, it presents lots and lots of problems because these organisations are just not regulated. Therefore, how do you ensure that they are getting the right quality of advice.
It takes you straight back to the discussion 10 years ago about things like will writing. Will writing is quite important; it is not a reserved activity at this point in time, but people could lose an awful lot of money. If you were to consider changes to the regulatory framework, my own view would be, perhaps, the issue of will writing ought to come back within it.
Anna Bradley: Yes.
Q191 Chair: To make it a regulated activity.
Paul Philip: Possibly.
Chair: Thank you very much.
Anna Bradley: Sorry, Sir Bob, just to add on unregulated services, Paul is absolutely right: the coverage is not complete and will writing would be one. On reaching those many, many people who either do not recognise they have a legal problem or who fear the cost of taking legal advice, with regard to that series of gateway offers that unregulated advisers can offer, often a CAB will end up with someone going to a solicitor, but lots of tech offers help people to get to the point where they recognise a legal issue and they will maybe end up going to a solicitor or another legal practitioner, but only at the point at which they are really clear what the issue is. Hopefully, that minimises the cost for them, too.
Chair: That is helpful. Mr Daly, did you want to come back before we move on?
Q192 James Daly: On the concept of regulation, do you have a record showing that over the last 10 years X firm has had a number of indemnity claims against it?
Paul Philip: No, we do not.
Q193 James Daly: In the sense of risk, if you have a firm who has no indemnity claims or no claims against their insurance or anything else like that over, say, a 10-year period, how will that affect your regulation of that firm?
Paul Philip: The first thing I would say is that we try to get access to negligent claims from the insurance market, but they see it as proprietary information and will not share it with us. We cannot get access to that information on the risks to the regulatory objectives or to consumers arising from individual firms.
Q194 James Daly: Regarding regulation—you may have answered this, but the profession might find this an interesting point—as a profession that has been regulated, in which many firms are doing a very good job, are not having indemnity claims against them and are going along with the compliance procedures but their indemnity insurance is still going through the roof, do you see a role for the SRA or the regulator in standing up for the profession, supporting the profession, about it being unfairly and unduly penalised in those circumstances?
Anna Bradley: I will give you two slightly different answers because you have shifted ground a little there.
Standing up for the profession is for the representative body. You started with the nature of our regulation. Your question, if I have understood properly, was fundamentally about our understanding of the risk that different types of firms represent. We are very focused on that. Over the next period, we will be even more so than we have been able to be in the past because we are now in a position to develop a much better dataset—very boring stuff, but it is fantastically powerful—that will give us a better picture of the communities we regulate and the firms that we regulate. That will help us to focus on the themes and issues representing most risk to consumers and on the firms that represent most risks to consumers.
Your question was: do we have access to the indemnity claims? That would be an additional set of data points, which, at the moment, as Paul said, we do not have access to; we do have other things.
Q195 James Daly: In the Axiom case, prior to whatever is happening to Axiom, were you aware—they may not have had any indemnity claims—of how many indemnity claims were being made against that firm prior to it going bust?
Anna Bradley: Paul has just explained that we do not have access to indemnity claims, full stop. So the answer would be no.
Chair: Thank you very much, both of you; we are very grateful for your time and evidence. Much obliged.
Witnesses: Alan Kershaw and Matthew Hill.
Q196 Chair: Thank you very much, Mr Kershaw and Mr Hill, for your patience and for coming to give evidence.
You have heard much about the topics raised with people from some of the previous questions you have been sitting in for. May I come straight to the point with you? As the Legal Services Board, what is your take on the 2007 Act’s current fitness for purpose?
Alan Kershaw: Thank you. You have heard evidence from a number of people over two weeks, and over the past week. You will have heard various views, although the views today seem to be very consistent and we would share them.
Chair: Yes.
Alan Kershaw: Our view is that, broadly, yes, it is fit for purpose. Some flaws have been identified, which could be corrected in an ideal world. However, given we have what we have, we think a great deal of good has been achieved from it.
I would like to highlight three particular areas that came to our minds in thinking about this. First, it puts consumers at the heart of regulation, which has not traditionally happened in regulation over the decades in the law and in other professions, in seeking to promote the provision of consumer-focused legal services and encourage more competition to meet consumer needs. That has led to some tangible improvements: an increase in consumer satisfaction, and levels of shopping around are greater than they were before. These are from our consumer panels’ tracker surveys. We can give you lots of detail about that, if you wish.
