Letter from Bridget Prentice MP, Parliamentary Under Secretary of State, Department for Constitutional Affairs
I should like to congratulate you on your appointment as chair of this important committee. I see pre-legislative scrutiny as a valuable opportunity to both take a view from Parliament on its likely reaction to Government legislation, and to refine our legislation at the draft stage and making more effective use of Parliamentary time.
Throughout the process of developing our proposals for reform of legal services regulation, there has been much public consultation. This began In 2002 with a formal consultation by my Department, through the Independent review in 2003/4 by Sir David Clementi who also conducted his own public consultation, and finally following publication of the Government’s White Paper “The Future of Legal Services: Putting Consumers First” in October 2005. The result of that public consultation, together with our own stakeholder engagement, has been extremely beneficial in helping us to shape our proposals.
The proposals which you now have before you in the draft Legal Services Bill largely reflect those set out In the White Paper of last October; albeit with much more detail. And in that regard, my officials and Parliamentary Counsel have worked hard to ensure that the draft legislation Is as complete as possible. However, as we have focussed primarily on ensuring the fullness and clarity of our proposals, we have not yet prepared a detailed schedule of the consequential amendments. My officials will continue to develop this, but given the draft Bill is mainly free-standing, rather than working principally through the amendment of other legislation, I hope this will not be a significant inconvenience.
In addition to all that is included in the draft Bill, there are some issues which, despite the considerable consultation that has already taken place, I feel would benefit from consideration by your Committee before the Government takes a view on whether it should legislate for them, These additional points are either essentially points of detail, or matters on which we expect Parliament to have a significant view.
I have set out in the accompanying annex a list of those points. While I fully accept that it will be for the Committee to decide whether it wishes to consider and report on these points, I should say that I would find it very helpful in informing my decision on whether I should promote their inclusion in any legislation that the Government may decide to introduce.
The task you have before you is a challenging one, but an important one. I know that my officials have already provided the Committee with briefing material, but beyond that I would like to say that both I, and my ministerial team, remain ready to provide you with any other assistance you may need.
Issues not provided for in the draft Leqal Services Bill, but on which a view from the Joint Committee would be welcomed
Those issues concerned primarily with the Legal ServIces Board (LSB)
Paragraph 14(2)(e) of Schedule 5 to the draft Bill currently provides for the LSB to require any new body seeking designation to have in place arrangements which provide for “...grants or other payments for the purposes of relieving or mitigating losses suffered by persons in consequence of the dishonesty of, or a failure on the part of, any person whom it has authorized to carry on the reserved legal activity.” While this provisions applies to new providers that may seek designation, there is a question as to whether the LSB should have an additional power to set compensation fund/indemnity requirements for existing bodies, and if so what the precise nature of that power should be. In order to inform the Government’s thinking on this consultants have been commissioned to report on the various options. We expect to publish their report with, or shortly after publication of the draft Bill, Copies of that Report will be made available to the Committee.
There is a question as to whether it is necessary to provide the Secretary of State with an additional power to direct LSB to implement any International agreements, and if so the precise nature of that power.
Those issues concerned primarily with Alternative Business Structures (ABS)
There is an issue as to whether there need to be further and more specific provisions to give effect to the “risk-based” approach to regulation which was proposed in the White Paper, with particular reference to the licensing of ABS firms.
The professional principles of the legal profession, which are set out at Clause 1(2) of the Bill, include the principle that “…such [authorised] persons should act in the best interests of their clients. There is, potentially, a conflict of interest In respect of ABS firms where there may also be duties to shareholders. There is a question as to whether the legislation should rank directors’ duties to clients ahead of duties to companies.
There is a question as to whether the powers which the Bill provides the LSB in regard to Its oversight of approved regulators are sufficiently aligned with those available to the LSB when it is exercising control over those bodies when they are acting as licensing authorities under the ABS proposals.
There is a question as to whether the LSB should have a power direct investors in ABS firms to dispose of their investment in that firm. This could arise in cases where a person has acquired shares in an ABS firm having unlawfully avoided the “fitness to own test”, or where a person acquired shares following such a test but later becomes unfit (e.g. following a criminal conviction).
Those issues concerned primarily with the Office for Legal Complaints
There is a question as to whether the current arrangements set out in the Solicitors Act 1974, which relate to the operation of the Solicitors Disciplinary Tribunal and associated arrangements in respect of the Law Society’s role in relation to the SDT with a sufficient degree of independence and flexibility.