We come now to the quite serious issue of proportionality. The amendment was originally suggested to us by the Chartered Institute of Patent Agents and by the Institute of Trade Mark Attorneys. My hon. Friends and I propose that the amendment be added as new subsection (4) to clause 3. In different ways, both amendments deal with proportionality. Amendment No. 214 addresses the resources and impact on the regulator. Amendment No. 254 deals with the need to consider the different types of consumer. Clearly, the concern in both cases is to avoid a one-size-fits-all approach.
Clause 3 deals with the board’s duty to promote regulatory objectives and will require the board to have regard to the principles of best regulatory practice. Specifically, it refers to the importance of regulatory activities being transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed. We endorse the statement in the White Paper:
“Today’s consumers are very different in the types of legal services they purchase, how often they engage with legal service providers and their level of knowledge of both the law and legal service providers. They need services delivered in ways that are flexible enough to suit their different needs.”
On one hand, high street practices may advise the inexperienced or the vulnerable who are unsophisticated in legal matters and, on the other hand, City solicitors represent a range of sophisticated corporate clients who often have their own in-house legal teams responsible for instructing external solicitors. Those consumers require a level of regulation that is proportionate to their needs and will not unnecessarily increase their legal costs or lead to unnecessary delays in transactions. Inappropriate regulation could cause them to look outside the UK jurisdiction for legal advice, in some cases, and damage the competitiveness of City firms and other firms throughout the country.
Proportionality is such an important issue that guidance should be given about what considerations the board should take into account. By not listing such considerations, we are making the Legal Services Board’s job far more difficult. We have told people what to do, now we need to advise them on how to do it. The amendment would give them such guidance.
There is a danger of the term “proportionate” being misinterpreted and being interpreted in a subjective rather than an objective light or there being an inconsistency in the way that board members assess proportionality. It is important that we safeguard against any such confusion. Therefore, we propose that guidance be given to the board about what matters they should consider when determining whether regulatory activities are proportionate. In that way, the Legal Services Board can carry out its job in line with how the Bill envisioned that it would.
We have had strong representations on the amendment, not surprisingly from the smaller end of the regulator’s market. The Chartered Institute of Patent Attorneys and the Institute of Trade Mark Attorneys, which I shall call the institutes, represent, train and examine more than 2,070 highly skilled professionals in the specialist field of intellectual property. As I mentioned on Second Reading, there have been few complaints against those professionals. The institutes support the amendment. In the House of Lords, Lord Kinsgland asked Baroness Ashton of Upholland repeatedly about this issue. She refused an amendment on the grounds that it would define proportionality in legislation, although she went on to promise to consider guidance on it. She then admitted that, as an independent body, the LSB would be under no obligation to have regard to any such guidance issued by the Secretary of State.
The institutes continue to believe that this is a vital issue. As two of the smallest approved regulators in the new system, they strongly believe that regulation must be proportionate. They aim to engage closely with the Legal Services Board to ensure that it fully takes into account the effect that regulation will have on the entry and retention of regulated persons to their sector and the effect on fees. However, they believe that the Bill should state more specifically that the board must act proportionately with regard to smaller regulators
Patent and trade mark attorneys are currently regulated with a light touch and the costs are low. They have concerns that the board may not sufficiently take into account the dangers of the over-regulation of the smaller regulators and their members. Currently, those members place only a very small burden on the regulatory system. They anticipate the risk that those who have the freedom to opt out will be over-regulated. That might restrict entry to, and discourage retention in, the professions and make the position of the approved regulator untenable.
The institutions are not what are known as closed professions. Firms that are members of the institutes need not be on the trade mark or patent registers to practice, unlike, for example, the situation that applies to solicitors or barristers. People could simply leave the institutes and practice unregulated, at no cost. Clearly, that would be against everyone’s interests, not least consumers’.
Amendment No. 213 focuses again on proportionality, which was a central theme of the Lords’ debates; indeed, it runs through the Bill. There is no doubt that all who have been involved in the passage of the Bill agree that regulation should be risk-based and proportionate. The Minister has emphasised that several times, but how do we ensure that the drafting of the Bill guarantees that the board acts proportionately? The fact remains that the board will be more or less free to make its own determination of what is proportionate, which could lead to disputes about the proper exercise of its functions regarding the professions.
