History of the reforms

The Legal Services Act 2007 – and the creation of the Legal Services Board marked the
culmination of almost a decade of work.
Background to reform
In March 2001 the OFT produced a report, ‘Competition in Professions’, which
recommended that unjustified restriction on competition should be removed. The
government responded with a consultation paper and report into competition and
regulation in the legal services market.
The Government’s report concluded that “the current framework is out-dated, inflexible,
over-complex and insufficiently accountable or transparent… Government has therefore
decided that a thorough and independent investigation without reservation is needed”.

Regulatory review of legal services

In July 2003, Sir David Clementi was appointed to carry out an independent review of the
regulatory framework for legal services in England and Wales. The terms of reference
were:

 To consider what regulatory framework would best promote competition, innovation and
the public and consumer interest in an efficient, effective and independent legal sector;
and
 To recommend a framework which will be independent in representing the public and
consumer interest, comprehensive, accountable, consistent, flexible, transparent, and no
more restrictive or burdensome than is clearly justified.
In December 2004, Sir David published ‘Review of the Regulatory Framework for Legal
Services in England and Wales’. His recommendations included:
 Setting up a Legal Services Board – a new legal services regulator to provide consistent
oversight regulation of front-line bodies such as the Law Society and the Bar Council.
 Statutory objectives for the Legal Services Board, including promotion of the public and
consumer interest.
 Regulatory powers to be vested in the Legal Services Board, with powers to devolve
regulatory functions to front-line bodies, now called Approved Regulators, subject to
their competence and governance arrangements.
 Front-line bodies to be required to make governance arrangements to separate their
regulatory and representative functions.
 The Office for Legal Complaints – a single independent body to handle consumer
complaints in respect of all members of front-line bodies, subject to oversight by the
Legal Services Board.
 The establishment of alternative business structures that could see different types of
lawyers and non-lawyers managing and owning legal practises.
The reform programme
The Government broadly accepted Sir David’s report, and in October 2005 it issued a
White Paper, ‘The Future of Legal Services: Putting Consumers First’. In that document,
the Government announced its intention to publish a draft Legal Services Bill which
would include proposals to implement the key Clementi recommendations. The three
planks upon which reforms were to be built were the new, independent and robust
oversight regulator, the Legal Services Board; the single complaints-handling and
consumer redress body, the Office for Legal Complaints; and the facilitation of the
innovative Alternative Business Structures, helping the legal sector to become more
responsive to consumer needs.
In May 2006, the draft Bill was published. It underwent Pre Legislative Scrutiny before a
Joint Committee of MPs and Peers. That Joint Committee was chaired by Lord Hunt of
Wirral, and it published a report in July 2006, making several recommendations about
improvements that could be made by the Government but accepting the broad thrust of
the reform package.
In that spirit of broad consensus, the Government introduced the full Legal Services
Bill to Parliament in October 2006. Parliamentary passage was lengthy and scrutiny was
thorough, with the Bill receiving Royal Assent over a year later, on 30 October 2007.

Clementi - the future of the legal profession

August 2005
In July 2003 the Government appointed Sir David Clementi to undertake a review of the
legal profession and “consider what regulatory framework would best promote
competition, innovation and the public and consumer interest in an efficient, effective and
independent legal sector”. Sir David delivered his much awaited report on 15th December
2004 (www.legal-services-review.org.uk) setting out his proposals. The Government is
keen to press ahead with his recommendations and a White Paper setting out
Government plans is likely to be published by Summer, with legislation shortly thereafter.
It is predicted that many of the proposals will be reality within a few years.

Sir David’s recommendations

1. Regulation

After consideration of various regulatory models Sir David favoured ‘model B+’ which
requires the professional bodies to split their regulatory and representative arms and be
subject to overall supervision from a newly created Legal Services Board (LSB). The Law
Society Council has already agreed to this and work will commence in January 2006.

