Regulation in the 21st Century:
Principles and Outcomes
Focused Regulation
A consultation from the Law Society of Scotland
July 2014
Regulation in the 21st Century:
Principles and Outcomes Focused Regulation
Contents
Foreword
1. Introduction
2. The current rules-based approach to regulation
3. What is principles and outcomes focused regulation?
4. A review of the position in England and Wales
5. Potential advantages and disadvantages of principles
and outcomes focused regulation
6. An independent view
7. Telling us what you think
Regulation in the 21st Century:
Principles and Outcomes Focused Regulation
Foreword
Leading and supporting a successful, respected legal profession.
This has been the strategic aim of the Law Society of Scotland for the last three years. To achieve
this, we know we have to protect and enhance the reputation and professionalism of Scottish
solicitors, to maintain high standards and take action when those standards are not met.
If we do this then we can ensure Scottish solicitors remain the trusted advisers of choice.
Yet we know the legal market is changing and changing fast. There are huge financial pressures
both in the public and private sectors because of the economy but also because of changing
expectations from clients. We have seen new innovative business models emerge and before
alternative business structures have become a reality in Scotland. In-house lawyers are becoming
a larger and more significant part of the profession. More and more firms are working across
country borders and are looking internationally to grow their businesses.
Against that backdrop of change, it is right that the Law Society asks a simple question - is the
way we have regulated Scottish solicitors for the last 20 years still the right approach for the next
20 years?
Maybe the answer is yes but as an organisation which should always be open to new ideas and
willing to learn from the best practice of others, it is right that we take a step back, look at what
we do and consider other models and different systems.
That is why we are launching this consultation on a possible move away from our current rules
and guidance-based system of regulation to one based on principles and outcomes.
We want to know what people think before we develop our work further. We want to know from
people within and outwith the solicitor profession as to whether these possible reforms represent
a fairer and more effective approach to regulation.
Neither the Law Society Council nor the Regulatory Committee which I chair have a fixed view
for or against principles and outcome focused regulation. However, we think the issues need
exploring and deserve being debated. If plans are progressed then we will need to consult further
on more detailed proposals. At this stage, we are simply keen to understand whether the principle
of outcomes focused regulation is considered appropriate or not.
Coupled with our separate consultation on a possible move to entity regulation, the changes being
considered here are significant and far-reaching. They present a fundamental shift in the way the
Law Society maintains standards and protects the public.
So tell us what you think. We have included details of how you can respond to this consultation by
10 October 2014. I look forward to hearing your views.
With best wishes,
Carole Ford
Convener
Law Society of Scotland Regulatory Committee
A consultation from the Law Society of Scotland
Regulation in the 21st Century:
Principles and Outcomes Focused Regulation
1. Introduction
The regulation of Scottish solicitors is amongst the most important work of the Law Society
of Scotland. We have a legal duty to act in the interests of the solicitor profession and in the
interests of the public in relation to the profession.
We know from our annual survey work that solicitors consider regulation to be the top priority
when it comes to the work of their professional body. We also know that good, proportionate and
effective regulation is critical to maintaining standards and ensuring solicitors remain the trusted
advisers of choice.
Section 1 of the 2010 Legal Services (Scotland) Act sets out regulatory objectives for
the Law Society of Scotland. These include:
• protecting and promoting the interests of consumers and the public interest generally
• promoting access to justice and competition in the provision of legal services
• promoting and maintaining adherence to the professional principles
It is important that we regularly review our processes and our approach to regulation in order
to meet these objectives. We should also be open to looking at other professions and other
jurisdictions so we can learn from best practice elsewhere.
The Law Society of Scotland’s corporate plan for 2013/14 includes a commitment to undertake a
review on the feasibility of moving towards a principles-based system of regulation rather than the
current rules-based approach.
Neither the Law Society Council nor our Regulatory Committee, which is made up of solicitors and
non-solicitors, has reached a firm view on whether any move towards principles and outcomes
focused regulation represents the right approach. However, they both agree that these issues
need exploring and that the views of those within and outwith the solicitor profession need to be
considered in detail before any further decisions are taken or more work is carried out.
