Clause 104
Legal Services Bill [Lords]
1:45 pm

Prevention of regulatory conflict: accounts rules

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Bob Neill (Bromley and Chislehurst, Conservative)

I beg to move amendment No. 296, in clause 104, page 56, line 30, after ‘body’, insert

‘which is not licensed by the Law Society’.

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Nicholas Winterton (Macclesfield, Conservative)

With this it will be convenient to discuss amendment No. 297, in clause 104, page 56, line 33, after ‘body’, insert

‘which is not licensed by the Council for Licensed Conveyancers’.

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Bob Neill (Bromley and Chislehurst, Conservative)

Thank you, Sir Nicholas. It is a pleasure to serve under your chairmanship again.

The amendments are intended to avoid ambiguity. They will give better and proper effect to the intention behind the section, which is to prevent the regulatory conflicts that can occur in relation to accounts. We think that the regulatory system can be simplified without compromising public protection, which is the principle behind the Bill.

The intention of the provisions relating to alternative business structures is that the rules of the licensing authority are for the business rather than for any individuals who work in the ABS, and they should apply to all the activities. That seems sensible. We do not have any quibble with that. Clause 104 is intended to reinforce that by ensuring that the accounts rules of the licensing authority apply rather than those of any professional body to which particular members of the ABS may belong. For example, a solicitor working in an ABS authorised by the Council for Licensed Conveyancers would be subject to the accounts rules of the CLC rather than the Law Society. We do not have any problem with that.

The problem is with the current wording. It seems to go too far, preventing either the Solicitors Regulation Authority under its status as the Law Society’s approved regulator or the CLC from adopting the most  sensible and pragmatic approach to regulation of alternative business structures. The SRA, as a licensing authority, would wish to ensure so far as possible that the same rules apply to all the legal services businesses that it regulated, whether they were traditional solicitors firms, legal disciplinary practices or ABSs. We accept that additional regulation will be required for ABSs, but the core regulations should be the same. That is the thrust of their concern, which is why they and the Council for Licensed Conveyancers suggested the amendment. We believe that it is sensible.

Under the Bill, a firm of solicitors would become an ABS by, for example, making a finance director who was an accountant a partner of the firm. However, the finance director might quite properly decide to move on, perhaps having got a better offer elsewhere. The firm might replace him with a lawyer rather than an another non-lawyer—but still someone with the relevant expertise. At that point, it seems to us that the firm would cease to be an ABS; it would resort to being a “traditional” solicitors firm, although it could recruit a third person, a finance director who was an accountant, and become an ABS again. To have different sets of accounts rules applying to such a firm does not seem sensible. It is a needless bureaucratic burden, and it could cause extra cost and confusion—for the consumer as well as for the firm.

The SRA is concerned that clause 104 will notpermit the Law Society to make identical rules under paragraph 20 of schedule 11 and sections 32 and 34 of the Solicitors Act 1974; yet that is what they would wish to do, as it would overcome some of those difficulties. That is exactly what concerns the Council for Licensed Conveyancers. If they were able to do that, the problem would be resolved. We therefore hope that the amendment commends itself to the Government, as it is intended to make the Bill work better.

I hope, Sir Nicholas, that I may make one more point on an important matter of principle. It is convenient to make it now, and I hope that the Minister can reply to all my questions in one go. The Bill provides for a distinct regulatory regime for ABSs. That is sensible, as it allows for the creation of new licensing authorities; and the Legal Services Board can become a licensing authority if necessary and appropriate. Should an existing approved regulator such as the SRA apply to become a licensing authority, we anticipate that the application would be made on the basis of the SRA using largely the same set of statutory powers that it uses to regulate traditional solicitors firms and legal disciplinary partnerships. That is sensible, as it would maintain a proportional approach and avoid confusion. It would also avoid having gaps in the regulatory framework—a risk that we all want to avoid.

It would be for the Legal Services Board to decide whether to accept that approach, but we understand that the discussions between the SRA and the Ministry of Justice were on the basis that the Bill would allow the SRA to make application in that way. It seems that the transitional provisions set out in schedule 22 anticipate, at least in part, that existing regulators might need to amend their statutory powers as part of their application to become an ABS. I should be grateful if the Minister  confirmed that our understanding, and that of the various professional bodies, is correct. Such clarity would help everyone. For the reasons that I have advanced, I hope also that the amendments commend themselves to the Minister.

2:00 pm
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Bridget Prentice (Parliamentary Under-Secretary, Ministry of Justice; Lewisham East, Labour)

I hope that I can reassure the hon. Gentleman that the SRA’s position is as he outlined his understanding of it, thereby giving both him and the SRA some reassurance. The amendments are intended to clarify whether the trumping effect of the rules made under part 5, over existing rules applicable to solicitors and licensed conveyancers, will operate only where those professionals are working in bodies regulated by authorities other than the Law Society and the Council for Licensed Conveyancers, and to determine whether those rules do not attempt to alter the position of solicitors and licensed conveyancers working in firms regulated by other authorities.

I understand the underlying objective, which is, as the hon. Gentleman said, to avoid duplication through applying two different sets of accounts rules to ABS and existing practices. I appreciate the rationale behind that. Like the hon. Gentleman, I want to facilitate efficiency where possible, and clause 104 is consistent with that; it is intended to operate only to resolve situations where rules conflict, putting a solicitor or licensed conveyancer in a difficult position. I presume that, where the Law Society is the licensing authority for a body, its rules would not create a conflict for a solicitor within that body, and that the same would be true for the CLC and licensed conveyancers. I am happy to consider whether we need to make any further provision, just to reinforce that conflict-resolution point.

I assure the Committee that both the Law Society and the CLC will be able to apply for orders under schedule 22 or to seek board recommendations under clause 69 for amendments to their existing powers, so long as that does not conflict with the requirements of part 5. I cannot go any further than that at the moment and speculate about what the board might take into account in its recommendations or what the Lord Chancellor might decide. However, I hope that my remarks go some way towards reassuring the hon. Gentleman, the Law Society and the CLC that I understand their position.

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Bob Neill (Bromley and Chislehurst, Conservative)

I am grateful to the Minister for replying to both points that I made and for dealing constructively and helpfully with the issue that we raised. It is clear that she, and those who advise her, are well seized of those legitimate points, so on the basis of her undertakings, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 104 ordered to stand part of the Bill.