An independent review of the Legal Service Board (LSB) commissioned in the wake of regulatory failures including Axiom Ince and SSB Law has concluded the organisation has “lost its way in recent years” and has “fallen short” of government and parliamentary expectations.
The Legal Services Board Independent Public Bodies Review makes 10 recommendations on the future of the LSB and wider regulation, including fostering greater collaboration amongst regulators, creating a shared framework for identifying consumer risk and an organisational “reset” of its priorities and strategic purpose.
The independent review was undertaken by Richard Lloyd, chair of the Independent Parliamentary Standards Authority and former non-executive director of both the Financial Conduct Authority and the Advertising Standards Authority. Lloyd worked as a special adviser to the prime minister between 2008 and 2010 and has extensive experience of government operations and regulatory frameworks, along with a deep understanding of public bodies, policy making and governance.
The report highlights several important developments in the legal services sector since the last review of the public body in 2017, including the increasing use of technology, encouraging greater diversity in the profession and, most pertinently, a series of regulatory failures which have led to serious questions about the performance of regulators.
Although the report suggests the LSB is “staffed by professional people and board members deeply committed to improving legal services”, it needs a “major shift” in culture and capabilities. Newly appointed leadership should also focus efforts on “a clear separation of its enforcement function from its sector-wide convening work, a renewed appetite for collaboration and a shared understanding of priorities, risks and purpose.” Some of this work has already started with the newly appointed leadership, with the report urging speedy action.
The LSB must better protect consumers, with one of the 10 recommendations including steps taken within six months to bring “relevant actors” together to protect and promote the interests of consumers. A reset of its strategic direction is also recommended, with the report saying the LSB should direct “most of its resources” toward working with its regulated community to strengthen consumer protection.
Within six to nine months the LSB should “establish a shared framework for identifying, assessing and managing market and consumer risk across the legal services sector, including an agreed statement of sector risk tolerance, recognising that a zero-risk approach is neither feasible nor desirable.”
The report is critical of the extent of the LSB’s work, with the oversight regulator appearing to have “taken on a level of activity that exceeds its current capacity, with pressure evident across multiple levels”. A refocus on priorities, and clearly articulating them to its regulator community, is another of the report’s recommendations. The LSB should adopt a “more proportionate and effective supervisory approach… towards a preventative, risk-based model that avoids unnecessary prescription and recognises the differing scale, role, and capacity of regulators” with the organisation taking greater accountability for outcomes.
Although the review made clear it would not comment on the future of the LSB, or any “redesign the institutional architecture established by the Legal Services Act 2007”, it recommends the Ministry of Justice (MoJ) carries out a comprehensive review of legal services regulation “with consideration also being given to what activity should sit within or outside the current regulatory perimeters”.
Report author Lloyd said there were “indications of support for greater consolidation among regulatory bodies, which could improve efficiency and effectiveness over time” but acknowledged fundamental structural reform would require legislative change and fell outside the scope of the review.
Monisha Shah, chair of the Legal Services Board (pictured), said: “I welcome the publication of Richard Lloyd’s review and the recommendations in his report. Regulatory failures have resulted in significant consumer detriment. We accept our responsibility in the failure of the system to protect the interests of consumers. The public have a right to expect better outcomes from the legal regulatory framework.
“This is an important moment of reflection for the Legal Services Board about our impact in protecting and promoting the interests of consumers in a rapidly changing legal services market.
“The LSB has a pivotal role to play to ensure trust and confidence in the sector, which in turn supports innovation, growth and access to justice for consumers and businesses. We are committed to working with frontline regulators to improve legal services and to protect and promote the interests of consumers in a rapidly changing legal services market.
“This report gives us a clear, independent basis for a major reset. We will introduce a sharper regulatory focus and a more dynamic, risk-based approach to oversight, directing our work and resources towards issues which present the greatest risk to consumers. This work has already begun. Planned changes include separating our enforcement and oversight function from our regulatory policy and engagement work. We will build on this with a consultation in the autumn on a focused three-year strategy setting out our priorities. This will replace our current 10-year sector-wide strategy.
“The LSB operates in a complex regulatory framework. Many colleagues across the legal system took the time to engage with the review and their important perspectives are reflected in this report and its recommendations. The recommendations in this review will prompt further reflection for the LSB and, more generally, for government, frontline regulators, and the professions, all of whom have an important role to play in ensuring the effectiveness of the wider system. The report sets out areas where the LSB can play a greater role in facilitating a sector-wide shared understanding of priorities, risks and purpose.
“I will take this report forward with the Board, our recently appointed permanent Chief Executive, Richard Orpin, and our committed team of people. We will consider the recommendations in full, working closely with the Ministry of Justice, the regulators and others, and set out how we will take them forward.”
Sheila Kumar, chief executive of the Council for Licensed Conveyancers (CLC), said: “The CLC was very pleased to be able to discuss the oversight of legal services regulation with Richard Lloyd and his team as they prepared this constructive report.
“The CLC’s mission has always been to protect consumers, but also to drive innovation, competition and growth in the legal sector. Mr Lloyds’ recommendations for changes to how the Legal Services Board operates, when implemented, will mean that we are able to focus even more of our resources on that mission as the burden of oversight regulation – which ultimately falls on the users of legal services – is reduced.”
CILEX chair Eileen Milner said the body welcomes the “important and timely report… coming nearly 10 years since the last such review”, and added “now is the time for the recommended reset and refocus of the LSB.”
She continued: “As an organisation, [the LSB] is in a unique position to convene sector players, enable meaningful and respectful improvement focused collaboration, drive clarity and consistency, and provide focus by reducing duplication and harnessing collective effort. We hope that, reflecting on this review, the LSB acknowledges that it could do more to listen to those it regulates. We see this as a sign of confidence, not weakness. Approved regulators also have a unique position in the system and can shine a spotlight on issues that only the LSB can tackle. This is not special pleading; it is a genuine commitment to improving regulation.
“Whilst we recognise the parameters of the review, CILEX also agrees that the current regulatory framework for legal services is no longer fit for purpose and welcomes the recommendation for a comprehensive review on which to base future reforms. This is not only critical to protect and meet the needs of consumers but also to ensure that effective regulation is an enabler rather than a drag on the economy.”