That is why we have launched this consultation, to stimulate discussion on the principle of any
changes to the way we regulate and allow people to easily feed in their views or to ask questions.
This paper seeks to set out the issues and to provide some background information. It seeks by:
• explaining the current rules-based system for regulating solicitors in Scotland
• explaining what principles and outcomes focused regulation is and how it has been used
elsewhere
• highlighting the advantages and disadvantages of principles and outcomes focused regulation.
Using principles and outcomes rather than the current rules-based system would represent a
significant change to the regulation of solicitors here in Scotland and we are consulting on the
principle at this stage. The Council and Regulatory Committee will consider all the feedback
received before deciding on next steps.
If plans are to be progressed then there would be further and more comprehensive consultations
on the detail of any new scheme before it is introduced.
A consultation from the Law Society of Scotland
Regulation in the 21st Century:
Principles and Outcomes Focused Regulation
2.
The current rules based approach
to regulation
The basic legal framework for the regulation of solicitors in Scotland is set out in the Solicitors
(Scotland) Act 1980. Section 34 of this Act allows the Law Society to set practice rules for
regulating the professional practice, conduct and discipline of solicitors and incorporated practices.
The Society currently does this through the Regulatory Committee and the Professional Practice
(Rules and Waivers) Sub-Committee. The current solicitors practice rules are available via a
searchable part of the Law Society website and via the Green Solicitors Professional Handbook.
The Society must consult with members whenever it is proposing changes to the practice rules
although the final decision rests with the Regulatory Committee. The 1980 Act also requires for
amendments to be approved by the Lord President before coming into force.
Compliance with the practice rules is mandatory for all Scottish solicitors unless a waiver has
been granted. A solicitor’s breach of the rules can lead to disciplinary action. In many of the
cases which appear before the independent Scottish Solicitors’ Discipline Tribunal and where
professional misconduct is found, it is because specific rules have clearly been breached.
The Society also sets down guidance for solicitors. Guidance does not have same status to
practice rules and is principally intended to assist with the interpretation of the rules and
the identification of good practice. A solicitor must exercise professional judgment in considering
what parts of the guidance may be relevant in all the circumstances of any particular case so as to
ensure compliance with the practice rules.
Meticulous adherence to every point in the guidance is not mandatory in the same way as it is for
a rule. However, non-compliance will be taken into account should it be alleged that there has
been a breach of a rule, inadequate professional service, unsatisfactory professional conduct or
professional misconduct.
Finally, the Society also issues ‘advice and information’ which is supplementary to rules and
guidance but is also aimed at helping solicitors.
All of this combined arguably creates quite a complicated structure for solicitors. Whilst each
new item added, whether a rule, a piece of guidance or advice, always aims to assist, it could be
suggested that the overall framework risks becoming unwieldy over time.
A consultation from the Law Society of Scotland
Regulation in the 21st Century:
Principles and Outcomes Focused Regulation
3. What is principles and outcomes
focused regulation?
Principles and outcomes focused regulation (POFR) represents a different approach to regulation
compared to the current rules-based system.
Professor Julia Black of the London School of Economics and an author of several books on
regulatory reform describes POFR as “moving away from reliance on detailed prescriptive rules
and relying more on high level, broadly stated rules of principles to set the standards by which
regulated firms must conduct themselves”.
The most current research around the issue of regulatory reform in the public interest has been
in Nova Scotia, Canada, through the Nova Scotia Barristers’ Society. (NSBS). Last October, their
Director of Professional Responsibility, Victoria Rees, published a paper around transforming that
society’s regulation and governance in the public interest.
A summary of that paper is available via the Law Society’s website at www.lawscot.org.uk/
regulationconsultation.
That paper explains how POFR has evolved over 20 years, starting in the financial services industry
in England and Wales. This approach has subsequently been adopted, particularly in the medical
professions since the Shipman enquiry in late 1990s.
What is regarded as a critical component of a POFR system is a regulatory risk framework.
