LEGAL SERVICES ACT 2007
The Legal Services Act 2007, which received Royal Assent on 30 October 2007, reforms the way in which legal services are regulated in England & Wales. The Act will establish an oversight regulator, the Legal Services Board (LSB) and the Office for Legal Complaints (OLC), which will administer an ombudsman scheme that will be empowered to deal with all complaints about lawyers. It will also allow for alternative business structures (ABS), which will enable firms to explore new ways of organising their business to be more cost-effective, including permitting different kinds of lawyers and non-lawyers to work together, and to allow for external investment.
Background:
· Legal services reforms were introduced in England and Wales because there was agreement that the current regulatory framework for the legal sector was over-complex and confusing for consumers and ill-suited to a dynamic, modern profession. The Government also took seriously concerns raised over complaints handling in the legal sector and the work by the Office of Fair Trading in 2001, which found that a number of legal professional rules were potentially unduly restrictive.
· In 2003 the UK Government commissioned a review by Sir David Clementi, which identified a number of areas for reform. The recommendations in that Review underpinned the Legal Services Act 2007.
Summary of the Act:
Part 1 sets out the regulatory objectives and principles to be adhered to by all partners in the regulatory regime (LSB, OLC and Approved Regulators (e.g. the Law Society and Bar Council). The statutory objectives replace a number of overlapping responsibilities and objectives in the existing regulatory framework.
Objectives of the regulatory framework. The regulatory objectives recognise both the consumer and public interest, whilst preserving important principles such as the constitutional principle of the rule of law, and maintaining standards in the provision of legal services via the professional principles.
Regulatory Objectives:
· protecting and promoting the public interest;
· supporting the constitutional principle of the rule of law;
· improving access to justice;
· protecting and promoting the interests of consumers;
· promoting competition in the provision of legal services;
· encouraging an independent, strong, diverse and effective legal profession;
· increasing public understanding of the citizen’s legal rights and duties; and
· promoting and maintaining adherence to the professional principles.
Professional Principles:
· that authorised persons should act with independence and integrity,
· that authorised persons should maintain proper standards of work,
· that authorised persons should act in the best interests of their clients,
· that persons who exercise before any court a right of audience, or conduct litigation in relation to proceedings in any court, by virtue of being authorised persons should comply with their duty to the court to act with independence in the interests of justice; and
· that the affairs of clients should be kept confidential.
Part 2 makes provision for the new oversight regulator, the Legal Services Board– to provide proportionate, independent oversight whilst approved regulators have responsibility for day to day regulation:
· all members of the LSB will be appointed on merit in accordance with the rules of the Commissioner for Public Appointments, and that all chairmen must be lay. The Board must also have a lay majority;
· the Lord Chancellor may dismiss the Chair and members of the LSB but only in the limited circumstances prescribed by the Act (ensures the Lord Chief Justice is consulted before the power to appoint or remove members is exercised);
· a statutory requirement for the LSB to publish an annual report to be laid before Parliament; and
· a statutory requirement for the LSB to consult formally with the LCJ, the OFT and a Consumer Panel before taking important regulatory decisions.
It also provides for the establishment of a consumer panel to advise the LSB, including arrangements for the panel to establish committees and to provide advice to the LSB including the carrying out of research.
Part 3 deals with activities described as “reserved legal activities”, such as rights of audience, rights to conduct litigation, conveyancing, which are some of the activities that will come under the regulatory control of the LSB.
A mechanism to protect consumers if new problems occur: The LSB will have the power to advise the Government on any areas where it identifies unregulated gaps within the legal services market. The Government may, by secondary legislation, bring unregulated legal activities within the regulatory remit of the LSB. Similarly, the LSB will also be able to advise the Government on deregulating a reserved legal activity.
Part 4 sets out the arrangements under which the LSB will regulate approved regulators. The LSB will have a range of powers to ensure approved regulators carry out their functions appropriately. For example, the LSB will be able to issue a direction, a penalty or de-authorise an approved regulator.
The LSB will need to be satisfied that approved regulators have provided for appropriate separation of their regulatory and representative functions in accordance with the rules.
Part 5 provides for the licensing of Alternative Business Structures.
· Alternative Business Structures are bodies that have both lawyer and non-lawyer management and/or ownership, and that may carry out solely legal services or legal services in combination with other non-legal services. All non-lawyers with a material ownership interest in the body are subject to approval requirements, which may include a fitness to own test.
· These developments will enable “one stop shops” for consumers, and encourage more effective competition and wider opportunities for better quality, greater choice and cheaper services for consumers.
· There are robust safeguards to protect consumers. For example, nominated Heads of Legal Practice and of Finance and Administration will have specific duties, for example, to ensure the maintenance of appropriate ethical and financial accounting standards within firms.
Part 5 is purely facilitative and there is no obligation on a firm to take on external management or ownership or for an approved regulator to adopt the regime.
· In advance of Part 5, Legal Disciplinary Practices (LDPs) will be allowed to emerge, with up to 25% non-lawyer management. They will only be able to provide solicitor or other legal services. In order to allow these bodies to emerge, the relevant regulatory bodies (for example the Solicitors’ Regulation Authority) will have to modify their rules and regulations to ensure they are in a position to regulate them.
Part 6 provides for the establishment of the Office for Legal Complaints (OLC) which will administer a new and independent complaint handling scheme.
· The “ombudsman scheme” will deal with complaints about the services provided by persons authorised under the terms of the Act, and their employees. It will be headed up by a Chief Ombudsman, who must be lay.
Part 7 deals with further provisions relating to the LSB and the OLC. In particular, the levy provisions in which the LSB and OLC receive their funding.
· Approved regulators will be levied to meet the cost of regulation (including complaints handling). The LSB must be satisfied that the apportionment of the levy is in accordance with fair principles. It will then be for the approved regulators to decide how to allocate these costs amongst their members.
Implementation
The programme for implementing the Act is in progress, and implementation of the LSB and the OLC is expected to take close to three years from Royal Assent, with the LSB being fully established by early 2010 and the OLC fully established by late 2010. The immediate focus of implementation is recruitment of the Chair and other board members for both the LSB and the OLC. These posts need to be appointed well in advance of the 'go live' dates, to ensure that they are involved in setting the strategic direction of the two organisations as early as possible.
The recruitment for the LSB has been carried out in line with the guidance of the Office of Commissioner for Public Appointments (OCPA). The LSB Chair, David Edmonds, takes up post on 1 May and the OLC Chair is expected to be in post by Autumn 2008. Once the new boards have been established, responsibility for managing the implementation process will be handed over to them.
Updated 23 April 2008