Nearly half of solicitors think their practising certificate (PC) fees and compliance costs represent ‘poor value’, according to research from the Legal Services Board, which says it will pay closer attention to regulatory charges as part of efforts to improve transparency.

According to the board’s Cost of Regulation report published today, costs lawyers are the only group to regard fees and compliance costs as ‘low’ or ‘reasonable’.

The LSB says perceptions of value for money provide a ‘useful’ insight into regulation costs. ‘However, there might, of course, be a difference between perception and what occurs in practice,’ it adds.

Providers 'generally have a poor understanding' of what the PC fee pays for and attach costs to regulation that are in fact derived from elsewhere, it says. 

Nevertheless, the board says it will closely scrutinise the PC approval process, looking at the underlying regulatory costs, which determine the size of the annual fee.

It will also carry out a ‘desk review’ of how oversight is used to apply pressure to the costs of regulators ‘elsewhere in the economy’.

LSB chair Sir Michael Pitt said: 'Unnecessary regulation can stifle innovation and the costs are borne by businesses and ultimately consumers. This is why the LSB has been reviewing the costs associated with regulation to legal services providers.

’It is clear from the findings of this work that there is general lack of understanding about the true cost of legal services regulation. The challenge is to ensure that the regulated community and the public [have] greater clarity of the costs of legal services regulation. Without this, a robust assessment of value for money cannot be mounted.’

The board’s findings show frustrations differing between sole practitioners and larger firms.

A respondent to the board’s ‘attitudinal’ survey says sole practitioners who do not employ any staff ‘appear to be subject to the same internal reporting requirements as larger practices and it is sometimes baffling to have to “report” on how you are supervising your own activity’.

However, larger firms, particularly in the City, believe they are ‘cross-subsidising’ regulation.

The report states: ‘Certainly, some of the highest-risk practice areas due to handling client money, such as conveyancing and estate administration, are predominantly provided by small firms. Further, enforcement data suggests that smaller firms are disproportionately more likely to require enforcement action.’

Examining the transparency of reporting among individual regulators, the board says it was ‘disappointed’ by the level of publicly available information provided, ‘which has frustrated our efforts to present as full a picture of the cost of the regulators as we would have liked’.

Publishing eight individual reports, including one on its own transparency of reporting, the board says compiling the information ‘proved far more challenging and time-consuming than it should have been’.

Should the government make legal services regulators fully separate from representative bodies, the board says it will work closely with regulators on transitional arrangements 'and seek to [embed] greater financial transparency within the new structures’.

SRA chief executive Paul Philip said the regulator recognised the cost of regulation was ‘too high’ and was committed to ‘continuing’ to drive down costs.

Philip said the complexity of the current Law Society Group structure made it difficult for the regulator to set out its costs ‘in the detail I would like and that would help the LSB with this important analysis’.

Philip said: ‘We are looking at how best to improve the detail of our cost breakdown and recent changes to the group shared services function will help.‘If the Treasury proposals for separation are implemented, the costs of regulation will not only be very much clearer, but we believe we can speed up the steady year-on-year reduction in regulatory costs that the report already highlights.'

Law Society chief executive Catherine Dixon said: 'The costs to solicitors of regulation, representation and fulfilment of the profession’s statutory public interest responsibilities need to be transparent and deliver value for money for the profession.'

She added that the Society and the SRA consult with solicitors every year about the fee and that from next month the fee consultation will include greater detail – including more information about the Law Society's public interest work .

She said: 'If the government is minded to review regulation we believe any such review should be holistic to avoid the unintended consequences which could result from simply separating the regulators from the professional bodies. We believe that the regulation of solicitors is currently too broadly defined as it includes not only regulatory rules and enforcement but also legal educational training and entry into the profession, professional standards and awarding the professional title of solicitor.

'The risk of separating the regulators and the professional bodies, given the current parameters of regulation, is that there will be no professional input into the profession.

'We believe the way to reduce the cost of regulation is to let the profession own and drive professional standards and let a regulator (or smaller number of regulators) set and ensure minimum regulatory rules aimed at protecting consumers where there is a requirement for regulatory protection.'