The framework is based on a cyclical process which can be described in broad terms as follows:
• Identification - before acting, identifying risks based on a central risk index
• Assessment - assessing risks consistently and sharing these assessments
• Evaluation - evaluation of the effectiveness by monitoring changing outcomes
• Control - controlling unacceptable risk levels through regulatory tools
• Monitoring - monitoring risk levels against their tolerance to direct control activities
• Learning and Adapting - learning and adapting their tolerance, resource levels and approach
to controlling risks
Another key element in a POFR approach is that of proportionality. The foundation for the drive
to simplify regulatory burdens on solicitors and to eliminate the one size fits all approach to
regulation mean focusing resources and regulatory compliance tools on those areas where there is
considered to be a greater risk to the public and consumers.
A consultation from the Law Society of Scotland
Regulation in the 21st Century:
Principles and Outcomes Focused Regulation
4.
A review of the position in
England and Wales
In England and Wales, which uses a POFR system, solicitors must work to a set of overarching
principles.
These are to:
• uphold the rule of law and administration of justice
• act with integrity
• not allow their independence to be compromised
• act in the best interest of each client
• provide a proper standard of service to their clients
• behave in a way that maintains the trust the public places in them and in the provision
of legal services
• comply with their legal and regulatory obligations and deal with their regulators
and ombudsmen in an open, timely and co-operative manner
• run their business or carry out their role in business effectively and in accordance with proper
governance and sound financial and risk-management principles
• run their businesses or carry out their role in a business in a way that would encourage
equality of opportunity and respect of diversity
• protect client money and assets
These principles are arguably similar to the rules which were set out prior to 2011 here in Scotland
through the standard of conduct rules and are now contained within in the consolidated practice
rules for Scottish solicitors.
There was considerable resistance in England and Wales to the introduction of POFR. This was
witnessed at two events in the north-east of England during the process for introduction. Small
and medium sized practitioners expressed particular concerns around:
• the size of the Solicitors Regulation Authority (SRA) handbook as a result of this approach
• the lack of certainty which they perceived in this approach
• a concern about ‘regulation in hindsight’
• what appeared to be a clear lack of trust of the SRA
• what was seen as a disproportionate burden on smaller businesses
The SRA carried out research in February 2013 to consider views around the introduction of POFR
and the challenges the profession were facing. This involved surveying 1,000 legal firms.
A summary of the responses to the SRA survey which highlighted the differing views can be found
on the Law Society’s website at www.lawscot.org.uk/regulationconsultation.
A consultation from the Law Society of Scotland
Regulation in the 21st Century:
Principles and Outcomes Focused Regulation
5. Potential advantages and disadvantages of
principles and outcomes focused regulation
Whilst the Law Society Council and Regulatory Committee have yet to take a firm view on whether
to move away from the current rules-based system to POFR, we have looked at a number of potential
advantages and disadvantages in preparing this consultation.
Advantages
Increased flexibility
POFR could provide more flexibility and, in the rapidly changing legal services market,
allow for more innovation within broad principles. This point was highlighted earlier this
year in a speech by Chris Kenny, the Chief Executive of the Legal Services Board.
Increased consistency
The basis of a POFR approach and the flexibility provided to firms provides a regulator with an
ability to assess matters on a broader basis, thus meaning decisions can be more consistent.
The requirement to adhere to broad principles can also avoid the situation where those who
are regulated attempt to avoid or get round the strict wording of a rule and instead, have to
work to the general aims and objectives.
Using a solicitor’s professional judgment
Solicitors are highly trained and professional individuals. POFR allows them to use their own professional
judgment in each case but against a set of clear principles. POFR could also be less arbitrary in that it can
provide for more flexibility and discretion and does not provide absolute cut-offs in certain situations.
Greater public understanding and confidence
A system of principles and outcomes rather than a detailed and complicated rulebook could be
more easily understood and appreciated by the public. In turn, they could have greater confidence
in the profession and system of regulation.
More client-focused
POFR focuses more on the needs of the client and allows the solicitor within the broad principles
to use their innovation towards meeting their client’s needs.
Disadvantages
The lack of absolute certainty
Rules can bring certainty to solicitors, enabling them to make decisions based on clearly
defined rules rather than principles which could be judged differently in hindsight.