The Act also introduced—this is critical; we talked about the internal governance rules today—for the first time, regulation that is independent of the profession and, for that matter, of the Government, which is pretty important all round. That independence is crucial for trust and confidence in legal services. Public trust has gone up, looking at our own surveys, over the last two or three years quite significantly.
The Act has at its heart—this is very important to us, indeed, because it drives what we do—the very clear objectives for regulation. If there is to be a consensus on what regulation is and what it is for, then that is set out rather well in the Act, including phrases like “protecting and promoting the public interest”, “encouraging a strong, independent, diverse profession”, “supporting the constitutional principles of the rule of law” and “improving access to justice”. They are difficult to argue against in themselves but it has allowed key issues, such as diversity and consumer interest, to become the priorities for regulation, rather than simply the headline things regulators are usually known for, as it were—punishing the bad, and so on. All that is down to the Act and the efforts of the regulators and my predecessors at the LSB to make a reality of that vision.
Yes, we do believe it is fit for purpose—for the purpose of overseeing the regulation of legal professionals in this country. Like anything else, it could be improved. After this number of years, it would be surprising if that were not true.
Q197 Chair: Can you explain for those who do not follow these things as much as we all have—you are the overarching regulator—your relationship with the nine frontline regulators?
Alan Kershaw: Oversight is the key word. The important thing to note is that we do not regulate anyone; we do not attempt to be a regulator of any kind or to supplant the role of the approved regulators and their regulatory bodies.
Our job is to ensure that the regulatory principles are being advanced, that work is going on towards that—that very positive work that can be achieved through regulation—and that the regulators are performing effectively. We do a performance assessment of them each year. Perhaps Matthew might explain how that works.
Matthew Hill: Yes, if I may, Chair. We have a number of powers, duties and responsibilities that we exercise to ensure the performance of the regulators we oversee. As my Chair says, we have the power to monitor performance and, indeed, to set performance targets. We can set statutory statements of policy that set a direction of regulation across the whole sector—a power that we have used once or twice in the last couple of years.
We have a range of enforcement powers to be deployed, the so-called acts and omissions of regulators, that affect the regulatory objectives. We can issue public censure and issue financial penalties. We can issue directions, intervention directions and, ultimately, cancel a regulator’s designation. As the Committee will be aware, we have never exercised that power.
Q198 Chair: How constructive would you say your relationship with them is, or are there tensions?
Alan Kershaw: Inevitably, as between a regulator and the professional leadership body, there will always be a tension, which, all being well, will be creative. I talk about it as singing in harmony rather than necessarily in unison. We would not necessarily be saying the same thing and seeing the world in the same way. The relationship is generally strong and good, certainly cordial and peaceable. Naturally, different bodies have different views on what we do. It is a simple truth right across any profession I have ever been involved with that no one likes being regulated. I do not like being regulated for that matter, but it has to be done in professions for the public interest. Generally, that is accepted. The work we have done is respected.
I will ask Matthew to give you some examples, but I think I am right in saying that there has been quite significant benefit from where we have been able to strengthen the hand of a regulator when, in fact, they have not felt too confident to do that themselves.
Q199 Chair: I can see your performance assessments of the regulators, which you publish. The last one was in January 2023. The only one that fell into the red in any of the categories is the Bar Standards Board, is it not? Putting that to one side, are you generally satisfied with the performance of regulation in the legal sector?
Alan Kershaw: The general picture is very good. Where there have been moves, particularly in certain quarters, there have been real moves to modern regulation along the kind of model we want—for example, in monitoring ongoing competence and assuring continuing development in professionals.
I do not know whether you want me to talk about the Bar Standards Board. There is work being done there, with work still to be done. We look to strengthen their hand in that.
Q200 Chair: What is your assessment of your confidence in how much that will improve? There have been changes lately—personnel and other leadership at the board, and so on.
Alan Kershaw: I am relatively new to this, too, but the signs I have seen have been very good. We certainly had good discussions with them and feel that they know what is needed. As with all these things, it involves an element of culture change in a profession that is strong and homogeneous and well established, so it is not surprising that some of these things take time. However, the Bar Standards Board is moving in the right direction.
Having said that, they are not doing everything we want. Should they fail to do that and fail to reach it, we will not hesitate to take action. Matthew, do you want to be any more specific than that at this stage?
