Legal Services Bill [Lords]

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Clause 3

The Board’s duty to promote the regulatory objectives etc
Mr. Bellingham: I beg to move amendment No. 206, in clause 3, page 2, line 25, leave out
‘so far as is reasonably practicable.’.
The Chairman: With this it will be convenient to discuss amendment No. 244, in clause 28, page 14, line 9, leave out
‘, so far as is reasonably practicable,’.
Mr. Bellingham: The amendments stand in my name and those of my hon. Friends the Members for Huntingdon and for Bournemouth, East. I do not know why they do not stand in the name of the birthday boy, but perhaps that can be put right at a later stage.
Amendment No. 206 refers to clause 3, which concerns the legal services board’s duty to promote the regulatory objectives set out in clause 1(1). Clause 3(2) states:
“The Board must, so far as is reasonably practicable, act in a way—
(a) which is compatible with the regulatory objectives, and
(b) which the Board considers most appropriate for the purpose of meeting those objectives.”
If one were to expunge the expression “so far as is reasonably practicable” from that provision, Her Majesty’s Government could get exactly what they want from the measures anyway. Surely the expression unnecessarily qualifies clause 1(1). What is the point of setting out the regulatory objectives in clause 1, if one does not require the board to respect them in clause 3(2)?
If that expression were to be left in that provision, the obligation for the board to act in accordance with the regulatory objectives would be removed in some circumstances. Surely, clause 3(2)(b) fulfils exactly what Her Majesty’s Government ought to want from the provision, thus not only is the expression “so far as is reasonably practicable” unnecessary, but it could, in some circumstances, undermine the objectives set out in clause 1. It represents a possible escape provision that could undermine the force of the objectives set out in clause 1.
Amendment No. 206 is a probing amendment, and I would like the Minister to comment on what I have said. I see that her civil servants are nodding, so I must have made a reasonably cogent point. I am sure that there is an explanation for the situation that I have outlined.
The amendment is grouped with amendment No. 244, which fast forwards us to part 4 of the Bill. We are some way off reaching that part, but amendment No. 244 refers to clause 28, which comes under the heading:
“General duties of approved regulators”.
So, we are moving on to a different part of the Bill. Clause 28(2) states that:
“The approved regulator must, so far as is reasonably practicable, act in a way—
(a) which is compatible with the regulatory objectives, and
(b) which the approved regulator considers most appropriate for the purpose of meeting those objectives.”
Again, we see the expression
“so far as is reasonably practicable”.
I shall not rehearse the arguments in relation to clause 28, but they are similar to those that I have just made on clause 3. The evening is pushing on, and I know that it is important to make some more progress, and on that basis I commend the amendment to the Committee.
Simon Hughes: I have put my name and that of my hon. Friend the Member for Birmingham, Yardley to the main amendment, although not to the second amendment. In the Lords, there was a long and rather amusing debate about whether letters had gone astray, and what had happened to them. I read the Minister’s wonderful response, but I was not absolutely persuaded that it dealt with the point, so I thought it was worth bringing the matter back.
The concern is simply that we should not say, “Here are the objectives. You ought to follow them, but you do not have to if it is not practical.” We should have a structure that is firm and not qualified, and the amendment seeks to remove the qualification.
Bridget Prentice: If I may, I shall explain to the hon. Member for North-West Norfolk why the provision is worded as it is, although I have to say that I found his argument extremely persuasive, and what I really want to do is to go away and think about how the provision works. If I correctly understood him, he argues that we should take out the phrase
“so far as is reasonably practicable”.
and concentrate on whether clause 3(2)(b) encompasses what we want to achieve. If that represents a correct understanding of his argument, I have quite some sympathy for it.
The Government did not want to put an absolute requirement on the board and on the regulator to act in such a way as to be fully compatible with all the regulatory objectives all the time, because that could result in greater cost and bureaucracy, and probably in greater intervention by the board in the regulatory activities of the approved regulators—not least because there would then be a risk of judicial review if they did not so act.
