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This amendment relates to the ownership qualification for a licensable body, as set out in Clause 71(1)(b). It arises specifically out of the unusual position in which the patent and trade mark agents find themselves in comparison with other approved regulators. Patent and trade mark attorneys have never been restricted as to their ownership. As I understand it, a number of firms—at least one major firm and several smaller ones—have external owners, and have done so for a long time. I should emphasise that this situation is perfectly legal.

As far as I can discern, there has never been any suggestion of a risk to a consumer, nor indeed any risk of conflict of interest. To us it seems inequitable to regulate a business practice that has so far been perfectly legal and where no risks have been identified. If the Bill is passed as it stands, this would cause considerable cost and, indeed, disruption both to existing firms and to the regulatory authorities themselves, who would be compelled to become a licensing body for their members. I beg to move.

Baroness Ashton of Upholland: I am grateful to the noble Lord for his remarks about the meeting that I had yesterday with both organisations. It was a very good meeting. I plan to correspond with them and to put copies of the correspondence in your Lordships’ House. There were misunderstandings on a number of issues that I was very pleased to clear up and which I shall set down in writing. We discussed the issue that the noble Lord has brought forward in this amendment.

I do not think that it will come as any surprise that I shall not accept the amendment but I am mindful of three points which I discussed with the organisations yesterday and which are worth commenting on. The first concerns the issue that I believe we have already touched on; that is, making sure that regulation is simple and straightforward to enable the firms which, as the noble Lord rightly says, are perfectly legal and are doing a fine job, to be regulated without feeling that it is a burdensome or additional pressure.

The second issue that we discussed was cost. We will continue to talk about our desire to make sure that it is not in any way a prohibitive feature of what we put in place. The Bill is deliberately flexible to allow that. The third issue that they were concerned about was the transitional time. Again, I am very keen to hear their thoughts and views on what that might be, so that we can have a discussion on how to approach that. I am not minded to allow an exemption, not surprisingly, because the way in which the amendment works would mean that it would be a widespread exemption. I know what the noble Lord is seeking to achieve. We know that a number of the firms concerned would, under Clause 106, fit in the low-risk, 10 per cent status. Those will have rules

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modified to suit the lower risk that they present. As I have indicated, we are in discussion with them about their concerns about how it would work in practice.

I am not minded to exempt, but I am very clear that we want to make sure that this works effectively for them, that it is not burdensome, that we deal with issues of cost, and that the transitional period is appropriate. I hope that we will be able to allay their fears in that way, which may get us not quite to the same point, but at least to the point where they will be content.

Lord Kingsland: I am most grateful to the noble Baroness for her reply. I am disappointed that she is not prepared to accept my amendment, but I gain some solace from what she said about a transition period. Much will depend on the length of that transition period. For that to be a satisfactory alternative to what is proposed in the amendment, it would need to be, as the Americans say, a meaningful length of time and not something that is merely derisory. I gain a certain amount of optimism from observing the noble Baroness nodding. Therefore, I make haste to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 72 to 80 agreed to.

Clause 81 [Licensing rules]:

Lord Kingsland moved Amendment No. 108AA:

The noble Lord said: This amendment would remove the obligation on the Legal Services Board to make rules in its capacity as a licensing authority. The principle in the Bill for the regulation of alternative business structures is that front-line regulation should be carried out by the approved regulators once they have received authorisation to act as a licensing authority. I emphasise that only approved regulators can seek to become licensing authorities; it would not be open to any other regulatory body to fulfil that role.

The principle that only approved regulators can seek to become licensing authorities in itself provides an important protection. It is right that the same consumer protections are in place in respect of alternative business structures as apply to ordinary law firms. It is also right to ensure a level playing field, so that the regulatory requirements applying to alternative business structures are equivalent to those that apply to ordinary law firms.

That is best achieved, we submit, by ensuring that, as the Bill clearly intends, the same regulators are responsible both for ordinary law firms and for alternative business structures. However, that principle is undermined by the provisions that would enable the Legal Services Board itself to act as a licensing authority. It is understandable that there should be a power for the Legal Services Board to act as a licensing authority in an emergency. For example, it may be necessary for a variety of reasons to cancel the designation of an approved authority. In that case, to avoid a licensing vacuum, the Legal Services Board would have to step in; but it would be wholly inappropriate for the board to act as a licensor in the absence of an emergency of that type.



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4.30 pm

Lord Clinton-Davis: I am much obliged to the noble Lord for giving way. If you have to define an emergency, are you not opening up the situation? How do you define an emergency? It is very difficult to achieve. It would be much better, as the Bill proposes, to have a direct and simple way of achieving it. The noble Lord is adding complexity to a situation which should not be there.

Lord Kingsland: I am most grateful to the noble Lord, who makes a good point; but the Bill does set out the circumstances in which an emergency can arise and how the Legal Services Board should act. The philosophy that lies behind the amendment, and many other amendments that the Opposition, other noble Lords and noble and learned Lords have tabled, is to make it clear that the task of the Legal Services Board is supervisory—that it should step in only if one or other of the approved regulators falters. All the amendment seeks to do is to ensure that in normal circumstances the approved regulators are the licensors and that the power of the Legal Services Board is narrowed so as to take that power on to its shoulders only when an approved regulator is clearly delinquent.

