Independent regulation

Regulation that is independent of the professions and government is important in delivering confidence to consumers, legal services providers, investors and society as a whole.

• Background
• LSB business plan 2018/19 – IGR outcomes

Other relevant work:

• Written Authorisations
• Compliance certificates
• Practising fee rules
• Investigations
• Anti-money laundering supervision

Background

Concern about self-regulation by some categories of lawyers was one reason why the Legal Services Act 2007 was introduced. Section 30 of the Act places a duty on the LSB to make internal governance rules (IGR), which set out requirements to be met by approved regulators for the purposes of ensuring that:

• the exercise of their regulatory functions is not prejudiced by any representative functions; and
• so far as reasonably practicable, decisions relating to the exercise of regulatory functions are taken independently from decisions relating to the exercise of representative functions.

Putting IGR in place in 2009 was one of the LSB’s first priorities. The IGR were then amended in 2014 to update the rules on Board appointments and reappointments). A review of the IGR was undertaken between November 2017 and July 2019, following which new rules and accompanying statutory guidance were published in July 2019. Read more about the review process below.

The approved regulators have a duty to implement arrangements for securing independence in line with the IGR, and to update these arrangements in accordance with amendments made by the LSB.

With the publication of the new internal governance rules (pdf) and accompanying statutory guidance (pdf), a 12 month transition period commenced. By 24 July 2020, the approved regulators must demonstrate their compliance with these rules.

Key publications on regulatory independence:

• our vision for legislative reform document (published in September 2016) explained why the current lack of full independence between approved regulators and their frontline regulatory bodies is unlikely to be sustainable and noted the potential scope for representative bodies to delay reforms that would benefit competition and consumers
• the CMA legal services market study final report (published in December 2016) identified a number of issues arising from the current regulatory structure. It considered that full regulatory independence from providers and government is a fundamental principle for the regulatory framework and consequently that the government should undertake a review of the independence of regulators
• following its tailored review of the LSB (published in July 2017), the Ministry of Justice recommended that:
  “To ensure continued public and international confidence in the regulation of the legal sector, the LSB should use all of its powers to provide robust assurance on the separation of the frontline regulators from the representative functions of the Approved Regulators, including the use of its investigative powers where appropriate. Any changes, including those as a result of the review of internal governance rules, should be made within the existing legislative framework.”

LSB business plan 2018/19 – IGR review

In light of our experience and developments in the legal sector, we considered in 2017/18 whether changes were needed to the IGR.

Reporting on the findings of our review of the IGR and implementing the outcomes is part of the promoting the public interest through ensuring independent, effective and proportionate regulation strand of our work programme for 2018/19, the first year of our three-year strategy.

In July 2018 we published the findings of our review of the IGR. This took account of evidence on the current IGR, including that set out in our November 2017 consultation document, responses to that consultation, evidence from the LSB investigation report into the Law Society’s oversight and monitoring arrangements for the Solicitors Regulation Authority and views expressed to the LSB on the IGR following in light of the investigation report.

In November 2018 we published a consultation on proposed new IGR and supporting statutory guidance. The consultation was open until 21 January 2019.

In May 2019 we published a targeted consultation to refine our proposals. The reason for this consultation is that, having listened and responded to the comments made by stakeholders on the original version of Rule 1, the LSB was considering amending Rule 1 and consequential amendments were therefore required to Rules 4, 8 and 10. This consultation closed on 5pm on 12 June 2019.

In July 2019 we published the final IGR and accompanying statutory guidance which responded to advice received to both the November 2018 and May 2019 consultation. The new IGR take a principled and outcome-focused approach with the inclusion of more detailed obligations where the evidence shows these to be necessary. Moreover, the rules are clear and understandable as well as enforceable. The new IGR will apply to all approved regulators, albeit that some obligations will only affect those with both representative and regulatory functions.

The transition period for the new Internal Governance Rules 2019 (IGR 2019) ended on 23 July 2020, one year after they came into effect. Assurance of on-going compliance with the IGR 2019 will now be carried out as part of our assessment under the regulatory performance assessment framework, as explained in our decision document Internal Governance Rules – Enhancing regulatory independence, published on 24 July 2019. The regulatory performance framework has been revised, following consultation, to reflect this as follows:

1. the addition of a new outcome to the Well-led standard that will apply to all Approved Regulators and Regulatory Bodies, to monitor regulatory independence; and
2. the inclusion under the framework of the six Approved Regulators that also have separate Regulatory Bodies, but only in relation to monitoring their delegation and assurance of regulatory functions as required under the IGR.

When we undertake a review of regulatory performance, or a thematic review, we publish a report on our findings. These reports are available via regulatory performance assessments reports.

Other relevant work

Written Authorisations

Regulatory Body: Solicitors Regulation Authority

Authorisation (PDF) for non-compliance with Rule 7 (Governance: Lay Majority) under Rule 16(1) of the IGR 2019 granted 25 August 2022.

Compliance certificates

In order to comply with the IGR 2019, most approved regulators and regulatory bodies needed to apply to the LSB in relation to changes to their regulatory arrangements. In addition, we received three requests for prior written authorisations, for specific and limited non-compliance under Rule 16 (Saving Provisions). We assessed and approved all three applications.

Certifications of compliance with the IGR 2019 were required by the end of the transition period on 24 July 2020 by approved regulators and regulatory bodies and all such certificates were received by this deadline.

The table below has links to the main documents related to IGR 2019 compliance, including certificates of compliance, statutory decisions that the LSB made in response to applications from approved regulators or regulatory bodies relating to changes to their regulatory arrangements (also available on the statutory decisions pages of our website) and the decisions that we made on the applications received under Rule 16 of the IGR 2019.

Practising fee rules

The LSB has also made the Practising_Fee_Rules_2016. These rules explain what approved regulators are allowed to spend money on, given that this money comes from fees paid by lawyers as a mandatory condition of being authorised to practise. They also explain how the LSB will consider and approve applications from approved regulators when they want to set the level of such mandatory practise fees.

Information about the annual applications made by the approved regulators to the LSB under section 57 of the Act can be found on the Section 51 – practising fee pages.

Investigations

Where the LSB considers that there may be a breach of the IGRs, it can launch a formal investigation. You can find details of all formal investigations launched by the LSB here.

Anti-money laundering supervision

Following a request from the SRA the LSB has considered whether being a supervisor under the anti-money laundering regulations is a regulatory function. Our response can be found here.

Further information

For more information on this work, please contact the principal project manager Angela Latta.