Regulatory Infrastructure of the Legal Services Act 2007
A. Background
The Clementi Report criticised the way that practice rules were made by the professions. Clementi considered, for example, that the Bar Council and the Law Society were often held back by their members in making desirable changes to the rules.
This, he thought, had restricted both competition and innovation in the professions. Changes, he observed, were often forced on the professions by outside pressures that they could no longer resist, such as the rules on direct access to the Bar. He concluded that ‘issues such as changes in the practice rules should be examined, not against the wishes of the membership, but against the test of public interest’.[1128]Clementi did not recommend that all rule-making powers should be taken away from the professions. He felt that day to day rule-making should be left with them; they had the necessary knowledge and expertise to do it. Moreover, he considered it more likely that practitioners would be committed to high standards if the rules were formulated by their own profession. If they were formulated by another, such as government agencies, they might be regarded as a ‘constraint to be circumvented’.[1129]
The LSA 2007 contained proposals to change radically the complaints procedures. The disciplinary procedures of the professions, which Clementi considered work appropriately,[1130] were untouched. By the time the Act was passed the Law Society and Bar Council had divested their regulatory powers. There were however, other significant changes to the regulatory infrastructure.
B. Legislative Infrastructure
In addition to requiring separation of the regulative and representative functions of professional bodies, the LSA 2007 required the introduction of other regulatory structures and requirements. The first change was the establishment of the oversight regulator, the Legal Services Board.
The second was the authorisation of Alternative Business Structures and the creation of a framework for their operation. The third was the consolidation of complaints handling within a single organisation for the sector, the Office for Legal Complaints.i. Legal Services Board and Approved Regulators
The Legal Services Board[1131] and the approved regulators[1132] must, so far as is reasonably practicable, act in a way which is compatible with the regulatory objectives. They must have regard to the principles under which regulatory activities should be transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed. They must also be conscious of what appears to represent the best regulatory practice.
ii. Alternative Business Structures
a. Licensed Bodies
Alternative Business Structures (ABS) are defined as potentially licensed bodies under Part 5 of the LSA 2007. A body (B) is ‘licensable’ as a provider of one or more reserved legal activities if a non-authorised person is a manager of it or has an interest in it. It can also be licensable if another body (A) is a manager of or has an interest in B, and non-authorised persons control 10 per cent of the voting rights in A.[1133] ABS are, therefore, vehicles for ownership and management of law firms by non-lawyers.
b. Licensing Authorities
Approved regulators[1134] or the Legal Services Board (LSB)[1135] can be designated as ‘licensing authorities’ for licensed bodies to deliver specified reserved activities. Licensing authorities must issue a policy statement approved by the LSB, stating how they will promote the regulatory objectives.[1136] They must make licensing rules containing details of how licensable bodies will qualify for regulation by them. They must also specify regulatory arrangements, including conduct rules, discipline rules and practice rules, and indemnification and compensation arrangements.[1137]
Licenses granted to licensable bodies must state the reserved activities that they are entitled to carry out and any conditions attached to the licence.[1138] Conditions may include restrictions on the non-reserved activities, such as advice giving, which the licensed body may or may not carry on.122 Licensing authorities do not necessarily have jurisdiction over all ABS activity.
They only regulate reserved legal activity, non-reserved legal activity undertaken by the ABS and any non-legal activity that is subject to conditions imposed on the licence of the ABS.Licensing authorities can suspend or revoke licences.123 Designation of approved regulators can be cancelled by order of the Lord Chancellor on the recommendation of the LSB.124
c. Head of Legal Practice and Head of Finance and Administration
The LSA 2007 requires all licensed bodies to have a head of legal practice (HOLP) and head of finance and administration (HOFA). The HOLP is required to ensure compliance with the terms of the licence,125 and the HOFA is required to ensure compliance with licensing rules relating to accounts.126 Both are required to report breaches in their area of responsibility to the licensing authority.