The noble Lord’s point is still valid because the question of whether something is an emergency must, in the end, allow for a degree of discretion. It may well be, in the light of the noble Lord’s intervention, that I shall have to look again at that aspect of Part 5; but my point is to ensure that the Legal Services Board is not able to trespass into an area which is rightly that of the approved regulator. I am most grateful to the noble Lord for his intervention.

The argument has been advanced that provisions of this sort would be necessary if the approved regulators were unwilling to become licensing authorities; but that is not a sustainable argument. Why should an approved regulator be unwilling to become a licensing authority or to license a particular form of alternative business structure unless it considers that such a licence could not safely be granted—bearing in mind that it would have to act in accordance with regulatory objectives? Given all of the approved regulator’s experience of regulating different sorts of law firm, if it feels that it cannot safely regulate a proposed form of alternative business structure, it would be foolish for it to be directed to do so.

In the past, there may have been a concern that the professional bodies would decline to permit alternative business structure firms to operate—not on regulatory grounds, but out of a wish to protect their members from competition. However, that argument no longer applies, if, indeed, it ever did. The Law Society, for example, made it clear that, provided the necessary consumer protections are in place, it has no objection whatever to the provision of alternative business structures.

I suggest that your Lordships also bear in mind that the Bill ensures that, in future, decision-making on regulatory issues will be independent of any representational role which an approved regulator may have. So there is no risk of approved regulators’ decisions about alternative business structures being taken on protectionist grounds. I beg to move.



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Lord Campbell of Alloway: I apologise for having been unable to be here earlier. I have very little to say but this is an important amendment. Whether it is in the right form is not the point; put simply, the issue to which we have returned, is: should the LSB intervene unless there is reasonable cause to do so? We look at this matter in different ways and it is expressed in different ways in the form of some amendment. It was said in another way today, but the drafting is not terribly important; it is the principle to do that for which I contend.

Lord Mackay of Clashfern: I am having a little difficulty in understanding Clause 81. Perhaps I can explain my difficulties so that the noble Baroness can set them at rest. The first line of the clause states:

According to the ordinary rules of grammar, you would think that that would apply to the rest of the provision but that is not the case. Subsection (1)(b) says that the board,

So far as I understand the provisions—that may be quite a restriction—the board acting as a licensing authority is the same as the board acting not as a licensing authority in its construction. Therefore, the board has to make the rules acting, under subsection (1)(a), in its capacity as a licensing authority and approve those same rules not acting in its capacity as a licensing authority. That seems a somewhat unnecessary complication. How it is supposed to add to the business, I do not know.

Assuming that one gets over these slight grammatical difficulties, do the rules that the board makes in its capacity as a licensing authority apply to other licensing authorities? Clause 81(3) states:

Therefore, for example, in so far as the Law Society might be a licensing authority, its licensing rules are not the rules of the board, so to whom do the board’s licensing rules apply, particularly if they are not intended to apply generally but simply in some kind of overarching emergency? I find this whole provision a little difficult but I have no doubt that the noble Baroness will be able to explain it in a way that even I will be able to understand.

Lord Hunt of Wirral: While we all enjoyed the spectre of the ship of state of government being holed below the water-line by my noble and learned friend Lord Mackay of Clashfern, and as no doubt some degree of repair is about to be carried out, I just think that the answer is to leave out subsection (1), which is exactly what the amendment seeks to do. Only approved regulators can seek to become licensing authorities. Surely that is the main point, as well as being the main point behind the amendment. Why are we putting this obligation on the board, acting in whatever capacity, to make licensing rules, which it has to do before the end of 12 months?



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I agree with my noble and learned friend Lord Mackay of Clashfern that it is difficult to understand how this will operate and to whom these rules will apply. Although I recognise the validity of the point made by the noble Lord, Lord Clinton-Davis, we are trying to introduce a simple regime. Provided we still stick to the principle that only approved regulators can seek to become licensing authorities—for example, the Financial Services Authority cannot apply to become a licensing authority—why do we need this additional obligation on the board, particularly when we cannot work out to whom the rules will apply? I and my noble friend, who served so valiantly on the Joint Committee, are anxious to ensure that it is as easy to understand as possible. We have a dilemma, particularly if the Minister runs true to form and rejects this amendment as well. Surely, the answer is for her to accept it.

Baroness Ashton of Upholland: I am afraid I am running true to form for the time being. It is not that I feel holed below the water-line but perhaps I need to resolve a little drip. I say to the noble and learned Lord, Lord Mackay, that I am not so foolish as to try to do other than to listen very carefully to what he says about the drafting of the clause. I shall look at the drafting, which is important. I am grateful to him because if he finds the drafting difficult, it is worth looking at it again to ensure that it is as clear as possible.

On the licensing rules applying to others, they apply only to bodies that authorise the licences and the Legal Services Board rules apply only to bodies that it licenses and not to other licensing authorities. I am not sure whether that makes it any clearer and I shall try to give him further details. I am certainly happy to look at the issues that he has raised.