The LSB, a body ultimately accountable to Parliament, would have powers to exercise all
regulatory responsibilities as well as powers to delegate them. It would comprise a part-
time chair and full-time chief executive appointed by the Government. The remainder of
the Board would be appointed according to ‘Nolan’ principles.

2. Complaints

Sir David has proposed the introduction of an Office for Legal Complaints (OLC), a single
independent body, to deal with complaints against all lawyers and to be subject to the
overall supervision of the LSB.

The OLC would have powers to mediate, investigate and determine complaints on a “fair
and reasonable” basis. Where a complaint was well founded, the OLC would be able to
make binding orders of redress such as ordering that an apology be made, work redone
or fees reduced.

The OLC chair and majority of the Board would be lay members, the remaining members
being from the regulated professions.

3. Structure

Sir David has proposed various alternative business structures within which lawyers could
choose to operate and which have the potential to enhance efficiency, value for money,
competition and consumer choice.

 Legal Disciplinary Practices (LDPs): A business structure that would bring together
various legal professionals (solicitors, barristers, trade mark attorneys, conveyancers,
will-writers etc…) in the delivery of legal services to clients; and
 Multi Disciplinary Practices (MDPs): A business structure akin to a “one-stop shop”
allowing various professionals (accountants, surveyors, lawyers etc…) to provide a
range of advice from a single outlet. However, Sir David believes MDPs may be too
radical at this stage and that LDPs should be the acid test.

4. Outside Investment

Sir David has proposed that non-lawyers, such as banks or motoring organisations, should
be given the opportunity to invest in or own law firms, subject to safeguards including
appropriate ring-fencing of management and a “fit to own” testing procedure.

Opportunity or Obstacle?

It has been said that Sir David’s recommendations could lead towards a regime of ‘Tesco
law’; legal services stripped of their mystique, available through familiar portals such as
supermarkets and provided by business structures that have outside funding or
ownership (The Times, 19 October 2004).

The proposal allowing outside investment is perhaps the most controversial with the Bar
believing such a change could dramatically alter the profession, turning it into a business
in which commercial interests are dominant (The Times 14th December 2004).

But is that an overreaction? Will a transparently competitive market lead to better access
to justice for the client? Or will providing services in this way risk compromising the
independence and quality of the legal profession, thus offsetting the potential
advantages?

Whether loved or hated one thing is clear, the impact of Sir David’s recommendations
cannot be underestimated. There is a real possibility that they will fundamentally alter the
future of the legal profession.

Please note that this information is provided for general knowledge only and
therefore specific advice should be sought for individual cases.

Features
What you need to know about
the Clementi Review
updated on 05 February 2014

bookmark

The recommendations of the Clementi Review have the power to affect both the way in
which you are trained and the profession that you ultimately join. Peter Wright, former
chair of the Trainee Solicitors Group (TSG), writing in 2005, explains why.

In December 2004 Sir David Clementi finally concluded his wide-ranging review into the
provision of legal services. The potential consequences of his findings had the potential
to bring about the most significant wave of change to the legal profession in its history,
and create a markedly different landscape. What was the reason for the review, what
happened in the short term and how did it affect future entrants to the profession?

Why?
The reasons for the review stem back to Labour's election victory of 1997. The
government carried out comprehensive reviews and subsequent reforms in numerous
public and private sectors in its ensuing eight years in power. For example, the
provision of financial services was radically altered by the creation of the Financial
Services Authority (which the coalition government has since abolished and replaced
with the new, ostensibly tougher, Financial Conduct Authority).

It's no secret that, as lawyers, we routinely receive bad press and are frequently put in a
similar bracket to politicians and estate agents by the media.. Consumer groups in
particular used to take issue with the way that the profession is self-regulatory. As
things stood, a client complaint would pass through the ranks in a firm until the partner
who dealt with complaints or the practice manager made a decision on its merits. If the
client remained dissatisfied, he/she could then take the matter to the Law Society.
However, the labour government identified 23 individual regulators of legal services.
These include:

 the legal services complaints commissioner, an office created in October 2003 by

the lord chancellor at the time, Lord Falconer;
 the lord chancellor himself;
 the master of the rolls;
 service regulators, such as the Council for Licensed Conveyancers; and
 large purchasers of legal services like the Legal Services Commission, which
technically instruct lawyers how to operate.