Matthew Hill: I would just pick out some of the detail from the headline performance assessment. We think there are a number of themes across all the regulators where work could be done to improve things. I would pick out transparency and it remains the case that not every regulator is as transparent about its decision making as we would hope.
We think there are issues with some regulators about what you might describe as capability and capacity around resources. We think there are issues around the accretion and assessment of evidence and data. Mr Daly was asking some very good questions about the use of indemnity claims, which are very interesting. There are two or three other high-level themes that we will be pursuing around performance improvement.
Q201 Chair: Out of interest, to carry out your work, what sort of staff do you have?
Matthew Hill: The LSB has 35 full-time equivalent staff; we are quite a small organisation.
Q202 Chair: Your budget overall is?
Matthew Hill: For this financial year, £4.7 million.
Q203 Chair: How is that funded?
Matthew Hill: Through a levy on the regulators; there is no taxpayer funding.
Q204 Chair: No taxpayer funding. So, the regulators, not the professions?
Matthew Hill: The regulators who, of course, in turn, derive their funding from the professionals.
Q205 Chair: Ultimately, the professions pay.
Matthew Hill: Ultimately. It is important to bear in mind that the regulators have access to things like reserves that can smooth the impact of both the LSB and OLC budgets.
Q206 Chair: You are asking for a 14% increase in your budget, or are proposing that.
Matthew Hill: Indeed.
Q207 Chair: That is quite a chunk, is it not. What drives it?
Matthew Hill: The LSB’s board has taken the view that it needs a modest uplift in the number of staff it employs to oversee to a greater depth some of the areas of performance that we have talked about.
We are also foreseeing some significant additional work in the forthcoming financial year. We have talked about Axiom Ince today. One thing we are able to say today is that we are exploring options for an independent objective review of the events leading up to the SRA’s intervention in Axiom Ince.
Another matter that has been front and centre for the Committee is the decision that will come to us, in all likelihood, in due course, in relation to CILEX’s proposals to transfer its delegation. We expect that to consume significant resource in the next financial year.
Chair: We will come to that.
Alan Kershaw: May I add to that without diverting us at this point? This was before my time, but that piece of work that had to be done last year, when CILEX put to the LSB the question whether it had the right to re-delegate, involved taking staff off other positive areas of our work, simply because we did not have the spare capacity. The board has taken a firm view that we do not want to be in that position again.
Q208 Chair: Understood. How much of your time does anti-money laundering work consume? You do not direct your regulators, you said.
Matthew Hill: Currently, very little. It is really just the resource we deploy in staying abreast of developments in this sector, building our relationships and understanding. But we do not currently carry out any work on anti-money laundering.
Q209 Chair: Mr Hill, I noticed that not long ago you said that there should be a single regulator for barristers and solicitors.
Matthew Hill: That is stretching my remarks a little bit, Chair, if I may say so.
Q210 Chair: I see, right. Let us clarify them.
Matthew Hill: Let me explain myself.
Chair: Yes.
Matthew Hill: In the context of a panel discussion at a public event, a representative from the Bar Standards Board spoke before me and pointed to their view that, because much work for barristers came through solicitors, a different view of risk could be taken of barristers. Of course, this is reflected in the SRA’s recently published AML risks report.
I responded, perhaps with more haste than was justified. I am paraphrasing myself here. You need to exercise caution in suggesting that the risk posed by barristers should be managed by the solicitor, because that seems like a good argument for merging the two regulators.
You can see straightaway that I was saying that with a twinkle in my eye, but there is a serious point, which is that if the regulation of barristers is to rely, to a greater degree, on the regulation of solicitors, it creates an argument that the SRA might feel the need to reach more into the relationship between the solicitor and the barrister.
In the context of a public debate with a twinkle in my eye, that was the source of my remark. The LSB has no ambition to merge the BSB and the SRA. I am very happy to confirm that, Chair.
Q211 Chair: That is fair enough. Rhetoric gets us all into trouble sometimes.
Alan Kershaw: I was present at the event in question and can confirm both the letter and the spirit of what Mr Hill has just said.
Matthew Hill: If that is not enough, you can see it on YouTube. We can send that to the Committee.
Chair: That will keep us occupied. Thank you for clarifying that. I am grateful to you.
Q212 James Daly: Is the CILEX regulator performing effectively? Certainly, the evidence that you have produced suggests it is.
