Legal Services: removing barriers to competition Consultation on proposals to make amendments to the Legal Services Act 2007

Transcription

1 Legal Services: removing barriers to competition Consultation on proposals to make amendments to the Legal Services Act 2007 Comments from ACCA to the Ministry of Justice August 2016 Ref: TECH-CDR-1391 ACCA is the global body for professional accountants. We aim to offer businessrelevant, first-choice qualifications to people around the world who seek a rewarding career in accountancy, finance and management. ACCA has 178,000 members and 455,000 students in 181 countries, with approximately 75,000 members and over 70,000 students in the UK, and works to help them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of 92 offices and centres and more than 7,110 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence. The expertise of our senior members and in-house technical experts allows ACCA to provide informed opinion on a range of financial, regulatory, public sector and business areas, including: taxation (business and personal); small business; pensions; education; and corporate governance and corporate social responsibility. Further information about ACCA s comments on the matters discussed here can be requested from: Sundeep Takwani Director, Regulation sundeep.takwani@accaglobal.com +44 (0) Jason Piper Senior Manager, Tax and Business Law jason.piper@accaglobal.com + 44 (0) ACCA +44 (0) info@accaglobal.com The Adelphi 1/11 John Adam Street London WC2N 6AU United Kingdom

2 ACCA welcomes the opportunity to comment on the proposals presented by the Lord Chancellor and the Secretary of State for Justice. The ACCA Global Forum for Business Law has considered the matters raised and their views are represented in the following. GENERAL COMMENTS: We were heartened by the Written Statement by the Minister of State for Civil Justice, Lord Faulks QC, which includes the following assertions: The Government is committed to a strong, independent and competitive legal services market, which will promote consumer choice and quality services at lower prices, ensuring greater access to justice for all. A key part of the Government s approach is to ensure that the statutory frameworks underpinning regulatory regimes allow regulators to regulate in a way that is proportionate and promotes competition and innovation. We also note that the document A Better Deal: boosting competition to bring down bills for families and firms includes a pledge to consult on measures to remove barriers and regulatory burdens. However, while the aims of the current consultation (which suffers from a very brief consultation period) are worthwhile, we do not believe it engages fully with the depth of change required to deliver a fully effective reform. There is an acknowledgement in the consultation that the existing rules are too complex and prescriptive, but there is little information in the consultation to remind respondents how the current framework arose and what might now be preferred alternatives. The Introduction of the consultation paper places great importance on competition. This was, of course, central to the Clementi review and the basis for the 2007 Act. However, the introduction measures the importance of the legal services market to the UK economy with reference to its large financial contribution ( 22.6 billion). It must of course be remembered that a part of the purpose of improving competition is to reduce fees charged for legal services. The Written Statement and the consultation place great weight on research that appears to indicate that ABS firms are more likely to be innovative than other regulated legal services firms. However, the question should be asked: How much more innovation could be achieved through business structures in which regulation is minimised, and in which reserved legal activities are regulated according to risk?

3 Approved regulators did not start licensing ABS until 2010, and another six years later, having only 600 ABS in existence should be cause for concern. A more comprehensive review of the barriers and shortcomings inherent within the current framework needs to be performed. Paragraph 14 of the consultation paper notes that the Clementi review found that existing arrangements were complex and lacking underpinning principles. In our opinion, they remain so. The small number of ABS currently licensed suggests that their impact on competition even given the innovation in services they are able to provide is minimal. A review of the Legal Services Act should have full regard for the Clementi proposals for enhancing competition, while acknowledging that the world has changes since Sir David Clementi reported in For example, probate is a reserved legal activity. ACCA is an approved regulator for probate services, but has not authorised any of its members for this reserved legal activity. This has been due to the potential regulatory costs of doing so. The costs to be considered include those that would be incurred by ACCA and its firms in respect of ABS licensing. Many firms of ACCA practitioners are small firms of only two partners. In order to open up the market for probate services, an authorised practitioner simply needs to be regulated by an approved regulator, and to have complete control over that activity within his or her firm. However, with the current practice, if only one of the partners is authorised for the reserved legal activity of probate, this gives rise to the red tape of gaining an ABS licence, and all that entails. ACCA and others have made the case in the past for probate to cease to be a reserved legal activity. While this position is not the focus of this consultation response, we remain convinced that it is sound. We note, from paragraph 22 of the CP, that [c]omplaints about ABS businesses to regulators and the Legal Ombudsman have been running at a similar rate to those for traditional firms. We believe that a proportionate and risk-based approach to regulation not only reduces the regulatory burden on firms, but results in more effective regulation, underpinned by principles. Protection for the public is ensured by monitoring those directly responsible for provision of the services and their performance. The broader public good will be better served by the existence of one-stop-shop practices able to advise on all aspects of a given commercial transaction, always provided that the provision of services by those practices is effectively and appropriately supervised.