However, the Law Society is still a body created and run by the profession, and the
public perception has always been that the handling of complaints is a 'closed shop',
with lawyers looking after the interests of other lawyers.

The review
The government felt that it had to do something to correct this general perception. Sir
David Clementi was commissioned to carry out a wholesale review of the provision of
legal services in England and Wales. The brief he was given was total. Not only did he
look at reforming the way the profession was regulated, he considered the fabric of the
profession itself, specifically in relation to legal disciplinary practices (LDPs, where
solicitors, barristers and/or legal executives set up together) and multi-disciplinary
practices (MDPs, where solicitors or other legal professionals, and accountants or other
non-legal professionals set up together).

It is important to remember that the review covered the provision of all legal services,
not just those offered by solicitors, barristers and chartered legal executives. The
activities of patent agents, licensed conveyancers, will-writers and trademark attorneys
were all considered by the review and could consequently be subject to wide-ranging
reform.

The consultation process

A consultation paper was produced, setting out the various issues under review and
inviting responses from all interested parties. Three regulatory models were considered:

 Model 'A' would, at a stroke, replace the Law Society, the Bar Council and the
Institute of Legal Executives with a single "super regulator". The Legal Services
Authority would regulate the provision of all legal services, in the same way that
the Financial Conduct Authority now governs the financial services sector.
 Model 'B' would affirm the status quo, with the Law Society, Bar Council and
CILEx still dealing with regulation, representation and training, but with an
additional upper tier created to review their actions. The Legal Services Board
would act in a similar way to the (now defunct) Strategic Rail Authority in the way
it oversaw the running of the rail network.
 Model 'B+', a variation of Model B, would see the professional bodies devolving
representation from their regulatory functions.
The TSG/YSG joint response
The Law Society produced a response to the consultation paper, but both the TSG and
the Young Solicitors Group (both of which have since been replaced by the Junior
Lawyers Division of the Law Society) wanted to make their own statements on the
potential future running of the profession. By joining forces and producing a joint
response, the groups were able to set out a unique position on behalf of the combined
membership of 104,000.

A joint working party created a thorough response to the consultation, coming up with its
own unique 'Model A-'. The crux of the solution was that a Legal Services Board (LSB)
should oversee the other professional regulatory bodies, dealing with complaints and
discipline within the profession. The Law Society, Bar Council and other professional
bodies would retain their regulatory and enforcement functions, and continue to be
responsible for training and standards. However, these bodies would no longer carry out
the dual function of regulating and representing the profession. Separate, independent
professional bodies would be created to protect the interests of solicitors, barristers,
licensed conveyancers and others. LDPs and MDPs, it was hoped, could also flourish
under the authority of the new LSB.

The conclusions of the Review

Clementi essentially concluded his review by following a version of B+, which took on
board many of the recommendations in the TSG/YSG response. The LSB would
become a reality, while an Office of Legal Complaints would also be established.

In effect, the LSB would be an independent legal services regulator accountable to

parliament. It would promote the interests of consumers and the public over the
interests of legal services' providers. While not reaching conclusions on quite such a
radical scale as those envisaged by Model A, Clementi acknowledged that, rather than
starting from scratch, the system at the time needed effective reform. Crucially, the LSB
would be run by a majority of non-legally trained staff, while both its chairperson and
CEO would come from non-legal backgrounds.

The Law Society, Bar Council and other professional regulatory bodies would have to
separate out their regulatory and representative powers as envisaged in the TSG/YSG
response (which prompted the creation of the Solicitors Regulatory Authority (SRA) and
the Bar Standards Board (BSB)).

The Office for Legal Complaints would function under the supervision of the LSB.
Meanwhile the legal services ombudsman and the legal services complaints
commissioner would also be abolished, removing some of the current regulatory maze
that consumers find so confusing.