d. Referral to Appropriate Regulator
Authorised persons are either authorised by an approved regulator to carry on a reserved activity or the manager or employee of such a person. Authorised persons working for a licensed body are referred to the approved regulator for breaches of that regulator’s rules. The approved regulator would be either the regulator of the authorised person or the regulator of a non-reserved activity, as appropriate.127 Licensing authorities can also refer employees or managers of licensed bodies, or HOLPs and HOFAs, to an appropriate regulator and to the LSB.128 Licensing authorities can disqualify HOLPs or HOFAs or the managers or employees of licensed bodies for breaches of any duty to which they are subject. They may also be suspended where they ‘substantially contribute to a significant breach of the terms of the licensed body’s licence’.129
e. Breaches by Non-authorised Persons
Non-authorised persons, employees of the licensed body, including managers, or someone with an interest in it are also subjected to obligations under the LSA.130 They must not do anything causing the body, or regulated persons within it, to breach duties to comply with the arrangements of the approved regulator.131 They must also provide any information required by the licensing authority.132 Failure to do so could
| 122 | ibid, | s 85(7). |
| 123 | ibid, | s 101. |
| 124 | ibid, | ss 76-78. |
| 125 | ibid, | s 91. |
| 126 | ibid, | s 92. |
| 127 | ibid, | s 98(3). |
| 128 | ibid, | s 98(1). |
| 129 | ibid, | s 99. |
| 130 | ibid, | s 90. |
| 131 | ibid, | s 176. |
| 132 | ibid, | s 93. |
result in an order made by the High Court.[1139] These and other breaches could result in financial penalties imposed by the licensing authority.[1140]
f. Financial Penalties
The LSA 2007 authorises licensing authorities to impose ‘on a licensed body, or a manager or employee of a licensed body, a penalty of such amounts as it considers appropriate’, up to a maximum prescribed by the LSB.
[1141] Appeals by licensed bodies to a designated appellate body are permitted on the grounds that the imposition of a penalty was unreasonable, or that the amount, or the time period allowed for payment, is unreasonable.[1142] With the permission of the High Court, either party can appeal to that court on a point of law.[1143]g. Disqualification
A licensing authority can disqualify HOLPs, HOFAs or managers and employees of licensed bodies from undertaking those activities that are carried out in accordance with its licensing rules. The disqualification can cover one or more of those activities. In such cases, a disqualification condition, causing a breach of a duty to which they or the licensing body are subject, must be satisfied.[1144] The licensing authority must also be satisfied that it is undesirable for the person to engage in those activities.[1145]
iii. Office for Legal Complaints
a. The Legal Ombudsman
The LSA 2007 requires the establishment of an Office for Legal Complaints (OLC).[1146] The OLC must prepare an annual report[1147] and report to the LSB on any matter specified by it. The LSB may also set performance targets for the OLC. The OLC created a scheme for handling complaints which began operations in October 2010 under the title Legal Ombudsman. The Act provides for the appointment of a Chief Ombudsman who prepares an annual report and reports to the OLC.[1148] The scheme is funded by a levy on approved regulators by the LSB.
133
134
135
136
137
138
139
140
141
142
b. Jurisdiction
Complaints can be received under the scheme either from individuals or, with the approval of the Lord Chancellor, from the OLC, LSB or the Consumer Panel.[1149] They may be made against a person authorised in relation to a reserved activity, including ABS, whether or not the act or omission complained of relates to a reserved activity.[1150] Such acts in the course of employment are treated as acts of the employer, whether or not they knew about them.[1151] Complainants must have first used the complaints procedures required to be provided in relation to the respondent.[1152]
c.
Claims HandlingThe office of the Legal Ombudsman has issued advice on bringing claims.[1153] This is necessarily quite complex, and is a potential problem for some complainants. It provides that complaints be investigated and that the Ombudsman can hold hearings if necessary.[1154] The Ombudsman can require production of any evidence that could be required in civil proceedings in the High Court.[1155] The matter can exceptionally be referred to the court, either in whole or in part.[1156]
d. Remedies
If the Legal Ombudsman finds in favour of complainants he can direct respondents to:
---- apologise;
---- pay compensation of a specified amount for loss suffered;
---- pay interest on that compensation from a specified time;
---- pay compensation of a specified amount for inconvenience/distress caused;
---- ensure (and pay for) putting right any specified error, omission or other deficiency;
---- take (and pay for) any specified action in the interests of the complainant;
---- pay a specified amount for costs the complainant incurred in pursuing the complaint; or
---- limit fees payable to them by the complainant to a specified amount.[1157]
There is limit of £50,000 on the total value of compensation complainants can receive for loss suffered, inconvenience and distress caused, the reasonable cost of putting right any error, omission or other deficiency and the reasonable cost of any specified action in the interests of the complainant.[1158]
e. Complaints Revealing Misconduct
If the Legal Ombudsman considers that a complaint reveals misconduct, he may inform the approved regulator and tell the complainant that this is the case. The Legal Ombudsman may require that the approved regulator informs him of proposed action. Failure by that approved regulator to take action may be reported to the Legal Services Board.153
f. Costs
Because complainants are expected to act in person, costs orders against the lawyers complained about are rare.154 They could, however, be ordered to pay a case fee of £400. Such orders are even less likely if the Legal Ombudsman is satisfied that the lawyers took all reasonable steps under their own complaints procedures to resolve the complaint.155
V.