Legal Services Bill [Lords]

The right hon. Gentleman makes an important point that has been supported by both his party and mine throughout the passage of the Bill. The Law Society concludes:"““The Law Society's conclusion is that whilst the regulatory issues concerning new service providers can be dealt with...there are very serious risks to access to justice from the uncontrolled admission of new entrants. Existing practitioners report that in many areas, a number of existing firms serving small localities would be in jeopardy if large institutions entered the market for legal services””." The Joint Committee on the draft Legal Services Bill under the chairmanship of Lord Hunt also highlighted the issue, stating that it was,"““persuaded by some of the evidence suggesting that some of the reforms may reduce geographical availability. We consider that ABSs may reduce the number of access points for legal services and we see this as a potential problem. There is clearly an issue here and the only conclusion we are able to draw is that we cannot be sure how it will work out. We recognise that there may be a trade-off between the quality and accessibility of advice—for example, a small, high street solicitor in a rural area may not be able to provide the specialist advice a client requires. We recommend that the Government amends the draft Bill to ensure that the impact of ABSs on access to justice, particularly in rural areas, informs the decision-making process for licensing an ABS firm””." The Government's welcome concession here, via amendment No. 85, will ensure that the licensing authorities consider the possible effect on access to justice and give the issue full weight when determining applications for an ABS licence. This will go some way to allaying the concerns that I set out. I wholeheartedly commend the amendment to the House, and I will not seek to move amendment No. 53, which I feel is no longer necessary in light of the Government's change of heart. Amendment No. 156, which is a probing amendment following representations made to me on behalf of the United Kingdom notarial forum and the Law Society of Scotland, forms an alternative to our amendment No 65. The original desire of the UK notarial forum, which amendment No. 65 would put into effect, was to exclude notarial activities from the provisions of part 5 altogether. The Minister expressed her views on this issue in a letter to the director of law reform at the Law Society of Scotland. She said that"““the potential development of Alternative Business Structure (ABS) firms should not present a challenge to professional independence, in relation to notarial services or any other legal services””." I certainly understand the Minister's position, and I have no doubt that the Bill's intention is to ensure that independence is considered when dealing with ABS licences under part 5. However, the question is whether the legislation makes this sufficiently clear. The issue for the Law Society of Scotland is"““whether 'regulatory arrangements' as envisaged under clause 176 are the same as the regulatory objectives or the professional principles referred to in clause 1.””" Its concern is that there is no specific link between clauses 1, 90 and 176. I hope that the Minister can see the possible gap here. Regulatory arrangements are not the same as regulatory objectives. The requirement for a licensing authority to prepare a policy statement on how it will comply with the duty to promote regulatory objectives is not the same as having a rule in place stating that it must comply with the regulatory objectives. Following the Minister's rebuttal of the Law Society of Scotland's argument regarding excluding notarial activities from part 5, is she prepared to compromise along the lines of amendment No. 156, which specifically states that licensing rules must provide"““appropriate provisions reinforcing the independence and integrity of the legal professionals concerned””?" Such an amendment would go a long way towards allaying the concerns of the United Kingdom notarial forum, and promoting the independence and integrity of the legal system. I would be interested to hear the Minister's views on that. Finally, amendments Nos. 148 to 151 were suggested to us by the Institute of Chartered Accountants in England and Wales on a probing basis. The intention is to ensure that the provisions applying to low-risk bodies under clause 108 are consistent with the Government's welcome developments in the form of amendments made to schedule 16. Those amendments, which have our support, will allow for bodies with up to 25 per cent. non-lawyer ownership and management to be regulated by the Solicitors Regulation Authority during a transitional period before part 5 comes into force. As a result of those amendments, we will have bodies with up to 25 per cent. non-lawyer ownership that can be in operation before the full implementation of the full ABS regime. However, as the Bill now stands, when the full ABS regime is finally implemented, such bodies would not fall within the definition of a low-risk body under clause 108, unless non-lawyer ownership and management were below 10 per cent. The amendments suggest that the opportunity should be taken to align the definition of a low-risk body with the new provisions of schedule 16. If that is not done, we risk an almost absurd situation. For example, the law currently considers bodies with up to 25 per cent. non-lawyer ownership and management suitably low risk to see them permitted very quickly following enactment. However, a few years down the line, when they are tried, tested and well-established, they will suddenly be regarded as outside the low-risk regime and subject to full licensing rules. To illustrate how bizarrely that could play out, I shall give an example. At the earliest opportunity post-enactment, a firm comprising three solicitors decides to promote its non-client-facing finance director to partnership, not to widen the services on offer but to retain his talent, which enhances the performance of the firm. On part 5 coming into force, such a firm would be subject to the full licensing regime. The firm will not fall within the low-risk category because it will be 25 per cent. owned and managed by a non-lawyer. There is no basis for suggesting that such a firm has suddenly become more risky. The only option for that firm would be to admit a further six solicitors as partners to water down their non-lawyer holding, to demote the financial director from partnership, or to subject themselves to the full licensing regime. Surely we need to develop a system in which such tried and tested bodies, with up to 25 per cent. non-lawyer managers and owners, are considered low-risk bodies for the purposes of part 5. Amendments such as those that we have tabled would ensure that the low-risk definition is in line with Government developments in respect of schedule 16. They would help to ensure that firms are not discouraged from coming together to share overheads and offer combined services that will benefit the consumer, because of the regulatory hoops that they will need to jump through once part 5 comes into force. It would be of great concern if the effect was to hinder small and rural practices, depriving them of the benefits of being low risk, while assisting retail giants. I will be interested to hear the Minister's reaction to these points, as this is an outstanding issue that needs to be looked at.