I have a lot of sympathy with the intentions behind the amendments so I want to set out how we have dealt with the concerns raised. I completely take the point that one of the themes running through the Committee stage of the Bill is ensuring that the supervisory role of the LSB—the noble Lords, Lord Kingsland and Lord Hunt, certainly referred to this—is important and that the board intervenes only where it needs to. I accept that. Earlier today and on other Committee days we have spoken about the partnership approach. We think we have set this out to prevent the board acting prematurely as a licensing authority.

Schedule 12 is important in that context. We have three sets of circumstances in which bodies can approach the board for licences: first, where there are no competent licensing authorities for the service that a body wants to provide and none is applying to be designated, so there is a gap in the market, if I can put it that way; secondly, where there are competent authorities, but they have determined that they do not have suitable regulatory arrangements, and none is planning to make such arrangements; and, thirdly, where there are non-commercial bodies, such as not-for-profit bodies, where licensing authorities have suitable arrangements but none is offering terms that are appropriate for those bodies. In addition, the board is not obliged to grant licences when any of those conditions are met. It still has to consider the merits and it may turn down the body.



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I completely accept the need to deal with the concern that the board should not be able to license bodies where other licensing authorities have said that they do not consider they can do so safely. There are two different interpretations of what we might mean by “safe” or “unsafe” in this context. It may be that for individual bodies rejection generally does not allow them to approach the board. Schedule 12 is constructed to avoid that. It applies only where the general circumstances do not allow bodies to be licensed—not where bodies have had unfavourable decisions. The only exception is non-commercial bodies, such as not-for-profit agencies, for which special provision is made in order to maintain the health of the not-for-profit sector.

The other meaning one could put on this is that licensing authorities do not feel able or competent to license and regulate those bodies because of how they are structured. That is covered by the second ground in Schedule 12; it is what “suitable regulatory arrangements” means, although it may also be that licensing authorities want to build up experience in more unusual forms of alternative business structure firms. They may not have suitable arrangements for two broad reasons; the authorities may not have prepared licensing rules for the services in question, either because they are not an authority’s intended market or because they are unfamiliar; or they may be a combination of services that authorities feel cannot be safely licensed.

4.45 pm

The intention behind the amendment is that the board should not be able to license bodies either. It sounds fine in principle, but licensing authorities will be experts and if, having considered the situation, they conclude that licensing is not safe, I would expect the board to respect that. I remind the Committee again that the board is not obliged to issue licences. It may not have suitable licensing rules and may conclude that none can be devised. It is important to consider the possibility that licensing authorities have not created regulatory arrangements for a full range of services. I have indicated that it is particularly important for providers such as not-for-profit bodies. It is unlikely that they would not be catered for, but we must ensure within the Bill that we have thought of the possibility that that could happen.

We agree with the thrust of wanting the board to step in only as a last resort, and Schedule 12 is designed for that purpose. I hope that, on reflection, the noble Lord will agree that we have got that right and will feel able to withdraw the amendment.

Lord Kingsland: I am grateful to the Minister for setting out her philosophy, which I find partially reassuring. The difficulty is that, in our judgment, it is not set out in the Bill in a way guaranteeing that, once these provisions are in operation, the Legal Services Board will exercise a degree of self-restraint consistent with what the noble Baroness has said. That is the issue.

The Minister did not go on to follow the logic of the principle she adumbrated to the Committee by saying that she would amend the Bill to make it absolutely clear that that is the situation. That is what we wanted to hear from her.



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Baroness Ashton of Upholland: As with all amendments, I will, of course, reflect on it. We think that we have captured it within Schedule 12, which is why I wanted to put our approach on the record; there is a lot of agreement on principle between us. I am always happy to look again to ensure that we have captured it; I have already undertaken to look at whether the grammar works as I hope it will.

Lord Kingsland: I thank the Minister for agreeing to look at the matter further. Irrespective of her reaction to what other noble Lords have said, I suggest that the particular points of my noble and learned friend Lord Mackay merit her urgent consideration. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 108B not moved.]

Lord Kingsland moved Amendment No. 108C:

“( ) appropriate provision requiring the licensing authority to consider the likely impact of a proposed application on access to justice when determining the application,”

The noble Lord said: The amendment raises an issue rightly debated at considerable length during the clause stand part debate initiated by the noble Lords, Lord Thomas of Gresford and Lord Maclennan of Rogart. It concerns the desirability of having a specific access to justice provision in Part 5. Clause 1(1) contains an access to justice provision as one of the seven objectives that the Legal Services Board and other authorities designated under the Bill have to take into account. However, it is only one of seven; and in the balancing exercise by a regulatory authority, it might not carry the weight that we believe it ought to carry when designing an alternative business structure under Part 5.

I apologise to noble Lords for rehearsing some of the arguments that have already been raised; but this amendment inserts a specific access to justice requirement at page 47, line 25. It makes clear that, in itself, access to justice should be a crucial component in the design of any alternative business structure. I make no apologies for quoting the Law Society’s response to the Government’s consultation paper In the Public Interest:


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