The Broken Regulation of Legal Services
Parody Regulation
Somebody once wrote, “All the conventions of art and life find their highest expression in parody”. Following the evidence sessions of the Commons Justice Committee (Committee) on the state of legal services regulation in the UK, lawyers must feel that such a regulatory system is now beyond a joke.
Depleted Commons Committee
The Committee, depleted for these hearings, did its best. However, the law is vast. Modern regulation of legal services is costly, insidious, and complex. But such complexity increasingly makes law practice unworkable, especially for small to medium-sized law firms.
Overregulation
I audited a law firm recently to stress-test its AML and SOF controls. I was staggered by the sheer scale of the guidance notes and other material, which fee earners had to assimilate into their daily practice. The regulated sector’s notes are so vast that no small to medium-sized law firm can be 100% confident of it being compliant. Information technology does not solve the problem either, notwithstanding the hyperbole rampant in the sector.
During the evidence session on the 5th of December the following exchange took place between a member of the Committee and Mr Philip:
“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.’
I struggle to understand the comment made on behalf of the SRA that it has little say on how AML activity is implemented on the ground.
Flawed Legislation
In 2007 The Legal Services Act became law (Act). The Act was the genesis of a number of problems facing the legal profession today. First, despite the many warnings made at the time that the Act would eventually prove to be a disaster for both the Law Society and its members, the Law Society Council resolved to accept the legislation. Secondly, the Act was legislation riddled with internal inconsistencies and other flaws. For instance, amongst the regulatory objectives you would expect to find in such legislation, there were regulatory objectives to protect the consumer and to promote competition. These regulatory objectives were controversial at the time because they were alien to lawyers’ professional heritage and at odds with the rule of law. They are still controversial today.
Regulatory Obsession
There is now a dangerous obsession by both the SRA and the LSB with regulation, consumerism and competition, whose objectives not only clash with each other but also marginalise the other regulatory objectives contained in the Act, such as the duty of lawyers to act ethically in the practice of law. For example, if the SRA forces law firms to spend thousands of hours undertaking AML checks, how at the same time can law firms ‘compete’ with each other and stay in business? Overregulation is suffocating many particularly small to medium sized, law firms
Fundamental Failures
The regulators have long lost sight of the need to balance the regulatory aims of the Act. It also seems that the regulators cannot even discharge their fundamental regulatory duties, as the Axiom Ince debacle has shown all too clearly.
The Law Society
A once proud, respected Law Society has since the Act, lost its way and its connection with lawyers working at the different coal faces of our legal system. Even now, it has provided no leadership regarding the Axiom Ince Scandal. Neither has it condemned the behaviour of those lawyers increasingly implicated in the biggest miscarriage of justice in British legal history relating to nine hundred-plus postmasters.
Defending Lawyers
Regulatory bullying is just one of the reasons why The Property Lawyers Action Group came into existence. The new group considers that the rule of law is precious. But is undermined by excessive regulation. So, it wants to help lawyers to make the arguments to challenge excessive regulation to enable them to defend the integrity of the rule of law, and their role in it.