The flexible and risk-based approach that Sir David Clementi advocated was the reason for drafting the clause as it is, such that the right way forward is to deal with matters on a case-by-case basis. The wording of clauses 3 and 28 therefore tries to recognise that the objectives might apply to a greater or lesser extent in the carrying out of functions, or even, sometimes, not at all.
I shall consider whether removal of the relevant phrase would undermine that flexibility in any way and whether we could rework clause 3(2)(b) to ensure that it would encompass the principles that we all agree should apply. On that basis, I ask the hon. Gentleman to withdraw his amendment.
Mr. Bellingham: I am grateful for the Minister’s constructive and positive response and I look forward to her further comments on those points in Committee. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Djanogly: I beg to move amendment No. 213, in clause 3, page 2, line 34, at end insert—
‘(4) In assessing what is proportionate in the regulation of approved regulators the Board shall have regard, inter alia, to—
(a) the regulator’s resources (including voluntary resources) and the effect on them of the Board’s acts;
(b) the effect on regulatory fees;
(c) the extent to which the Board’s acts might discourage entry to or retention in the regulated sector;
(d) the extent to which the number of persons regulated by a regulator might be reduced in consequence of the Board’s acts;
(e) the extent to which the regulator might be disadvantaged and another regulatory might derive an advantage, in particular through the movement between regulators of regulated persons as a consequence of the Board’s acts’.
The Chairman: With this it will be convenient to discuss the following: Amendment No. 214, in clause 3, page 2, line 34, at end insert—
‘(4) The role of the Board is to ensure that the approved regulators act in a way which is compatible with the regulatory objectives.’.
Amendment No. 254, in clause 3, page 2, line 34, at end add—
‘(4) In considering what degree of protection may be appropriate for consumers, the Board must have regard to the differing degrees of experience and expertise that different consumers may have in relation to different kinds of regulated activity.’.
New clause 10—Board’s general duty to consult—
‘The Board must make and maintain effective arrangements for consulting representatives of practitioners and consumers on the extent to which its general policies and practices are consistent with its duty under section 3.’.
New clause 11—Consultation—
‘Arrangements under section (Board’s general duty to consult) must include consultation in advance of the Board setting its workplan for each year, so as to obtain the views of persons consulted on—
(a) the degree to which the Board’s proposed activities are appropriately targeted on areas giving rise to the greatest regulatory concern, and
(b) whether or not the proposed programme of works is proportionate, having regard to the need to avoid imposing unnecessary regulatory burdens.’.
Mr. Djanogly: 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.
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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.
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.
Simon Hughes: I will be brief, but I want to say a few words about the new clauses that have been mentioned and to correct the hon. Member for Huntingdon: I think that he referred to new clauses 11 and 12, but new clauses 10 and 11 are under discussion.
The new clauses are almost self-explanatory. We are in a section on the general functions of the Legal Services Board and its duty to promote the regulatory objectives. It is always a question of degree and of how much ought to be put in the Bill, and so we propose:
“The Board must make and maintain effective arrangements for consulting representatives of practitioners and consumers on the extent to which its general policies and practices are consistent with its duty under section 3”,
and the other proposes that arrangements should include consultation in advance of setting the work, not least to obtain the views of the consultees of the targeting of specific interest in the board, and getting a view of what people think are the big issues on which the board should be concentrating and whether its work has some proportionality. That starts to open the question of the balance between the second-tier regulator and the board and the extent to which the board has a light or heavy touch.
I am not pretending that the drafting is perfect, but I should be interested to hear the Minister’s general response. The new clauses are an attempt to see how much we need to include the board’s duties, particularly its consultation duties, in the Bill.
Bridget Prentice: One of my aims in the debates on the Bill and in my discussions with stakeholders, whether they are from the legal professions, consumers or colleagues, is to ban the phrase “light touch”. This is not about light touch, but about proportionality. I want everyone, if I can persuade them, not to use the words “light touch” or any reference to touch, but the term “proportionate regulation”. I will then feel that I have achieved something.