Matthew Hill: We publish our performance assessment—
Q213 James Daly: You can say it, Mr Hill, they are performing effectively, are they not?
Matthew Hill: As always, the answer is not quite as straightforward as that. We published our performance assessment. You can read that; there is a lot of detail. They are a complex organisation doing a difficult job. Real life being what it is, things are rarely perfect and they are rarely terrible. I would say that CRL is doing a reasonably good job within the context of our performance system, but it does have some things that it could improve. Anticipating your next question, if CRL’s regulation is adequate—
Q214 James Daly: Tell me about the SRA.
Matthew Hill: Sorry?
Q215 James Daly: About the SRA.
Matthew Hill: Again, you can read our performance assessment of the SRA. How I would describe the SRA, after nearly five years of working with them, is that they are the most sophisticated, mature, best-resourced and arguably most effective regulator in our sector, which is perhaps not surprising, given that if one uses PCF income as a proxy for regulatory activity—
Q216 James Daly: Is your answer, Mr Hill, that, as the LSB, you are telling me that the SRA, in this world that we live in, where we do not have perfect, have nothing at all that they need to address?
Matthew Hill: No, absolutely not. We have been perfectly clear what we think are the SRA’s main requirements.
Q217 James Daly: Do they require improvements in certain areas like CILEX regulation?
Matthew Hill: Absolutely, yes, they do.
Q218 James Daly: It seems a bit strange, therefore, that you have two organisations regulating two parts of the profession that both need to improve. Question: why on earth—you have just made a comment, or it may have been Mr Kershaw, forgive me—is a significant part of your budget going into considering this issue when two regulators have to get their own houses in order before, I assume, you even consider that?
Matthew Hill: It is a perfectly fair question. The answer is a quite straightforward one, which is that the Act obliges us to consider applications for changes to regulatory arrangements. We cannot simply turn down CILEX, if it applies to us, and say that it will cost us too much, so you cannot apply. The law says they have the right to do that.
Q219 James Daly: It is not the SRA.
Matthew Hill: No, it is—well, CILEX have to apply to us to change their delegation to the SRA. The SRA will need to apply to us for permission to change its detailed rules to accommodate CILEX professionals.
Q220 James Daly: What does “significant resource” mean in pound signs? How much money will you spend as an organisation considering the CILEX proposal?
Matthew Hill: I would be reluctant to give you pounds, shillings and pence. To give you some context, we deployed probably in total seven or eight experienced staff, including a significant amount of my time, the time of my general counsel, and the time of other directors in the organisation.
Q221 James Daly: We are talking hundreds of thousands of pounds, bare minimum, are we not?
Matthew Hill: It is largely opportunity cost but I would not put it very far wide from that.
Q222 James Daly: Is that a good use of public money?
Matthew Hill: It is a necessary use of public money because we are obliged by the Act to respond to applications that are made to us. We do not have that choice.
Alan Kershaw: If I could make the analogy, a judge hearing a case in a court has to hear the case brought before them. Whether they have a view on the merits of it or not beforehand is neither here nor there. They have to hear the case. We have no choice but to do that because it is our duty.
Q223 James Daly: I will tell you something further. I have been in many court cases where the judge has read the evidence and said, “This is ludicrous,” very quickly. Is that part of what you can do if you think this is not worth the time and effort in spending hundreds of thousands of pounds?
Matthew Hill: We have set very clear rules about the form and substance of applications. We are very clear that, if applications to us do not meet those rules, they will be rejected. I do not anticipate that CILEX will leave that matter to chance. If it decides to apply to us, in all likelihood its application, whatever the merits of the case, is likely to be in good order technically, in which case we will be obliged to consider it.
Q224 James Daly: You heard the evidence from the SRA regarding—I do not know whether you would call it consultation, but a public consultation appears to be going out. I am not quite sure from the evidence I heard whether the other regulators and professional bodies were consulted properly regarding the proposal. Do you accept that the SRA’s approach, with tertiary consultation with the Law Society and other bodies, including the CILEX regulator, is not acceptable for such huge change?
Matthew Hill: I would not accept that it was not acceptable.
Q225 James Daly: It is not good, is it? It is not good. It should have been done in a far more professional manner, should it not, Mr Hill?
Matthew Hill: We carried out an investigation into all the events surrounding CILEX’s proposals to re-delegate. We published a very detailed and lengthy report, including full details of the consultation that was carried out by the different parties at different stages. I hope that will be of assistance to the Committee in reaching its view.