LDPs would be permitted, with a general code of practice to be agreed and enforced by
the new LSB. Non-lawyers would be able to become partners in these businesses.
Clementi saw LDPs as being the acid test, with their success allowing for the possibility
of MDPs in the future, provided adequate regulation is in place.
Consequences
Following Clementi's recommendations, the government established the LSB as a new
‘super regulator' for the legal profession. However, regulation of the legal sector has not
run entirely smoothly since due to well documented tensions between the LSB and the
profession's other regulators, including the BSB and SRA. The LSB has argued that
these frontline regulators operate inconsistent codes of conduct and should be
streamlined. Meanwhile, the LSB has itself been criticised as a vehicle by which the
government may impose controversial policies to overregulate the profession and bring
it in line with neoconservative ideology, such as in the cases of the legal aid cuts and
the Quality Assurance Scheme for Advocates, which proposed the introduction of ‘plea-
only advocates' who are only able to enter guilty pleas on behalf of their clients. Another
example is the current widespread opposition among lawyers and regulators to the
LSB's legal education and training framework, and its proposal to invoke statutory
powers to bring the frontline regulators into line with is vision.

Ultimately, the regulatory framework underpinning the legal profession remains deeply
problematic.

Clementi 10 years on (and now for the

next 10)
Posted on 19 December 2014 by Stephen Mayson
This month marks the tenth anniversary of the publication of Sir David Clementi’s final
report on the regulatory framework for legal services in England & Wales. How time
flies! The report is still a good read, and a helpful reminder of what needed to change –
and why.

The report laid the foundations for the Legal Services Act 2007 (even though the Act
went further on alternative business structures than Sir David was willing to
recommend). Its principal aims can be summarised as:

 creating the Legal Services Board and establishing the principle of regulation
that is independent from professional representation
 improving the way in which – and the speed with which – complaints against
legal services providers are handled, including setting up the Office for Legal
Complaints and the Legal Ombudsman
 liberalising the business structures through which lawyers can operate by
permitting ownership and investment by individuals who have not qualified as
lawyers, and allowing legal businesses access to external capital.
All of these primary objectives have been achieved – more or less. So what now?

The Clementi report was inevitably built on compromise. Although considered by some
at the time to be too radical (witness the howls of protest and the resistance mounted
against the report and its implementation), it was in fact the considered articulation of
the incrementally possible. That the then government felt it necessary to go further
than Sir David’s recommendations on alternative business structures (ABS) perhaps
demonstrates how restrained he had been.

What has happened since 2004?

Contrary to some predictions, the sky has not fallen in: law firms have not been taken
over en masse by crooks and charlatans; lawyers’ ethics have not been abandoned in
the pursuit of profit; and the price and quality of legal services have not plummeted to
the lowest common denominator. In fact, in 2014, price and quality seem more at
risk because of the effects of changes to public funding than from the proposals for ABS
made in 2004.
The Clementi Review and the Legal Services Act were a necessary wrapper for the
process of market liberalisation that was long overdue in legal services. But they were
just that: enablers and not causes. Liberalisation and innovation would have happened
anyway – though perhaps the regulatory settlement of the Legal Services Act would
have been different in tone, form, and content had it been created in the aftermath of
the global financial crisis rather than before it.

Even so, that crisis has, in itself, increased pressures on the pricing, quality and delivery
of legal services. It has accelerated and exacerbated competition for a decreasing
volume of external legal advice. Consolidation, better and more extensive use of
technology, alternative providers, value pricing and project management have all driven
restructuring, mergers, the need for capital investment, and the reshaping of traditional
partnerships and their distorted profit-sharing arrangements.
The world is not the same – and would not have been the same – even without the
Legal Services Act and its regulatory reforms. Indeed, arguably, because the Clementi
Review had encouraged more enlightened law firms to start their thinking about new
ways of being and working, they were in a better shape to ride through the financial
crisis and its consequences than they would have been without it.