We very much recognise that the smaller regulators in particular—ITMA and CIPA have been quoted extensively—might want statutory assurances about how they will be considered under the new framework. It is perfectly understandable that they might be concerned about that, but there can be no question but that an effective regulator must have regard to at least some of the considerations listed in amendment No. 213.
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There is therefore nothing between us on the question of whether regulation should be proportionate. Clearly it should. Where we differ is on whether we consider it important to try to define it in the Bill. Indeed, in quoting CIPA and ITMA, the hon. Gentleman recognised that the board, the Office for Legal Complaints and the approved regulators must be able to take a proportionate approach on a case-by-case basis, which is the aspect on which we should concentrate our attention. I am concerned that trying to define what the board should take into consideration might cast doubt on whether other important factors also apply in a particular case.
In amendment No. 213, the hon. Gentleman highlights a number of different considerations that he regards as essential to the exercise of proportionate regulation. However, the key point is that there might be equally applicable and important factors that are not contained in the amendment. Setting out those considerations in the Bill could suggest that they had greater weight than other, non-statutory factors, which might be more important in relation to a particular regulatory decision.
To give the Committee an example, I am sure that hon. Members are all aware that the principle of proportionality is well established in legislation. Section 2(3) of the Legislative and Regulatory Reform Act 2006 establishes that
“regulatory activities should be carried out in a way which is transparent, accountable, proportionate and consistent”
and that they
“should be targeted only at cases in which action is needed.”
Those concepts are not defined in the 2006 Act, and we have simply replicated that model in the Bill.
It is of the utmost importance that the board, the regulators and the Office for Legal Complaints should be free to consider what is proportionate when making their regulatory decisions. It is equally important for the protection of the interests of the consumer, whether a multinational firm or the man or woman in the street, that proportionate regulation should be considered on a case-by-case basis. Placing definitions in legislation of what is proportionate in a particular case would serve only to restrict the scope of that principle.
Amendment No. 254 would ensure that the board could distinguish between those who are experienced consumers of legal services and those who are not, for the purposes of determining what level of regulatory control should apply. It might be considered as risk-based and proportionate to fix the arrangements in regulations, but fixing the arrangements in the Bill, so that they could be changed only by primary legislation, would mean losing that opportunity for flexibility that we have been carefully building throughout the Bill. I would argue that the board’s regulatory approach is to target those areas that need attention.
How a consumer copes in a given environment, based on their experience, is only one of the variables that we take into account in determining the level of protection. We have taken the view that the starting point should be blanket protection for all consumers, which can then be adapted to fluctuations in the legal services market and can respond to consumer needs on a case-by-case basis where appropriate.
I appreciate the sentiment behind amendment No. 214. We have consistently made it clear that we embrace the B-plus model of oversight regulation. Although I understand why the hon. Gentleman wants to make that explicit in the Bill, I am not convinced that that would achieve what he wants. In fact, it would lead only to more intrusive and burdensome regulation. I am sure that he, of all people, would not want us to go down that road. There would be a risk of judicial review if the board did not discharge its own duties to ensure that the approved regulators acted compatibly with all the regulatory obligations all the time.
It is important that the oversight regulator does not micro-manage and second-guess the actions of the approved regulators, as Members on both sides of the Committee will agree. I fear that the amendment would increase the scope for such micro-management by the board, by giving it a statutory duty to ensure that the approved regulators act in a particular way that is compatible with all the regulatory objectives all the time. The Bill already gives effect to the oversight model of regulation. When there are adverse impacts on the regulatory objectives, the board will have the right powers to take action. I do not see any reason or merit in going further than we have done.
I remind the Committee that the Government tabled amendment No. 6, which puts the board under a statutory duty to publish a policy statement setting out how it intends to have regard to the principle that its principal role is the oversight of approved regulators when formulating its policy statements. That provision, which also requires the board to take into account the desirability of resolving matters informally whenever possible, might provide the kind of principle that the hon. Gentleman seeks. Our position is that policy statements remain the best place to set out the relationship with the approved regulator; they can be adapted as necessary to ensure that the consumer is afforded the protection of proper regulation for the services that they pay for.