One thing I can say to you right now is that when CILEX first approached us in autumn 2021 for a confidential conversation, the first thing we said was that we wanted to see greater transparency, including a proper strategic discussion with CRL as a regulator.
Q226 James Daly: That did not happen.
Matthew Hill: We were dismayed that it did not happen in the form that we expected. We were further dismayed to learn, after the fact, that when CILEX first engaged with CRL, it did so under the terms of a non-disclosure agreement. We think that was the wrong choice. We are very clear about that in our investigation report.
Q227 James Daly: I have two further questions. Forgive me, this is a rather long question. The Bar Council, CILEX and Professor Stephen Mayson have said to us, as a Committee, that the Legal Services Board is moving beyond its statutory limits in producing a strategy for the legal services sector as a whole. How do you justify the approach you are taking?
Alan Kershaw: I will start off and ask Matthew to talk a little more about how the strategy was developed.
We have sought to set out a strategy in which we expect the whole of the legal sector to participate. It is not our strategy, as such, but one in which we talk about reshaping the legal services. It is not us doing the reshaping; it is the fact that reshaping goes on and everyone plays their part in that. Our part, in some way, has been to stimulate that discussion.
Everything in there is in pursuit of one or other or more of the regulatory objectives. As you will see from the words I read out, “encouraging”, “improving”, “protecting” and so on; these are positive, proactive words. They are not words about sitting back and waiting to see what happens and pick up the pieces. They are words about getting ahead of the game and encouraging discussion about real change, which will promote the interests of consumers.
That is what we are interested in. We are not interested in having a solution right now, which we want to impose on anyone. We are not interested in being a regulator, and we are not interested in promoting a single regulator. We are working with what we have in pursuit of those objectives, always keeping those before us. Matthew can tell you more about how the strategy was developed.
Q228 James Daly: That is a very full answer. Mr Hill, this is my final question, so you may want to comment on that, but can I ask you another thing that runs into that?
Matthew Hill: By all means.
Q229 James Daly: How do you respond to criticism that you are, as an organisation, using funds derived from the regulated part of the sector to fund activity related to unregulated service providers?
Matthew Hill: I would be mystified, Mr Daly.
Q230 James Daly: That is not happening?
Matthew Hill: No.
Q231 James Daly: That is a very straightforward answer. I am sure you will be delighted about this, but would you support a Government review of your work?
Alan Kershaw: We have no problem with that. We are aware that every arm’s length body is subject to review from time to time, not necessarily to a set timetable but when their sponsoring department thinks it is worth the resources and the effort. Should the Ministry of Justice decide that was appropriate, we would be very happy to collaborate.
Q232 James Daly: Do you think it would be a good idea?
Alan Kershaw: As we have tried to tell you today, we have a good story to tell. We are happy to tell it at any time anyone wants to ask.
Matthew Hill: If I may, on that particular point, because I think it is important, it is Government policy to review all ALBs from time to time. The Ministry of Justice has a risk-based schedule for reviewing all of its many ALBs. It has indicated to us that we are a low-risk ALB and there are others in the queue in front of us.
What we object to is the prospect of a review being used in some way to curtail our proper work in support of the objectives that Parliament has set for us. So, yes to a review when the time is right: no to a review simply because a single stakeholder does not like what we are doing. That would have a chilling effect on the independence of regulation from Government in our view.
Q233 Edward Timpson: As a former chair of CAFCASS, I know all about MOJ reviews of arm’s length bodies; I feel your pain.
Can I ask you a question that was asked earlier and which you will have heard, so I hope you have had a chance to think about it? Do legal services in England and Wales offer a good deal to consumers—one of the things you said you are most interested in?
Alan Kershaw: It is something that has been improving. Clearly, the kind of survey research we have seen and is freely available to you has shown that there are greater degrees of satisfaction. However, we are also aware that, at the last count, 31% of people have an unmet legal need somewhere or other, and that is not happening. That is either because they do not know, because they are afraid, or because they are afraid what the costs might be. They are afraid they will not understand, they are afraid they will lose control over it and so on. These are all things that the professions can help to allay people’s fears about.
Also coming up today has been the question of unregulated practice. Unregulated practice thrives when people cannot readily get access to regulated practice of a good quality, where they have some comeback if things go wrong. The only answer—and I am afraid it is the only answer; I doubt you would ever legislate or regulate away cowboys, cowgirls or an unregulated practitioner of any kind—is simply for regulated people to do their job better and show the world that is what they do. Matthew, do you want to answer?
