Ensuring the regulator is properly regulated

I was going to write about how AI is creeping up on us in our everyday working lives – in Google searches, Zoom calls and Word documents – whether we like it or not. I was going to say that lawyers should be extra careful about the data that they use in these everyday applications, because the data will be swallowed up and re-used by private companies for their own profit, regardless of ownership or confidentiality.

But then something went bang right in front of me: the Solicitors Regulation Authority’s anticipated consultation on solicitors’ client accounts. At that point, even something as existential as AI taking over our lives without our consent became of secondary importance, at least for this week.

The salient point regarding the Axiom Ince debacle, which has led to the consultation on client accounts, was put in parliament last week. The question was not about client accounts (which the SRA would like us to talk about), but rather about the accountability of the SRA (which the SRA would not like us to talk about) i.e. how can the SRA can be held accountable for shrugging off serious accusations about its conduct.

Unfortunately, the question was not put in Prime Minister’s Questions, where it might have attracted some coverage, but towards the end of questions to the solicitor general, Sara Sackman. The Liberal Democrats’ shadow attorney general, Ben Maguire (a solicitor who represents North Cornwall), asked:

‘The Solicitors Regulation Authority recently labelled the Legal Services Board’s damning report into the handling of the Axiom Ince fraud as merely an opinion. Can the solicitor general clarify what mechanisms are in place to ensure that the regulator is properly regulated? What actions are being taken by her department to prevent similar economic crimes to ensure that all constituents, including mine in North Cornwall—one of whom is in the gallery today—can have confidence in our legal system?'

The solicitor general said in reply:

‘He raises an incredibly important point. This government in general are committed to raising standards and rebuilding trust in the justice system. That means regulators working effectively with investigators in the public interest. He will know that, in accordance with long-established practice, it would not be proper for me to comment on the specific case that he mentions, but I can assure him that we will be working to ensure that regulators are working effectively with investigators in the public interest.’

Maguire asked the right question: ‘what mechanisms are in place to ensure that the regulator is properly regulated?’ He received a non-answer from the solicitor general.

However, taking his point seriously, what mechanisms are in place? It is important because, at present, the regulator is in danger of losing the trust and confidence of the entire profession. And how can proper regulation take place in such circumstances?

The easy answer is to say that it is the Legal Services Board which regulates the regulator. Although the LSB has announced that it will set directions for the SRA, this is the same LSB which gave its highest approval rating yet again to the SRA in February of this year in its Regulatory Performance Assessment. This is the same LSB which inexplicably invoked the general election as a reason to delay the publication of the Axiom Ince report, and then chose to publish it the day before the budget, so ensuring that it would struggle to receive publicity.

Many solicitors believe it is the Law Society which should hold the SRA to account, but its own position is very restricted and complicated (complication being a hallmark of the way that legal services are regulated in the UK).

In law, the Law Society is the approved regulator of the profession, but has delegated almost all of its regulatory functions to the SRA, with the exception of the approved regulator role itself. Its conduct in this strange double role – approved regulator at the same time as being the representative body for the profession – is strictly controlled by the LSB’s Internal Governance Rules (2019) (the IGRs).

Rule 2 of the IGRs requires the Society to ensure that, after delegating its regulatory functions to the SRA, the Law Society only retains a role associated with these functions to the extent that this is reasonably necessary to be assured that the SRA is discharging the regulatory functions as required by law. The LSB is clear that, in performing the assurance role, the Law Society should not duplicate the LSB’s oversight role, in particular by seeking to assess the SRA’s regulatory performance.

This cat’s cradle is due to face further stress when the report into the SSB failure is published, since the LSB ordered a review of the SRA’s regulation of the SSB Group earlier this year (it was one of the biggest law firm failures ever, involving cavity wall insulation claims).

If shortcomings are again discovered in the SRA’s conduct in that second report but shrugged off once more, what happens then?

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