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Review of the Regulatory Framework for Legal Services in England and Wales Sir David Clementi issues Final Report 15 Dec 2004
May 18, 2004
The Law Society is living in the past
by Hilary Plattern
There is a clear public demand for a simpler and more transparent way of regulating the legal profession.
THE way the public buys its legal services — and how lawyers and legal services are regulated — could be strikingly different five years from now.
It is not before time. The present
framework for the legal profession in England and Wales has been condemned as
“outdated, inflexible, overcomplex and insufficiently accountable or
transparent”. The description came from the Government, when it briefed Sir
David Clementi, chairman of the Prudential, to review the way the profession is
regulated and report back by the end of the year.
But it might also have added that the framework is structurally unsound and
has lost the confidence of the profession it is there to control. Although the
scope of the review is very wide, including the roles of 18 existing bodies with
regulatory powers, for solicitors the key problem lies in the dual role of the
Law Society both as regulator and representative body.
And the sad fact is that, by insisting on the strict application of rules
designed originally for sole-practitioner solicitors on the high street and
small partnerships, the society has lost the support of a substantial proportion
of its membership — those for whom the market is worldwide and their clients
sophisticated and demanding multinational organisations.
To take one example: two thirds of the leading German law firms have now
merged with firms of English origin. But only last year did the Law Society
allow Steuerberater, tax specialists who had always enjoyed all the benefits of
partnership under German regulations, to be recognised as “honorary lawyers”.
Under society regulations, no one who is not a qualified lawyer could be a
partner in an English- origin law firm, no matter where they practised.
More exasperating still has been the lack of progress in adapting the
society’s client conflict regulations to the needs of a global market. These
regulations were originally drawn up to prevent law firms operating mainly in
just one country from acting both for and against the same client in different
pieces of business. But, when clients are multinational companies that want to
use global law firms for dozens of cross-border deals at the same time, it is
absurdly restrictive to prevent firms from acting, citing rules intended to
protect consumers in the high street.
At the more trivial end of the scale, society rules still require firms to
bank funds received from clients the same day or the next working day. Try doing
that with a payment in dollars, in Moscow, on a Friday night.
It is frustration at the lack of progress in so many areas that has led the
international law firms, large and small, to call for a separate regulatory
regime able to support them in their highly successful efforts to export English
legal expertise. Despite the admirable work of Janet Paraskeva, as chief
executive, and Peter Williams, as President, to accommodate the huge range of
interests represented in the Law Society, most international firms see the
Clementi review as a clear opportunity to create a new and more effective
regulatory system that will help them to compete in tough global markets.
Leaving aside the special needs of the international firms, there is a clear
demand from the public for a simpler, more uniform and more transparent legal
regulation. Few will understand, for example, why the barrister who may
represent them in court is not allowed to be part of the same firm as the
solicitor who advises them outside the court, even though each will have had the
same initial legal training. It is hard to see who is being protected by a
regime which insists that they are regulated by different bodies.
Sir David’s most radical proposal to bring sense to this confusion is a new
and independent legal services authority (akin to the Financial Services
Authority), which would take on the regulation of the profession as a whole and
leave existing regulators with a purely representative role. It would have the
authority, clarity of purpose and consistency of approach that has been sorely
missing and would arguably be best placed of all Sir David’s models to promote
open competition and the removal of artificial barriers and restrictive
Opponents of the idea believe that it could become too bureaucratic,
inefficient and costly, and subject to undue interference by the government of
the day, although it should be possible to frame corporate governance and
accountability arrangements that would ensure the regulator’s independence.
The smart money in the profession is, however, on a less radical approach
that would see the establishment of a legal services board presiding over
separated regulatory and representative functions. Even so, many believe that it
may only be a matter of time before this develops into a full-blown legal
services authority along the lines of the financial model.
If the Government is really minded to act, new legislation will be required.
But reports that the Queen’s Counsel system is to be replaced by a new system of
common accreditation for barristers and solicitors, to be run jointly by the Law
Society and Bar Council, are straws in the wind.
This is hardly the action of a government ready to proceed to sweep away the
frustrations inherent in the regulatory system. Unfortunately, if it does not
grasp this opportunity, we will almost certainly be responding to Clementi Mark
II in five years’ time.
The author is director of public policy at Clifford Chance