Report of the Review of the Regulatory Framework for Legal Services in England and Wales

Chapter A

The Objectives and Principles of a Regulatory Framework for Legal Services

Introduction

1. The Consultation Paper sought to explore the possible objectives of a regulatory regime for legal services and to consider some of the principles which lie behind the provision of those services by lawyers. In terms of the operation of the regulatory framework, the Consultation Paper also considered whether regulatory authorities should use their resources where the risks to those established objectives and principles were greatest.

2. A decision to regulate a market arises from the decision that leaving the activity unchecked could lead to undesirable consequences and that the benefits that will flow from regulation will outweigh the costs of that regulation. Because any regulatory system will involve the application of rules giving guidance as to acceptable standards of conduct within the area being regulated, it should lead to an increase in trust and confidence in institutions and the sector generally. And allied to the issue of trust and confidence, regulation can also lead to greater certainty of outcome for both consumers and providers. But beyond simply engendering confidence in the market, regulation has an important role to play in protecting the consumer, ensuring there are no unjustifiable restrictions on competition, that appropriate standards of education, training and conduct are maintained, and that there are appropriate redress mechanisms.

Objectives of the Regulator

3. The Consultation Paper proposed that the first step in defining the regulatory regime should be to make clear what the objectives of the regime should be. This is critical for those charged with regulatory responsibility, since the objectives represent the criteria against which they must determine the appropriate regulatory action; and against which they will be held accountable. Objectives also need to be clear to those being regulated and other interested parties.

4. In general I favour a short clear list of objectives, much along the lines of those which direct the work of the Financial Services Authority (FSA). In the case of the FSA, the four primary objectives can be summarised as:-

• maintaining confidence in the UK financial system;
• promoting public understanding of the financial system;
• securing the right degree of protection for consumers; and
• helping to reduce financial crime.

5. The Regulator will need appropriate objectives, whether it is a direct Regulator under Model A as the FSA is; or if it follows Model B, or some variant, where it acts as an oversight regulator.

6. Almost all respondents appeared to support the view that the Regulator of legal services should operate to a set of clearly defined objectives.

7. The Consultation Paper identified six possible key objectives for any Regulator of legal services:-

1. Maintaining the rule of law - The rule of law embodies the basic principles of equal treatment of all people before the law, fairness, and a guarantee of basic human rights. A predictable and proportionate legal system with fair, transparent, and effective judicial institutions is essential to the protection of both citizens and commerce against any arbitrary use of state authority and unlawful acts of both organisations and individuals.
   
   The Consultation Paper suggested that those charged with regulating legal service providers should have an important part to play in ensuring the rule of law by creating conditions necessary for its delivery.
2. Access to justice - The Consultation Paper also suggested that a Regulator of legal services should have the objective of improving access to justice for all. Access to justice has a geographic dimension (and issues such as rural access are discussed in the context of LDPs in Chapter F), but it is critically also an issue about access for those who are disadvantaged and in particular those who cannot afford to pursue their legal rights. The Regulator will be concerned that access is proportionate; it cannot be provided for all issues irrespective of cost. Thus it would be expected that the Regulator would want to work closely with other bodies, such as the 'not-for-profit' sector providers and the Legal Services Commission.
3. Protection and promotion of consumer interests - Given the asymmetry of information which exists in the provision of legal services between provider and consumer, the Regulator has a duty both to protect and to further the interests of the consumer. The consumer's principal interests include higher quality and lower prices. In part this includes the giving of choice to an informed consumer. In this way the ultimate choice of whether to accept a risk is made by the consumer.
   