Increased burden
The size of the rulebook for solicitors could potentially increase significantly because of the level of
underlying guidance required to underpin the regulatory principles. For smaller practices, POFR could
increases the regulatory burden because a regulator needs to be more risk-focused, carrying out additional
checks and keep further records in order to justify meeting the broader principles.
It is really different?
It has been suggested that the SRA approach to POFR is not in fact terribly different from our rules-based
approach and that the mandatory outcomes contained within the SRA model are simply practice rules by
another name.
A consultation from the Law Society of Scotland
Regulation in the 21st Century:
Principles and Outcomes Focused Regulation
6. An independent view
The Nova Scotia Barristers’ Society regulatory reform paper talks about the lessons learned
from the experience in England and Wales and provides a broadly independent view of the
position when it comes to POFR.
These comments are based on a series of interviews which were conducted in July 2013 with various
staff at the SRA, the Legal Ombudsman Service, the Bar Standards Board, the Law Society of England
and Wales and others.
The comments suggested there was a general consensus that principles and outcomes focused
regulation represents:
• a consumer-driven regulatory model
• an extensive code of conduct being replaced with ten mandatory principles
• an objective to reduce ‘box ticking and form filling’ to give firms more freedom to focus on
providing strong quality of service within their particular context
• development of clear regulatory objectives to assist lawyers in meeting their objectives
• allowing the regulator to focus on firm and fair regulation to help firms improve standards
and to focus disciplinary resources on firms unwilling to comply with principles
• the development of comprehensive decision-making guides for all regulatory staff to ensure
fairness, transparency and consistency in decision-making
• a means to encourage creativity in the provision of legal services
The question which was then asked was around whether or not POFR worked in the public interest.
The responses on this point were more diverse.
• POFR requires the creation of an intelligent authorisation process so that only fully authorised
firms and individuals are deemed fit to provide legal services in the public interest
• POFR requires enhanced supervision of firms by the regulator to proactively identify,
de-escalate and address risks in the public interest
• POFR requires firm, proportionate and transparent enforcement to deal with those
who will not or cannot comply with the principles in the public interest
• POFR requires clearly articulated, robust, relevant and evidence-based risk criteria
to enable the regulator to focus resources on serious material risks in the public interest
• POFR provides a fair and accessible means for public complaints about lawyers’ service and
conduct with authority for early meaningful resolution of complaints where appropriate
• POFR enhances access to justice in the provision of legal services outside the traditional law firm
structure and the improvement in the quality of legal services provided to consumers
A consultation from the Law Society of Scotland
Regulation in the 21st Century:
Principles and Outcomes Focused Regulation
7.
Telling us what you think
Neither the Law Society Council nor our Regulatory Committee have a fixed view on whether
a move towards principles and outcomes focused regulation represents the right approach here
in Scotland.
At this stage, we are consulting on the principle of reform and whether the Law Society should
develop more detailed options. Before any decision is taken and before any further work is
progressed, we are keen to hear what you think.
Some key questions we are asking in this consultation are:
• Is the current system of regulation, based predominantly on practice rules and supported
by guidance, still the right approach or should we move to a model based on principle
and outcomes?
• What are the advantages and disadvantages of both the current rules-based system
and a principles and outcomes based system?
• Would POFR help or hinder the effort to protect the interests of consumers
and the wider public?
• Does POFR provide a fairer basis for the regulation of solicitors and legal firms?
• What lessons can be learned from the regulation of other professions and in other
legal jurisdictions?
This consultation is open until 10 October 2014
You can take part in the consultation by
Writing to us
Consultation on principles and outcomes regulation
c/o Philip Yelland
Director of Regulation
The Law Society of Scotland
EDINBURGH
EH3 7YR
Emailing us
[email protected] and including “consultation on principles based regulation” in your
subject line.
Completing our short online survey at
www.lawscot.org.uk/regulationconsultation
All responses must be received by 10 October 2014.
A consultation from the Law Society of Scotland
The Law Society of Scotland
26 Drumsheugh Gardens
Edinburgh
EH3 7YR
Tel: 0131 226 7411
Email: [email protected]
Web: www.lawscot.org.uk