Deregulation is on its way

In a scary world, it seems easier to concentrate on small things at the moment.

So I begin with a paradox, which has nothing to do with war or shifting alliances: deregulation is rising up the regulatory agenda.

First, Rachel Reeves convened key regulators at the end of January and called on them to remove regulatory barriers that hold back growth. At the same time, she ensured the departure of the head of the Competition and Markets Authority from his role, ‘pour encourager les autres’ – such sacrificial examples being an old English tradition, according to Voltaire who coined the phrase after the trial and execution of Admiral Byng. (The legal regulators were not invited to the meeting, dashing the hopes of those wishing to see the Solicitors Regulation Authority leadership being chosen instead of the CMA’s.)

Second, at around the same time, the European Commission published its Competitiveness Compass. This curious title is an abbreviated handle for a much longer one along the lines of ‘Let’s-trash-all-the-laws-that-we-have-just-made’. It has some of the same aims as the Reeves initiative: to promote the competitiveness of companies in Europe by, among other things, reducing regulatory burdens. The first measure will be a Simplification Omnibus package (they need a new copywriter), which will ‘simplify’ sustainability reporting, due diligence, and taxonomy, by reversing complicated rules which lawyers have just spent time and money learning from legislation still steaming fresh from the legislative machine.

On Planet Scary, the US government has just declared war on DEI - diversity, equity and inclusion - by scrapping many programmes and requirements, including at American bars. At the same time, and very significantly, it is gutting a variety of regulatory agencies: the Consumer Financial Protection Bureau, the Equal Employment Opportunity Commission, the National Labor Relations Board, and the Securities and Exchange Commission (SEC), which have been hit by a combination of firings, stop-work orders and litigation pauses.

For instance, in an echo of the EU’s forthcoming Simplification Omnibus, the SEC informed a federal appellate court last week that it was pausing its defence of a rule that would require public companies to disclose how their operations affect climate change.

In the US, it is mostly deregulation for a different reason: as an overwhelming artillery attack in the culture wars.

The trend is now obviously towards deregulation, mainly for reasons of growth. The widespread introduction of compliance rules that we have seen in recent years, to coerce companies and others into obeying a broad range of worthy government aims (in our case, mainly the fight against money laundering), is now seen as too burdensome or, in the case of the US, too woke. The pendulum is swinging the other way, for good or ill.

Looking back, it may be that the high point in over-regulation of the legal profession was the recent addition to the Economic Crime and Corporate Transparency Act 2023 of a regulatory objective for the legal profession of ‘promoting the prevention and detection of economic crime’. It should never have been inserted. All the other regulatory objectives in the Legal Services Act 2007 concern the general public interest, widely accepted to be appropriate to overall regulation of the legal profession. But this new provision deals with specific areas of legal practice and a specific crime. It falls within the mindset of ‘if it moves, regulate it’. The Law Society has just responded to the Legal Services Board’s consultation on guidance for the new regulatory objective, arguing correctly that there is no justification for the introduction of new compliance requirements by regulators.

Does the SRA listen to the news? I ask because we are coming to the end of another SRA regulatory consultation, which closes at the end of this week. This raises questions about the model of solicitors holding client money (e.g. should client accounts continue? what should happen to the interest?), about protecting the client money that solicitors hold (e.g. should the rules on accountants’ reports change?) and on models for funding the compensation fund.

Despite the pummelling it received over the report into the failure of Axiom Ince, the SRA seems to be working towards the conclusion that others need to change, and to be further and differently regulated, but the SRA itself does not need to change.

Of course, there are new areas which will require future regulation (in my view), such as tech developments, and in particular the use of AI.

But, for the rest, I predict that the wind will blow more strongly against further regulation and indeed towards the removal of some current rules. We have a lot of rules already (including on client accounts); we have a detailed ethical code. These should be sufficient to see us through future challenges, if properly implemented by us ourselves and properly overseen by our regulator.

Jonathan Goldsmith is Law Society Council member for EU & International, chair of the Law Society’s Policy & Regulatory Affairs Committee and a member of its board. All views expressed are personal and are not made in his capacity as a Law Society Council member, nor on behalf of the Law Society