So liberalisation and innovation are with us. The doubters will point to some ABS
failures and challenges and claim that they were right to resist. For example, Indeed
Online plc was sold back to its founders, Cooperative Legal Services had some wobbles
when its parent was affected by banking fall-out, Hacking Ashton went into liquidation,
GPB Solicitors had its ABS licence revoked, Sai-Donne Ltd was closed, and Quindell
continues to have difficulties.

Certainly, these are all disappointments. But one could also argue that the causes are
the result of an effective market, and that the actions taken are a sign of a strong
regulatory framework, not a weak or inappropriate one. Let us also not forget the
collapses and mishaps of Halliwells, Cobbetts and other non-ABS law firms. In truth,
commercial success and failure – or regulatory compliance and ethical behaviour, for
that matter – have nothing to do with whether or not the business holds an ABS licence.

Where are we now?

Clementi’s work and the 2007 Act were necessary contributors to balanced and
regulated market liberalisation. The key words here are ‘balanced’ and ‘regulated’. The
reforms did not create a liberated free-for-all. They were not the pursuit
of consumerism and profit at the expense of everything else; nor were they the end of
professionalism and ethics in legal practice. They were part of the enabling framework
that allowed a new future to evolve.
However, with the benefit of 10 years’ hindsight – although much has been achieved
and progress made – the consequences of the 2004 compromises and the limitations of
the 2007 regulatory settlement are now inhibiting a more effective future. More
particularly:
 the Act’s regulatory objectives are in places conflicting with each other, too
extensive, and impractical – and therefore do not provide the over-arching direction
or guidance that they should
 building the entire regulatory framework around the historical, anachronistic,
and limited list of reserved legal activities cannot hope to provide a balanced,
comprehensive or sustainable foundation for modern, effective regulation
 a continuing maze of regulation by activity, individual, entity, and professional
title will struggle to meet any objectives of clear, targeted, proportionate, consistent,
accountable, cost-effective and less burdensome regulation
 the ‘regulatory gap’ that allows some legal services to be beyond the reach of
the regulatory framework is not justifiable or tenable
 the independence of regulation from professional representation is not
complete
 the multiplicity of regulators (with the resulting potential for overlap,
inconsistency, regulatory competition and arbitrage) needs closer examination,
perhaps along with the parallel structures for claims management and immigration
 the over-prescription of regulatory requirements in statute needs to be
questioned
 having a series of statutes (including the Public Notaries Act 1801,
Commissioners for Oaths Act 1889, Solicitors Act 1974, Administration of Justice
Act 1985, Courts and Legal Services Act 1990, as well as the Legal Services Act
2007) which collectively constitute the regulatory framework for legal services does
not advance the general cause of consolidated, simple and accessible legislation.
If the period since 2004 has passed by in the blink of an eye, the nature and pace of
change in legal services since then leaves me in no doubt that well before 2024 we will
need a different and more robust framework for legal services regulation.
Where do we go next?

While it might seem a little premature so soon after 2007 to be considering what could
follow the Legal Services Act after next year’s general election, the flaws and fudges on
which the Act was necessarily built will not allow us to wait too much longer before
turning attention to its successor. The 2007 Act was not party political legislation, so we
have no reason to think that the near future will be entirely dependent on the colour (or
mix of colours) of the government from next May. What is more important, perhaps, is
the preparation that goes into the amendments or replacement.

As part of that preparation, I am honoured to be chairing and facilitating a review

process starting in January that will see the Legal Services Board and the front-line
regulators develop a set of legislative options (not a fully worked-
up alternative structure) that a new government could consider as part of the next
iteration of legal services regulation. Hopefully, the results will address the limitations of
the current framework, use the benefit of experience from the past ten years, and
anticipate the issues and flexibility required to sustain a new regulatory settlement.
So, ten years on, we should thank Sir David Clementi for giving us the platform from
which to develop, liberalise and innovate. And we must now welcome and seize the
opportunity to reflect, learn from experience, and improve for the next ten. As for
exactly what follows … watch this space!