Blog Post

CILEX, CILEX Regulation, SRA, Law Society, LSB: a tangled web

Crispin Passmore • Aug 01, 2022

CILEX plans to shift regulation of legal executives to the SRA

The legal market’s regulatory geeks’ jaws hit the floor when CILEX announced that it was considering abolishing CILEX Regulation and passing its regulatory functions to the SRA. Its case for change is measured and inflammatory at the same time. CILEX responded with a threat of legal action. Former LSB CEO Chris Kenny prepared a report (limited in its scope by design of CILEX it seems) to assess the evidence for the decision it appears to have already come close to making. LSB have made a statement that makes them look passive, even caught in the headlights. I am not sure if MoJ has even noticed: so much for the rule of law. Having watched, disinterested and sometimes even uninterested – (if you’re under 35 google the difference) over the last few weeks, I want to make some observations and pose some questions. For those without time to read what is one of my longer blogs, I can summarise my assessment thus: a pox on all their houses.


Before I get into the substance, I make some full disclosures. I know many of the participants. I sat on the Bellamy Review of criminal legal aid alongside Prof Chris Bones, Chair of CILEX. I cooperated with CILEX Regulation over several years in my time at LSB and SRA. I worked with Chris Kenny at the LSB and have remained good friends with him. I know some of the lawyers acting in this matter. And, of course, I spent several years at the formation of the LSB trying to create and then defend the independence of regulators from interference by representative functions of the approved regulators. I have tried to use all of that to form an unbiased view of these events and I’ll leave you to judge if I have succeeded.


The case for change can be summarised as CILEX coming to a view that CILEX Regulation is not sustainable. It does not criticise CLIEX Regulation directly but says that lack of growth of legal executives and the low number of entities under regulation by CILEX Regulation make it unlikely to be able to deliver a sustainable and resilient regulatory system, especially in the face of high regulatory costs and challenges around compensation schemes.


I have a lot of sympathy with this analysis. In 2011 the LSB commissioned Nick Smedley to write a report on the capability and capacity of the smaller legal regulators. The report says that:


“…gaps in the SARs’ [smaller approved regulators] capacity and capability is not so pressing as to cause immediate grave concerns but, given the fast-moving changes to the market, the risks will soon multiply. There is a serious question about whether the current complicated, multiple-regulator arrangements will prove sustainable in the coming years. It is likely, though perhaps not inevitable, that there will have to be some consolidation in this sector, and some pooling of knowledge and resources, if not full-scale mergers.”


More than ten years on it remains a cogent summary of the issues and I assume that all sides read it carefully before embarking on their respective courses of action. I remain of the view that however excellent the leadership and staff of the smaller regulators (and there are some that have taught me a huge amount and others whose energy, commitment and knowledge I continue to admire), I cannot see how they would handle a serious failure in their market. Some might say the SRA would not either – but I do not think anyone would argue that is down to scale. I don’t want to dwell on this aspect: I want to focus on wider issues of what this means for independent regulation and identify a few issues.


At the heart of this is a debate about what powers CILEX retains to do what it has done and what it proposes. They, no doubt, will say that they have residual powers as the approved regulator under the Legal Services Act 2007. I am not sure what this means. The LSA does not say that certain regulatory functions must be delegated, nor that others remain with the representative function. It is worth repeating what s30 does say: 


Rules relating to the exercise of regulatory functions

(1) The Board must make rules (“internal governance rules”) setting out requirements to be met by approved regulators for the purpose of ensuring—

(a) that the exercise of an approved regulator's regulatory functions is not prejudiced by its representative functions, and

(b) that decisions relating to the exercise of an approved regulator's regulatory functions are so far as reasonably practicable taken independently from decisions relating to the exercise of its representative functions.

(2) The internal governance rules must require each approved regulator to have in place arrangements which ensure—

(a) that the persons involved in the exercise of its regulatory functions are, in that capacity, able to make representations to, be consulted by and enter into communications with the Board, the Consumer Panel, the OLC and other approved regulators, and

(b) that the exercise by those persons of those powers is not prejudiced by the approved regulator's representative functions and is, so far as reasonably practicable, independent from the exercise of those functions.