The institutes recognise that proportionality depends in many ways on particular circumstances and that an all-embracing definition is perhaps too inflexible. However, they believe that the Bill would benefit from the inclusion of a non-exhaustive list of the key factors that the LSB should take into account when exercising its regulatory function. The also believe that that would benefit the future relationship between the LSB and the professions.
The amendment would not define proportionality, but would set out the particular factors to which the board should have regard when assessing what is proportionate in the regulation of approved regulators. The institutes do not feel that it would be too prescriptive, or that it would restrict the flexibility of the board. Having given some thought to the matter, we are of the same opinion. The amendment was tabled because of the concerns of two of the smallest regulators. They fear that the LSB, which would get used to dealing with larger approved regulators, would overlook the limited resources of the smaller regulators, their low-risk status and their strong track record of good conduct. Further, there is a perceived risk that regulation would encourage practitioners to operate outside the regulated sector. That could have the knock-on effect of driving up costs for the remaining members, which could make CIPA’s and ITMA’s positions untenable.
In recent correspondence with the two institutes, Baroness Ashton stated that the Government were
“entirely in agreement that one size does not fit all” and that a proportionate approach should be taken by the Legal Services Board. She also stated that
“the Legal Services Board will need to recognise the position of smaller regulators”,
such as ITMA and CIPA,
“when exercising functions under the Bill. In doing so, the Board will need to have regard to a number of factors which may include entry and retention of regulated persons to the sector and the effect on fees”.
The statement gave some reassurance that the Government and the institutes have the same intention, but it is notable that the Under-Secretary talked about what factors may be included when the board assesses proportionality. There is no obligation in the Bill that the board must have regard to such vital issues as entry and retention of regulated persons and its effect on the regulator’s fees, not to mention its resources.
Amendment No. 214 proposes that the
“role of the Board is to ensure that the approved regulators act in a way which is compatible with the regulatory objectives”.
It is important to state that the board’s role is supervisory rather than advisory. The Government have modelled the regulatory regime in the Bill on that of the Financial Services and Markets Act 2000, with the aim of providing a light-touch regime. That is what business wants, and the regime set up by the 2000 Act has in part ensured the success of the City in recent years. The LSB should respect the principle that primary responsibility for regulation rests with the professional bodies and accept that its role is merely to ensure that the approved regulators’ actions comply with the regulatory objectives. The amendment addresses concerns about whether regulation by the board will be light touch.
The Bill should provide for the relative roles of the Legal Services Board and approved regulators. The amendment reinforces clause 49, about which my hon. Friend the Member for North-West Norfolk will talk in due course. Clause 49, like the amendment, strikes the appropriate chord on light-touch regulation, the importance of which should not be underestimated.
Let us not forget that all the people that the Bill will regulate—firms of solicitors, barristers’ chambers, licensed conveyancers and patent attorneys—all now operate in a global marketplace. If those firms are not regulated by their approved regulators, such as the Law Society, and are seen to be directly regulated by the Legal Services Board, they are at risk of being thrown out of those foreign jurisdictions. If the Government are going to back-pedal now, surely they should assure all those practices with an international dimension that they will not be negatively affected? Have the Government sought legal advice on that, as well as on their liability for any financial losses that could result from such a move?
Following a lengthy debate in Committee, on Report in the other place, Lord Kingsland returned to his view that the Bill did not make it clear that the lead responsibility for regulation should lie with the professional bodies, with the legal services board exercising its powers only in the event of significant regulatory failure. Perhaps the Minister will show us that those concerns can now be allayed. My hon. Friend the Member for North-West Norfolk will address that point in some detail when we discuss part 4, but if the amendment were agreed to, that would be a good start.
Closely linked with the amendments are new clauses 11 and 12, which will be proposed by the Liberal Democrat Members. They concern the need for the board to consult on its general policies, which is consistent with clause 3, and on an annual work plan consultation. Generally speaking, the new clauses, which are covered in a slightly different way by our later amendments, make sense to me. I shall be interested to hear what the hon. Member for North Southwark and Bermondsey has to say on new clauses 10 and 11, and note that the amendments that are grouped with clause 8 will cover the consultation of practitioners in greater detail. We will also return to the issue when we debate new clause 3, as part of our discussion of clause 10.
However, considering the order of selection today, I should be interested to hear from the Minister whether the light-touch approach of new clause 10 would be any more appealing to the Government than new clauses 1, 4, 5 or 6.