   The Consultation Paper suggested that the Regulator of legal services should have a twin duty in respect of consumers: first to ensure that consumers have sufficient information about the standards of the services provided so that they are able to take informed decisions about these services; and second, given that consumers may not always be 'informed', to have powers to act in the market, for example, to prohibit oppressive marketing practices, raise or set standards, develop information/awareness programmes, resolve disputes and protect vulnerable groups.
4. Promotion of competition - The Terms of Reference refer to a regulatory framework that would best promote competition. The Consultation Paper acknowledged that one of the trends in recent years had been the increased emphasis on competition. It noted that, specifically within the legal services industry, the Government had encouraged competition between lawyers from different professional bodies. Against this background, the Consultation Paper proposed that any Regulator of legal services should have as an objective the prevention of unjustified restrictions on the supply of, and encourage competition in, the provision of legal services and the promotion of choice in both the number and type of providers, subject to the proper safeguard of consumers' interests.
5. Encouragement of a confident, strong and effective legal profession - The Consultation Paper suggested that a regulatory objective of maintaining a strong and effective legal profession (including setting appropriate entry standards and supporting new entrants to the market) would help to ensure access to justice, the maintenance of a healthy supplier base for publicly funded work and continued support for pro bono initiatives, thereby serving the public interest. It would also underpin the international efforts of our legal sector.
6. Promoting public understanding of the citizen's legal rights - Drawing on the financial services industry as an example, the Consultation Paper suggested that any new legal services Regulator should maintain the professional obligation on lawyers to set out for clients their rights and the consequences of different options. It questioned whether the Regulator should have a wider duty, in conjunction with the industry, to improve consumer knowledge of some of the most commonly used parts of the law, for example, around buying a house.

8. In terms of the appropriateness of the six objectives set out above, most respondents to the Consultation Paper felt that those identified were broadly the right ones. Some respondents took the view that the objectives did not fully cover all of the key issues. They proposed minor changes to the regulatory objectives set out in the Consultation Paper. In most cases these sought to expand on, or give additional emphasis to, existing parts of the text which supported each objective. Where additional objectives were put forward by respondents they were for the most part either subsets of the objectives set out above, or the result of a combination of some or all of those objectives. However, a number of comments provided insights which merit particular consideration.

9. The Bar Council commented, in connection with the six objectives:-

10. My view is that this is a rather profession centric view of the "basic purposes of regulation". Nevertheless it is an important point" and it might be that the drafting of the objective of a 'confident, strong and effective legal profession' should specifically refer to the need for those covered by the regulatory framework to be suitably qualified and in particular to the need for high ethical standards. Other respondents, such as the First Division Association (the association representing senior civil servants, including members of the Government Legal Service) also referred to the adoption of standards:-

Proper professional competence, including continuing professional development, should be an important part of the new regulatory framework. This Review, and in particular Chapter F, has much to say about greater competition between lawyers and liberalisation of the way in which they conduct business; but none of this is intended to lower the standard of legal advice provided or the ethical professional standards of practitioners.

11. In contrast to the Bar Council's view, the Consumers' Association in its response raises concern about singling out a 'strong and effective legal profession' as a specific objective:-

Whilst it is possible to see a strong legal profession as a sub-set of access to justice, I continue to see it as an objective in its own right, not least because, beyond our own borders, the profession in England and Wales has a significant international standing. English law and English lawyers are often chosen for international transactions; and the regulatory framework should seek to enhance this standing and certainly not to damage it.

12. The Law Society welcomed the introduction of the specific objective of 'promoting public understanding of the citizen's legal rights', and commented in its response to the Consultation Paper that:-

13. The National Consumer Council (NCC) also welcomed the specific objective but argued in its response that the objective did not go far enough:-

In general I agree with this point. The regulatory system should be concerned with education, advice and redress as well as information. But in the precise drafting it will be important not to impose upon the framework more than it could possibly deliver. In particular, education about legal rights and processes presupposes basic educational standards for those reaching adulthood, an important issue but one beyond the reach of the legal regulator.

14. As already mentioned, a number of respondents have proposed minor changes to the regulatory objectives set out in the Consultation Paper and to the text which supports each objective. However, it has not been the intention of this Chapter to draft precisely the necessary objectives. The precise wording of statutory objectives would be subject to detailed analysis by Parliamentary draftsmen, and subsequent examination by Parliament itself. Whilst I do not believe it sensible to attempt that detailed analysis here, I do believe that the six objectives set out in this Chapter can provide the core around which a regulatory framework for legal services can be built.