(3) The internal governance rules must also require each approved regulator—

(a) to take such steps as are reasonably practicable to ensure that it provides such resources as are reasonably required for or in connection with the exercise of its regulatory functions;

(b) to make such provision as is necessary to enable persons involved in the exercise of its regulatory functions to be able to notify the Board where they consider that their independence or effectiveness is being prejudiced.


It would be perfectly possible for CILEX (subject to its own charter) to regulate its members itself, and for example, to delegate the representation of them. Or to meet the obligations under the Act (and the rules that the LSB made under it) in another way. I have long thought that the accepted narrative that the representative body is the approved regulator and retains some residual power is misplaced. CILEX Regulation is as much the embodiment of the approved regulator as CILEX’s other parts.


In truth, the approved regulator is CILEX’s Board – its senior layer of governance - and it has the power to exercise its regulatory functions and to delegate them. This is not just about how it regulates but also the governance around that. I think that means it should not take advice from the executive of its representative functions on the governance of regulation because to do so may breach s30(1).


It is no defence to say that CILEX excludes professional Board members from these decisions. That is not what the act requires. It requires the LSB to make rules that ensure decisions are taken without being prejudiced by representative functions. In my experience professional members of regulatory boards can be as independent as lay members; and without doubt many lay members get captured by the professions they regulate. It is influence that counts rather than status.


I can see an argument that says CILEX Regulation should be advising the CILEX Board on regulatory matters; but it must be right that the Board can make a strategic decision about how it exercises its regulatory functions without being compelled to be advised by the current regulatory function. That is because if the approved regulator has concerns about competence (or indeed integrity) it must be able to act quickly and effectively.


However, the LSB is responsible for assessing the competence of CILEX Regulation, not the CILEX Board. If the LSB thinks that the current model is not sustainable it must act – and do so transparently. In my view the LSB should be telling CILEX to stop this process and if it has concerns to pass them to the LSB for it to assess either as part of its regular assessments or as a standalone exercise. Perhaps this has happened, and I can understand why that might, initially, happen behind closed doors.


The LSB does not look like it is in control of this situation. It risks being so far behind the curve that it does not act until it is given a set of rule changes to consider, and then the only assessment it will be able to make is that it wished it was not starting from there. I have always thought – and this informed the initial internal governance rules in 2009 – that the Board of the approved regulator has a nuclear button to end the current delegations but that it can only use that button with the LSB standing alongside, giving it permission to blow the bloody doors off. That would need careful choreography – including a prior assessment by the LSB that the regulator was not performing and perhaps even a notice to the CILEX Board to that effect, or in extremis, some record of concerns being expressed by the LSB that warrants the destruction of an important part of the regulatory landscape. How will the LSB consider CILEX proposals given its positive assessment of CILEX Regulation?


None of this criticism of CILEX should be used to defend the current model of regulation by CILEX Regulation. I remain of the view that the smaller regulators are one of the weak links in the landscape. And this affair pushes me ever closer to thinking that the time is ripe to create a single regulator.


But first to the regulation of legal executives. I do not think that the current delegation of powers from the Law Society to the SRA allows the SRA to regulate legal executives. That can be changed but how does the Law Society Council approach that decision? If it is advised by its representative CEO it risks making the decision in the interests of solicitors. It cannot be for the CEO of the SRA to advise the Law Society on regulation of legal executives. To be consistent with independent regulation it needs the LSB to drive this – if it thinks the current model is unsustainable.  It is a little worrying that the LSB has left CILEX to assess that regulatory issue.


If the LSB had taken control as soon as CILEX raised concerns to it (assuming it hadn’t already noticed that the current model is unsustainable but agrees it might be now that CILEX raises it) it would be in control (I like to call that regulating) rather than having put itself out of the ring like some independent appeals body. I am not sure how the LSB might come to a view that the model of CILEX Regulation is not sustainable without reaching a similar view on the other regulators who appear to face identical challenges? Is the LSB going to say that the executives of the others are better able than those at CILEX Regulation to overcome those challenges – when its own assessments do not suggest that CILEX Regulation is performing worse than all the other regulators? Or has it not given this much strategic thought yet?