Turning to new clauses 10 and 11, we have discussed amendments to the board’s duty to consider the views of approved regulators, as well as of consumers. The Government have made clear their position on the issue. The Bill provides equal opportunities for representations by consumers and practitioners, through the approved regulators, to be considered by the board. That has been expressed differently in the Bill, according to the bodies involved, and for good reason. Unlike the legal profession, which already has in place well-established, well-organised and well-funded bodies that are more than capable of representing the views and interests of its members, consumers do not have such a voice—[Interruption.] I sound as if I am about to lose mine. We therefore thought it necessary to establish the consumer panel to represent consumers’ interests to the board.
Approved regulators already have sufficient opportunities under the Bill to represent practitioners’ views. For example, in addition to the provisions requiring the board to consider representations, clause 3 specifically requires the board to have regard to key principles, including any other principle that appears to represent the best regulatory practice. In line with such practice—the Better Regulation Executive’s code of practice and consultation, for example—the board should consider representations, especially if they come from those affected by its functions. We do not need to set out any practice in the Bill which could, in effect, become outdated and irrelevant. It would narrow the focus of the board’s consultation too much if it were limited to the extent to which its general policies and practices were consistent with its duties under clause 3, or to the degree to which the board proposed activities and targeted them appropriately, whether or not the programme of work was proportionate.
Those principles apply, too, to any work plan, and it is unnecessary to put that duty in the Bill. The board has a duty under clause 3 to ensure that its activities are targeted and used only when appropriate and necessary. Given the duty for the board’s accounts to be laid before Parliament, there is sufficient financial accountability, so I urge the hon. Gentleman to withdraw his amendment.
Mr. Djanogly: I thank the Minister for that thoughtful response to the amendments, and I shall go away and have a good read of what she said. My immediate thought is that proportionality is not simply a word that can be defined on the spot. It is an idea, and ideas are open to interpretation. If someone is given an idea about putting something together, they are given instructions on how to go about doing so. That is the sort of principle that we intended to follow. We are not dictating how the job should be done, but merely suggesting guidelines to be considered when performing it. If board members each use different criteria to judge proportionality, there could be a problem. Our intention is to ensure that a consistent approach is taken by each regulator. The Minister confirmed that she does not believe that the one-size-fits-all approach is appropriate, which is important. If she has thought about whether guidance could be a more appropriate way to define what is meant by proportionality in the context of legal services, I should be grateful for her views.
The Minister does not like the words “light touch”, but patent and trade mark attorneys, for example, like light-touch regulation. They believe that they have a light- touch regulatory existence at the moment, which allows them to compete effectively at an international level, so they have concerns about the proposal. The minimum regulatory cost to members is a registration fee for each register of about £70 a year. Costings suggest that the combination of a regulatory levy and operating costs as an approved regulator are likely to increase the annual regulatory cost to £750 to £1,000 a head, assuming that the number of registered attorneys remains at current levels, and those figures make no provision for set-up costs. For regulators, the concept of a light touch is a real one, as it will hit them in their pockets, so I hope that the Minister will consider that further and comment on whether guidance is appropriate.
Bridget Prentice: I will certainly consider issuing guidance, but I am conscious of the fact that if the Government started to do so we would get back into the argument about Government interference in regulation. I want to make it absolutely clear that the LSB is independent of the Government, and that it must be seen to be so. However, I will consider whether there is a way of using a code of practice or issuing guidance.
Mr. Djanogly: On the basis of the Minister’s helpful answer and her offer to consider guidance, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 3 ordered to stand part of the Bill.
Further consideration adjourned.—[Mr. Michael Foster.]
Adjourned accordingly at fourteen minutes past Seven o’clock till Thursday 14 June at Nine o’clock.
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