Townsend: new post-Clementi legal services framework in place by 2020

Outcomes-focused regulation was never going to be popular. Not that the previous regime had many supporters among solicitors, with widespread suspicion about the Solicitors Regulation Authority’s approach to enforcement.

Ushered in just over two years ago, OFR replaced rules-based regulation with a set of demonstrable outcomes, giving greater emphasis to policy and prevention over enforcement. Much derided
at the time, it does not appear to have caused as much uncertainty as anticipated.
In fact, departing SRA chief executive Antony Townsend says it has “unequivocally” been a success.

“The prediction in the more excitable parts of the profession that the removal of the old code of conduct would lead to the collapse of the legal services sector as we knew it hasn’t materialised,” he says, days before leaving the regulator for a senior executive post at another professional organisation.

OFR, Townsend says, “has not got in the way of tough enforcement when that’s what was required”, adding that in most cases, the SRA has worked with law firms “successfully”. He even proudly reports that firms who had dealings with the SRA supported OFR positively.

Broadly encouraging

While he is taking cautious comfort in the reduced number of firms referred to the Solicitors Disciplinary Tribunal, he is keen to point out that this is “a broadly encouraging sign”. And although his tenure has coincided with some catastrophic collapses, he says that the SRA has, in the main, had “significant success” in identifying firms in financial difficulty and working with them to avoid interventions.

With the regulator’s own costs “in a downward trend”, all this suggests that the model has proved to be “reasonably resilient in a dynamic – and also unstable – market”.

Still, the Legal Services Board has made no secret that the code of conduct remained too long for its liking. Townsend accepts the point but says change was only a matter of time. “We’ve always said the handbook, when issued two years ago, was not the last word on it. It represented a big step forward as far as what both we and the profession could do at the time, but there is more to be done.”

Not everybody is convinced that the SRA can rise to the challenge, but Townsend lists a number of projects that he believes are evidence of the regulator’s willingness: the Red Tape Initiative, which will “remove unnecessary bureaucracy”, and a major review of education and training prompted by the Legal Education and Training Review.

The Training for Tomorrow programme, known as T4T, is the SRA’s response to LETR, which Townsend says should deliver “further reduction in the current prescription in legal education and training, leading to greater flexibility coupled with greater concentration on risk and quality”.

Leaner code

The result of the holistic programme is expected to be a new, leaner code by 2016, the end date of the SRA’s strategic planning period. This may seem far away, but Townsend says there is a limit to what the regulator can impose on the profession in one go – as well as “a limit to the number of changes the SRA can introduce, or even handle competently, in one go”.

As the profession opens and ownership of legal services organisations is no longer the sole prerogative of solicitors, one of the major challenges for the SRA – and other legal regulators – will be the move from individual to entity regulation. Some of this is already under way.

“The concept of entity regulation is now pretty well embedded,” Townsend says. “The way we supervise and enforce now has a strong entity element. The capacity and the machinery is there for it.” But he makes it clear that this should not be a substitute for individual liability.

“There are occasions where one has to deal with an individual who has fundamentally failed to live up to professional values. That shouldn’t go away because it’s about integrity, which is about the fitness of an individual to participate in the sector at all.”

But what entity regulation will look like eventually depends on other unknown factors, such as the number of alternative business structures, who regulates them, whether the number of solicitors continues to grow, and how their roles develop.

“It’s difficult to predict with clarity, because increasingly the focus will be on competent people delivering legal services,” Townsend says. “There will be a group of people who deliver legal services and probably solicitors will be the high-end specialists in that group. Personally there is strength in the identity of solicitors. It’s associated with a set of professional values – and that’s powerful.”

This, again, touches on the implementation of LETR and the question of competence. “As regulators, we’ll be more interested in the continuing competence of the delivery of legal services by the whole organisation, not simply the qualifications of those who have the badge of solicitor,” he says.

Regulator shopping

And there is another potential change that could come from left field. With solicitors representing by far the majority of qualified professionals in the sector, the SRA is the de facto regulator of choice. But could other regulators challenge its position as the sector opens to more non-solicitors?

“The risk already exists,” Townsend responds. “What will be interesting is if the number of regulators authorised to license ABSs grows to become significant, the question will be whether the LSB is prepared to ensure we’re playing to the same set of rules. The SRA has adopted a tough set of rules. We also have, under internal governance rules, separation between us and the representative body.

“So the question is: what if accountants do that too, where there’s no separation? If competition between regulators becomes a reality, the LSB will have to do a lot more to ensure that all regulators play by the same rules. It hasn’t really arisen much, but it could.”

What Townsend is even clearer about is the current lack of enthusiasm for a single legal regulator, as proposed by the LSB.

“There is not much of an appetite to go through the agony of major structural reform,” he says. The SRA’s view in this regard is well known: a clear separation from the representative body and a move towards further integration.

“It requires primary legislation and there would be a huge organisational cost. However strong you feel about the fact that the Clementi reforms were not envisaged to be the final structure, at the minute we are better off expanding our energy on making the current system work – there’s lots to be done.”

So, how long will it take to get there? “Give it another three years,” Townsend replies, “but with parliamentary timetable, it will take another two or three years on top.” He believes this will give the regulators time to have settled down and the impact of ABSs will be clearer.

“Looking back, we probably all underestimated the work involved in bringing changes through for what is a major cultural change. We’ve all wasted energy on unproductive, if strongly felt, arguments – some important ones – but many people feel these should now be put to one side.”

Five to six years, though, could be a lot sooner than it seems. Undergraduates starting a law degree this autumn could emerge after their LPC looking at a very different legal profession than the one they’re contemplating now. SJ

 

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Antony Townsend was talking to Jean-Yves Gilg (jean-yves.gilg@solicitorsjournal.co.uk)

 

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