Professional Principles/Precepts

15. The Consultation Paper recognised that, as well as setting regulatory objectives, any regulatory framework for legal services would need to ensure that the professional codes and standards to which lawyers operated were consistent with certain professional principles and precepts. The Consultation Paper identified the following key principles and precepts:-

• Independence - Lawyers have a duty to act with independence in the interests of justice;
• Integrity - The codes of conduct maintained by the main legal professional bodies generally require their members to act with integrity towards clients, the courts, lawyers and others, to maintain high standards of professional conduct and professional service, and not to bring the profession into disrepute;
• The duty to act in the best interests of the client - The codes of conduct of the main legal professional bodies generally require their members to act in the best interests of the client, except where it would be unlawful to do so or where the interests of justice would be compromised; and
• Confidentiality - The codes of conduct of the legal professional bodies generally require lawyers to keep clients' affairs confidential. Communications between a client and his lawyer may be subject to Legal Professional Privilege (i.e. certain communications between a client and legal adviser in the context of obtaining legal advice or assistance are protected from disclosure, even in legal proceedings).

Whilst these principles and precepts should be contained within professional codes applicable to lawyers, some might also be included in legislation governing the legal profession, as they are at present. For example, sections 27 and 28 of the Courts and Legal Services Act 1990 [Endnote 9] place on those exercising litigation and advocacy rights a duty to the court to act with independence in the interests of justice.

16. As with the objectives of the Regulator, most respondents acknowledged the existence and importance of precepts and principles in the provision of legal services, and that those identified in the Consultation Paper were broadly the right ones. There were some suggested additions.

17. The General Council of the Bar suggested that there should be included, an additional principle that a lawyer should not discriminate in the provision of his or her services (e.g. in respect of gender, ethnic origin, beliefs or opinions about the nature of the client). There is merit in this suggestion; however, I take the view that issues of discrimination are generally provided for in law. As such it is not clear that a specific principle is necessary or appropriate. If the principle of non-discrimination were to be included, it could be argued that other principles of human rights, or principles such as freedom of information, should be specifically referred to.

Risk Weighting of Objectives and Principles

18. A number of respondents noted that the Consultation Paper did not attempt to rank either the regulatory objectives or legal principles/precepts in order of their importance, with some respondents taking the view that there were aspects which merited a particular weighting. For example, some lawyers emphasised the independence and integrity of lawyers:-

19. I appreciate that respondents are likely to place a different weighting on each of the principles, or objectives, depending on their own perspective. However, I consider that it should be for the Regulator, operating a risk based approach to regulation, to judge the relative importance of each consideration on a case by case basis. A risk based approach is one under which regulatory objectives or principles become a central consideration in determining how regulatory powers and resources are used.

20. Most respondents supported the concept of a risk based approach to regulation as discussed in the Consultation Paper. Some questioned how any new Regulator might discharge its duties on the basis of risk; others put forward suggestions, for example that regulatory efforts should be concentrated in certain sectors (such as where services are provided to the public rather than commercial institutions). Precisely how any new Regulator should discharge its regulatory functions on the basis of risk would be for it to determine, against the risks which it perceived at the time to its statutory objectives and to the principles and precepts of the profession. It would be wrong to try to constrain the Regulator here in making what may be fine judgements, which would vary depending on the circumstances; and accordingly I make no proposals about the ranking of objectives.

Conclusion

21. I conclude that the first step in defining the regulatory regime should be to make clear what the objectives of the regime are. The Chapter proposes six primary objectives of the regime. These would be the objectives against which the Regulator must determine the appropriate regulatory action; and against which it would be held accountable. I consider that the legal precepts or principles, discussed in this Chapter, should be incorporated within the regulatory arrangements.

Endnotes

9. As amended by section 42 of the Access to Justice Act 1999

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