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Clementi Report proposes greater competition

15 December 2004

Sir David Clementi's Review of the Regulatory Framework for Legal Services in England and Wales recommends sweeping changes which may well impact in Scotland.

The report, published today, proposes:
- a Legal Services Board, with non-lawyer chairman and chief executive, for regulatory oversight, funded using a mix of government and practitioner input;
- the regulatory model described in the earlier consultation as Model B+, with the LSB delegating powers to recognised front-line bodies;
- a single independent complaints body for all consumer complaints;
- disciplinary functions left broadly as they are;
- the recognition of legal disciplinary practices (LDPs) - law practices bringing together lawyers from different bodies to provide legal services to third parties, of which non-lawyers should be permitted to become principals.

Sir David concludes that the current governance arrangements of the Law Society of England and Wales and the Bar Council are "inappropriate for the regulatory tasks they face". A key recommendation is that the regulatory and representative functions of front-line regulatory bodies should be clearly split. There is a conflict of interest, he says, between the two functions: with the former the public interest should take primacy; with the latter it should be the interests of the membership. There is an inevitable issue of perception even where the public interest is put first; and it is particularly difficult for a body combining both roles to deal with competition issues.

Turning to complaints mechanisms, the report recognises the disadvantage felt by many consumers in bringing a complaint against their lawyer. Although splitting the professional bodies' regulatory and representative functions might reduce concerns about lack of independence, it believes it would be unlikely to remove them completely. A further drawback is the potential for inconsistency and lack of clarity due to the separate Law Society and Bar Council complaints services. To resolve these issues and to permit new legal service providers and business structures, therefore, the report recommends an independent Office for Legal Complaints - independent in dealing with individual complaints but requiring to work closely with the LSB to ensure that regulatory oversight served to minimise complaints at source. The OLC would be part of a single regulatory framework, with the LSB at its head.

Issues about professional conduct, including disciplinary action, would be handed down to the front-line bodies. The overall conclusion is that the existing disciplinary systems work reasonably well and could be left, subject to a small number of changes, broadly as they are.

The final chapter of the report looks at issues around the permission of alternative business practices. It supports the concept of LDPs, and proposes that non-lawyers should be permitted to become principals or "managers" of such practices, subject to the principle that lawyers should be in a majority by number in the management group. It also proposes that outside ownership should be permitted, subject to a "fit to own" test and also to a number of safeguards built around the identity of those who manage the practice and the management systems they employ. This would permit bodies such as the RAC which wish to offer legal service to the public for a fee, to do so.

The chapter also looks at multi-disciplinary practices (MDPs). These are practices which bring together lawyers and other professionals to provide legal and other services to third parties. There are considerable issues in connection with such practices, in particular that of regulatory reach since the LSB would have no jurisdiction beyond the legal sector. The setting up of a regulatory system for LDPs would represent a major step towards MDPs, if at some subsequent moment it were determined that there were appropriate safeguards to permit such practices. It would be for the LSB, says the report, to determine whether satisfactory arrangements could be worked out with other regulators as to how different practices with common ownership might operate between themselves, or within the same legal entity, in a manner which properly protected the interests of consumers.

Concluding his foreword, Sir David urges early action. "Changes will require significant political commitment," he comments, "partly to meet the expected criticism from some lawyers and partly because reform will need primary legislation, which requires scarce Parliamentary time.

"I hope that Ministers, and subsequently Parliament, will conclude that reform is necessary."

The report can be read online at www.legal-services-review.org.uk/content/report/index.htm . Reaction to the report will be reported separately.