Legal Services Bill [Lords]

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Clause 90

Duties of non-authorised persons
Amendment made: No. 114, in clause 90, page 51,line 10, leave out ‘or has an interest in shares’ and insert
‘or has an interest or an indirect interest’.—[Bridget Prentice.]
Clause 90, as amended, ordered to stand part of the Bill.

Clause 91

Duties of Head of Legal Practice
Question proposed, That the clause stand part of the Bill.
Simon Hughes: The clause sets up one of two new posts in licensed bodies—head of legal practice—and sets out the duties of the post holder. Clause 92 sets up the other new post, head of finance and administration. Both posts are self-explanatory, and it is clearly important that those responsibilities are divided. I can see the argument for that.
Schedule 11 is the other side of the coin. Part 2 of the schedule sets out “structural requirements” for the management of the organisations, including requirements for general management and for the heads of legal practice and of finance and administration. The schedule gives criteria for who is a “fit and proper person” to be head of legal practice, and I should like to ask the Minister a question about that from a lay perspective.
Each organisation will have a head of legal practice, who must be a lawyer in one of the authorised activities, so they could not be a lay person. They will take responsibility for all legal activity. Is it envisaged—this is not clear in the Bill—that the decision on the appropriateness of the organisation will be taken on the basis of the organisation as a whole, without considering who is its head of legal practice, or will it be a bit like the application for a licence currently made to a local authority and traditionally to a magistrates court whereby it is the prospective licensee whose fitness and propriety are considered? It is not sufficient to say that the Whitbread brewery owns a pub; it must ensure that the pub’s tenant is fit and proper. Both are material considerations. To give an example, there are some rogue business people with an extremely bad reputation for ripping people off and not having the public interest at heart. A Mr. van Hoogstraten comes to mind in that category.
Mr. Henry Bellingham (North-West Norfolk) (Con): He is a Lib Dem.
Will there effectively be two tests—is the organisation considered legally and financially competent, and are the two people put up as heads of legal practice and finance and administration regarded as fit and proper? Finally, when the time comes and the procedures in the Bill are established for those tests, if the head of legal practice is replaced and someone else is nominated, is it expected that the licensing process should start in good time, so that, if someone else is nominated, there would be an opportunity for the licensing authority to say, “No, they are absolutely not satisfactory, and they are not a fit and proper person. We do not think that they have the experience, and we do not know enough about them, so unless and until you produce some different people, we will not continue to license you as an organisation”? It is in the consumer’s interest that both tests should be passed, and that both organisations and individuals are passed as being fit for purpose. I am keen to know that both tests should be passed in advance, before any green light is given by the licensing authority to the organisation, so that the licensing authority can do its job under the legislation.
Bridget Prentice: The hon. Gentleman is absolutely right about the importance of those two posts under the new structure. As he points out, the head of legal practice must, of course, be a lawyer, so one would assume that they would follow the rules and the code of conduct established by the Law Society.
As for the licence application, it must set out the ABS’s structural arrangements, including the services that it intends to supply. However, it must also set out and identify the nominated holders of both of posts—the head of legal practice and the head of finance and administration. The whole application would then be considered. However, the nominated individuals will remain under consideration and will also be looked at. There are two tests, but they will invariably be made at one sitting, so to speak. Finally, in answer to the hon. Gentleman’s final question, any change in the holder of either of those positions would also have to receive approval.
Simon Hughes: May I ask a supplementary question? Is it envisaged that the licensing authority would regularly expect to see the people proposed for the posts of head of legal services and head of finance and administration, to satisfy itself, face to face as it were, that they were suitable? There is all the difference in the world between having a bit of paper that may or may not be true when it comes to people’s degrees or qualifications and seeing the people themselves. Furthermore, will there always be checks to ensure that claims that applicants make about qualifications, degrees and competence are accurate, so that we do not have the old story of the bogus degree, or the degree from the non-existent institution, or the qualification from an accountancy school that does not exist or that was closed down because it was fraudulent? Are we absolutely certain that those checks will be really rigorous and that people will not slip through the net on the basis of claims that are not true?
Bridget Prentice: That would be entirely a matter for the licensing authority, acting within its rules. I would expect it to be fairly rigorous in making those checks. Of course, as the authority works through its system of checks, there would be nothing at all to stop it from making inspections, or from rechecking organisations to which it had given a licence. Certainly, that is very much the theme of the Bill. However, regarding the specificity of the checks, any checks would have to come within the rules of each licensing authority.
Question put and agreed to.
Clause 91 ordered to stand part of the Bill.
Clauses 92 to 94 ordered to stand part of the Bill.