Let us assume that the Law Society decides to seek amendments to its Charter (if needed) and delegates powers to regulate legal executives to the SRA. What else might it do? Might it give the SRA power to regulate all regulated lawyers such as notaries (so that SRA can then seek LSB approval), trademark and patent attorneys, licensed conveyancers of some sort? Or perhaps, given that it doesn’t seem to rate the SRA very highly, it will choose to delegate regulation of solicitors to somewhere more biddable than the SRA, or perhaps it could swap and give it to CILEX Regulation?


I always thought that the SRA, post STARs, (the SRA’s much reformed regulatory handbook launched in 2019) should move forward with a second round of reform, authorising individuals in specific reserved activities. That would liberalise the legal labour market to some degree and, given that so many of the individuals authorised by other regulators work in SRA regulated firms, it would create a one stop shop for firms. That would be the SRA responding to the competitive ambitions of other regulators. The SRA could authorise probate practitioners, conveyancers, even notaries and advocates. It would represent a step towards a single legal regulator. That would also enable the Law Society to grow its membership beyond solicitors.


And if that all sounds fanciful, remember that the Law Society has form. It tried to create a category of associate membership to attract the rest of the legal labour force (and failed). And it tried to create a conveyancing portal to dominate that market (and failed). If it is to allow the SRA to regulate legal executives, why would it not allow them to become members? What would that mean for CILEX?


For individual legal executives the route to becoming a solicitor is easy. SQE appears to be designed (at least in part) to offer a direct alternative to the legal executive route to qualify as a solicitor and that has always been part of the CILEX offer - even if legal executive fellows already deserve equal status. Surely being regulated by the SRA will accelerate the demise of legal executive routes? How could the SRA, given the regulatory objectives and the work it has already done, not regulate solicitors and legal executives in a way that creates either equivalence or a clear heirarchy?


That leads on to the whole question of education and qualification. The Legal Executive qualification is delivered by CILEX. It seems to generate a significant amount of revenue for them. What will CILEX do when the SRA decides, as it surely must, that a centralised assessment without a requirement for specific courses to be undertaken, is the right way to fulfil the regulatory objectives? CILEX could not bind the SRA any more than the Law Society can on the qualification of solicitors. I do not think that LSB can bind the SRA – it doesn’t really have the power and how would the Law Society respond to that? The SRA cannot bind itself – even if it could do so now as a matter of policy, it could not bind a future SRA Board. It seems to me to be a major flaw in the plan for the SRA to take over from CILEX Regulation: CILEX risks losing a significant income source and its main role. Any attempt to prevent that would be a clear breach of regulatory objectives, independent regulation, good governance, and good sense.


Could this happen? Could the SRA decide to change the route to qualify as a legal executive? Well just last year CILEX Regulation chose the University of Law to deliver its higher rights training and assessment. One can only wonder how that went down at CILEX but if I was chairing their audit and risk committee the loss of control of education and training would sit high on my risk register and I might be pushing the Board to come up with a plan to manage that risk.


What might the Law Society think of all of this in terms of its own strategy. A previous Chancery Lane CEO once told me that the Law Society’s biggest mistake was the delegation of regulation to the SRA rather than delegating the representative function to a new body. It was a strategic error and one that CILEX has opened the door to putting right. And the Bar? Well, I assume they are too focused on being special to even see the opportunity that comes from being the same.


So how does this all end? I'd like to hear Prof Mayson's views but it should end with a shift towards a single legal regulator that is properly independent and free to act without representative interests (but with a significant obligation to listen to all market participants). But it won’t. More likely is that most sensible people will agree that the current legislative framework is broken and then nothing happens about that. The LSB has long lost its pre-eminence in the market, focused on secondary issues like reaccreditation, lawtech and diversity instead of the primary purpose of regulating the regulators. It has taken its eye off the main ball.


This is going to get messy and will turn into a slow and painful set of power plays with the consumer thrown around like a Truss tax cut. A pox on all their houses.

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