Matthew Hill: No, I think you covered that well.
Q234 Edward Timpson: To dig deeper on the unregulated sector, you raised some concerns about the service that consumers may get from them and the lack of regulatory oversight. We are looking at areas like conveyancing, will writing, which we talked about earlier, trusts and other areas, with some estimates being up to about 9% of the overall legal services market. Do you have any more radical proposals for what we do about that?
Alan Kershaw: Not immediately, but we have been on record before, I think, as supporting the regulation of will writing.
Matthew Hill: We went further than that, if I may, Chair.
Alan Kershaw: Go ahead.
Matthew Hill: In 2013, we pursued one of our statutory powers and responsibilities and made a recommendation to the Lord Chancellor that will writing be made a reserved legal activity. That recommendation was not accepted at the time. We have seen no need to revisit that decision in the intervening period.
Q235 Edward Timpson: When was that proposal?
Matthew Hill: 2013.
Alan Kershaw: It has been the historical position, with regulation in healthcare as well as legal and, perhaps, in other areas, that regulation, reserved activities, protected titles and so on go with an assessment of the risk posed to the public by particular forms of practice. The Chair has already referred today to the risks posed by unregulated will writing and the serious detriment there can be to individuals on that. Naturally, we understand that well. But it is not ultimately a question for us. We have to make a recommendation on the matter. We would always be prepared to consider evidence about detriment coming from unregulated practice of any kind.
Matthew Hill: For the full detail for the Committee, it is in the Lord Chancellor’s gift to amend the list of reserved legal activities, but only on recommendation from the Legal Services Board.
Q236 Edward Timpson: When looking at the experience of consumers of legal services in issues like will writing—we talked earlier about some of the advice deserts in certain areas of the law—how do you, as an organisation, understand and categorise those different consumers and work out how you respond, so that each of the various frontline regulators is match-fit, as it were, to try to deal with those issues?
Matthew Hill: It is a really great question. I will use advice deserts as an illustration of some of the issues that we and the regulators and, indeed, the professional bodies face. We are all working under a regulatory objective of promoting access to justice.
Indeed, if I may just make a detour back to Mr Daly’s question about the strategy, our strategy was designed to demonstrate that regulation is only ever part of the story in meeting these very broad challenges. Advice deserts have very little to do with regulation. They have an awful lot to do with how legal services—and this is the relevance to your question, Mr Timpson—are funded for those who do not have ready access to the means to fund them themselves.
Broadly speaking, we would see the sector in three headline segments. There is what you might describe as the publicly funded end of the justice system, where the really dominant factors are to do with legal aid and other forms of support. At the other end of the spectrum, there is the big, corporate law with turnover of hundreds of millions in the City, where regulation probably has not had enough purchase. This goes to Mr Daly’s question about how the SRA spends its time in relation to small or large firms.
In the middle, there is a chunk of consumers where we think regulation can really help. For many of them, as my Chair has said, one of the barriers will be that they do not really understand what a lawyer does or how to make use of a lawyer, or they do not have the confidence to approach a lawyer. We think regulation can help with that by requiring law firms themselves to reach out more, to explain their business more, to make themselves more accessible.
We think that technology, which is another area that regulation can affect, has the ability to change the way services are delivered, to make them more convenient, to make them more cost-effective, to make them better distributed, for example—and a range of other areas where regulation can make more of a difference at the really hard end of the sector and, perhaps, where it ought to at the top end of the market. Does that help at all?
Q237 Edward Timpson: In relation to that large middle group, as you describe them, are regulators doing enough to give them that basic information before they instruct a lawyer? We heard about the Legal Services Consumer Panel’s concerns around price transparency and quality assurance. Do they need to do more on that?
Matthew Hill: We are very sympathetic to the consumer panel’s position. We would like to see people going further and faster. What I can say is that we made all these areas the subject, for the first time, of a statutory policy statement by us that we issued in 2022. We gave the regulators a pretty generous period to implement those recommendations—to make sure that their regulations required price transparency, information about quality and that public legal education was a requirement.
You heard from the SRA how much resistance can be faced in implementing that sort of regulation. It is true in this case. All the regulators, I can say, have said that, by September 2024, which is less than a year away obviously, they will be able to say they have implemented all the elements of our statutory policy statement.