4 AREAS FOR SPECIFIC COMMENT: Reducing regulatory burdens on ABS Question 1: Do you agree with the proposal that there should not be a requirement to provide services consisting of or including reserved legal activities from a practising address as currently required by paragraph 15 of Schedule 11? Yes provided regulation remains suitably robust for all businesses offering legal advice and services, then the form of ownership of the business should not dictate what services are provided. There is no good policy reason for allowing a waiver of the requirement for a traditional legal practice while withholding that option from an ABS. Given the likely correlation between innovation, online service provisions and ABSs, the requirement will be disproportionately restrictive on ABS ventures. Question 2: Do you agree with the proposal that: a) the requirement for an ABS to have a practising address in England and Wales is retained in paragraph 15 of Schedule 11 but Licensing Authorities may waive this requirement or may make licensing rules enabling them to waive this requirement; or b) alternatively, paragraph 15 is replaced with a power enabling Licensing Authorities to make licensing rules about addresses? The regulation of ABS should align with the format of regulation applied to conventional practices. Approved regulators need confidence that the requirements of the LSB would not impede proportionality within the licensing process. Question 3: Do you agree with the proposals to amend Schedule 13 to the 2007 Act and allow Licensing Authorities to make their own rules around ownership of an ABS, and to impose a statutory obligation on the LSB to provide guidance regarding ownership? Licensing Authorities should be in a position to develop appropriate rules around ownership. However, care should be taken in imposing on the LSB a statutory obligation to provide guidance. This risks confusion such that the LSB may seek to be very prescriptive in guidance, the status of which may be unclear. There is a risk that little will change in practice. There should be greater focus on increased clarity when considering changes to the regulatory framework.

5 Question 4: Do you think amending Schedule 13 and giving Licensing Authorities greater discretion in deciding on the necessary checks for licensing, would encourage more applications from businesses to become ABS? We have no reason to believe that the proposed amendment would have a significant impact. It seems unlikely that any business seriously contemplating becoming licensed would be deterred simply by the bureaucratic burdens of the initial registration process. However, allowing Licensing Authorities the discretion to regulate proportionately and effectively would retain existing protections while freeing regulatory resource to address areas of genuine risk. Question 5: Do you think giving Licensing Authorities greater discretion would reduce the timescales and cost of the licensing process, and if so, by how much? 14. As this measure appears to be reducing red tape, we would anticipate savings in time and costs. However, ACCA is not a Licensing Authority, and so we are not in a position to quantify the savings. Question 6: Do you agree with the proposal to repeal section 83(5)(b) of the 2007 Act? Yes Question 7: Do you agree that Licensing Authorities and ABS applicants would make savings in terms of costs, time and resources, if we were to repeal section 83(5)(b)? See answer to Question 5 above Question 8: Do you agree with the proposal to amend sections 91(1)(b) and 92(2) of the 2007 Act? We agree, in principle, that only material failures should be reported, although it is likely that HOLPs and HOFAs will continue to report lesser breaches as a protective measure. Therefore, guidance to the licensing authorities on how to treat reports received would provide greater clarity and consistency.

6 Question 9: Do you agree with the proposal that regulators should provide guidance to businesses on how they define material failure to comply with licensing rules? There has always been an issue with defining subjective terms such as materiality. If this suggestion is pursued, the responsibility for providing guidance should not fall to a number of lead regulators. It would have been useful if the CP had explained how decisions around materiality are managed in respect of non-abs firms, and how successful those procedures have been. Question 10: Do you agree that regulators and ABS businesses would make savings in terms of costs, time and resources if we were to amend sections 91(1)(b) and 92(2) as proposed, and if so by how much? For the reasons explained above, we do not believe that the savings to ABS would be significant, although the costs to licensing authorities would increase. While we believe that insignificant breaches should not be reported, it should be the responsibility of the LSB to provide guidance to licensing authorities (which may, of course, be shared with ABS) concerning what should be considered significant and what action should be taken when breaches are reported. Most professional bodies already have regulations that require their members to report breaches to them and instances of possible misconduct. This includes a duty to selfreport and, in itself, provides an effective safeguard. Question 11: Do you agree that the proposed changes to ABS regulation are sufficient to ensure a level playing field for entry to the market and regulation in the market for ABS and other firms? If not, what further changes do you think would be needed? Within the timescale of this consultation process, we do not feel equipped to answer this question. It would have been useful if the consultation paper had set out a comprehensive analysis of all the regulatory differences in respect of ABS and other firms. As already stated, we have concerns about the effectiveness of the ABS framework generally, and so the proposals within this consultation paper appear to be only touching the surface..

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