Clause 95

Financial penalties
Question proposed, That the clause stand part of the Bill.
1.30 pm
Simon Hughes: It would be helpful if I may make points that significantly and substantially belong here and, although they touch on the information provision that we dealt with, I did not want, as it were, to make overlapping points on two separate provisions.
The financial penalties provision is really important. It allows a licensing authority to
“impose on a licensed body, or a manager or employee of a licensed body, a penalty of such amount as it considers appropriate.”
It then, quite reasonably, says that there will be
“rules prescribing the maximum of a penalty which may be imposed under this section”,
and that those rules will need the consent of the relevant Minister, the Lord Chancellor. That is entirely proper, in so far as it is set out as a structure for action, and the money would go to the licensing authority. What nobody has yet said as far as I can see, and notes on clauses do not say it, is how much we are talking about in terms of the maximum penalties that are in the minds of Ministers. I appreciate that we must have further debate, but want to know that we are talking about a maximum that is pretty high, and that the fines, from the beginning, will be sufficiently stiff to be a real deterrent and threat to people who do not do their job properly and competently—whether as a firm or as an individual—and to ensure that they are going to bear a relationship to the turnover and profit of the company in question.
My question here is again a consumerist point. If the public are to be really protected, the people going into that market must know that they will only breach the regulations, or fail in that respect, at their peril. I want some clear indication of the top-level thoughts in the minds of Ministers for individuals and for companies. In relation to those issues, the one thing that most frequently comes up as an area where things can go wrong and people can fiddle the system, is in finances. There is always concern about the accounts of firms, and law firms, and many of the firms complained about, have been complained about because they put their money in the wrong account, and then moved money around to the wrong places in the solicitors’ firm.
Are the systems are intended to make life as easy and transparent for people, both the firms and the customer, as possible? For example, at the moment, a company would need to have an annual audit. Rather than having two different processes for providing the financial information to show that the company is behaving itself—which would be absolutely necessary if there were no threat of an investigation with a view to saying something that something improper had happened—is there a way of ensuring that one bit of work is done rather than two? In other words, the money would be collected for the audit and, at the same time, for the purpose of satisfying the licensing authority, so that the company had to produce only one set of figures every year, with one lot of people overseeing it and one occasion on when it was inspected. It would all be done in a way that gave a clean bill of health both in accountancy terms and in licensing terms.
It is no good having a licensing regime or a regulatory regime unless it has teeth, and the teeth are the financial penalties, which need to be large enough. As far as I know, the figures have not been made public, and I should therefore be grateful if the Minister would tell the Committee what the Government envisage will be their advice when the Legal Services Board is set up.
Bridget Prentice: There is no actual figure in my mind at present that would be appropriate. I agree with the hon. Gentleman that there must be appropriate fines. However, fining is only one of the available tools; punishments such as suspending, revoking the licence, referring people to other regulators and disqualification from holding specific positions are also available. It will be for the authority to consider which of those is most appropriate in the circumstances of the case.
As the hon. Gentleman said, some organisations are far bigger than others, so the fines need to be appropriate in that respect, too. It brings to mind that to fine premiership footballers £5,000 a week is a drop in the ocean for most of them and does not make a great deal of difference to their subsequent behaviour. I therefore have some sympathy with the hon. Gentleman’s view that the fine must reflect the ability to pay.
This part of the Bill will not come into force until 2011 and between now and then we will look at benchmarks elsewhere and consult stakeholders, who include consumers, so I will not give a figure at the moment. I simply say that the hon. Gentleman is right: from the consumer’s point of view, justice has to be seen to be done, as well as being done. The perception that a person is being fined appropriately is crucial to the consumer’s confidence.
Stephen Hesford: Subsections (3) and (4) of clause 95 state that the board will make rules, which will be agreed by the Government. It will be appropriate at that time. That is the method by which this will all be worked out.
Simon Hughes: That was what I said.
Stephen Hesford: I do not understand what it is that the hon. Gentleman does not understand.
Bridget Prentice: It is not for me to explain to my hon. Friend how the mind of the hon. Member for North Southwark and Bermondsey works. All I can say is that I do not have a figure in mind, for the very reason that my hon. Friend gave: the matter will be looked at over the next few years in consultation with stakeholders, which will, as I said, include consumers. We will consider the benchmarks set in other situations. The board will come to a conclusion, and, as my hon. Friend rightly points out, that will go through the Lord Chancellor. I cannot be more explicit than that.
It is sensible to check financial propriety but, again, there are detailed arrangements that the board and the licensing authorities will want to consider. The decision will be for them.
Simon Hughes: If the hon. Member for Wirral, West had been listening earlier, he would know that I particularly cited the two subsections to which he referred. I am fully aware of the process, but it is none the less important to flag up the importance of the issue now to make the point, which the Minister picked up, about fines needing to be proportionate to ability to pay, in terms of turnover, capital and other financial considerations and to see whether the Government have addressed the issue. Ministers said that they had not done so yet, which is a half-reasonable answer. The sooner the Government start to share their thoughts on this issue, the sooner people will understand the real implications of the Bill and whether the legislation will have teeth.
I end where I began: these are important issues, and unless the fines can be made big enough, this sanction will not be the sanction that the Bill potentially allows it to be.
Question put and agreed to.
Clause 95 ordered to stand part of the Bill.
Clauses 96 and 97 ordered to stand part of the Bill.
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