For the consumer panel, that is too slow and I have sympathy for that. For the regulators, they are being asked to do something very difficult, often in the face of concerted resistance. There are two ends to that question.
Q238 Edward Timpson: We get to September 2024. It has not happened, so what can you do about it?
Matthew Hill: I mentioned the range of enforcement powers available to the LSB in the Act. We would not rush to use those because we are a sensible, proportionate regulator, and all of that good stuff. But regulators must be on notice that, beyond September 2024, we are beyond the generous period of self-led implementation and into, perhaps, sterner territory.
Q239 Edward Timpson: What would that sterner territory look like?
Matthew Hill: Well, I would be very reluctant to assume that any of the regulators will not meet our September 2024 deadline. We have a gradated range of tools that we can use that start with—if I can put it in these slightly flippant terms—the stern look, but move through quickly to more formal powers like censure, financial penalty, issuing directions and so forth. We have the teeth to back up our more enlightened encouragement, let us say.
Q240 Edward Timpson: Are they enforcement measures, as it were, that the LSB have used before?
Matthew Hill: They are, yes, but rarely. They have enough power in their own right to allow them to be used sparingly, but we have used them. We have used public censure, for example.
Alan Kershaw: In my experience of being on the board of one of the frontline regulators, IPReg, before I became Chair here, there was an issue on which we were not moving fast enough. As soon as it became a possibility that the enforcement powers of the LSB were heaving into sight, that was quite enough to frighten the children, if I can put it that way; we were actually very determined to do what was necessary and show we could do it in a collaborative way. That is generally true of the regulators; they would much rather not have something forced on them, for all the reasons you can imagine. That is one example.
I cannot say that it goes right across the board but it is a very powerful instrument of the LSB—it is the equivalent of, say, Ministers sending in commissioners to run an organisation. We would not be going that far, but it is enough for a censure they really do not want. So, it is a very powerful tool.
Q241 Chair: Thank you very much. You have a pretty open-ended set of regulatory objectives. The risk is that open-ended objectives can sometimes lead to mission creep. What do you do to avoid that?
Alan Kershaw: Sorry, I did not quite catch that.
Q242 Chair: You have a set of open-ended objectives.
Alan Kershaw: Yes.
Q243 Chair: There is always the risk that open-endedness leads to mission creep. What do you do to avoid that?
Alan Kershaw: The very first thing to say is resources. While we can raise a levy, we can only ask for so much. We try to focus on where we will have an impact.
Let me give you an example. This year, the strategy up to now has been pursuing some quite big ambitions. Our aim, and the board has considered this very carefully, for the next year, and maybe beyond, is to ensure that those themselves have impact and that we can see some results on the issues we are dealing with: technology for access, professional access to rule of law, equality and diversity. We want to see some real results on that, rather than going off on new flights of fancy.
However, if we see there is a gap in what is in the consumer’s interest, which the regulatory objectives give us the duty to try to fill, then we will do it.
On mission creep, to be honest, we have really quite enough to do and put enough strain on our extremely strong staff team not to want to take on more than that. We certainly have no ambitions to be taking over the role of the regulators themselves.
Matthew Hill: In terms of the nuts and bolts, Chair, the objectives are open-ended. The Act does say that it is for the board to decide how to pursue them most appropriately. But it is not without constraint. There are constraints in the Act, for example. We must have regard to the better regulation principles, for one thing. We are bound by the constraint of reasonable practicality. We could not propose to build a law centre on the moon, for example; I know that is slightly flippant.
More externally, we are reminded every single day of the need to remain within our remit. We pay a great deal of attention and exercise a lot of care and diligence to make sure that we do remain inside that remit. In that respect, I would pay tribute to the Bar Council, whose fastidious reminders of our remit are very welcome and very helpful.
Finally, as a statutory body, our decisions are subject to challenge in the courts. They have been on numerous occasions in our existence, usually in relation to our remit. I am happy to say the courts have upheld the LSB’s position on every occasion. I hope that will give the Committee at least some reassurance that we take our duties very seriously.
Q244 Chair: In court, you said you were subject to proportionality tests, but they found for you on the facts, in, I think, Lumsdon, for example.
Matthew Hill: More or less. We will take that, though.
Chair: Thank you very much. We are very grateful to you, gentlemen, for your time and evidence.