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Explanatory Notes to Legal Services Act 2007
2007 Chapter 29 |
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© Crown Copyright 2007 Explanatory Notes to Acts of the UK Parliament are subject to Crown Copyright protection. They may be reproduced free of charge provided that they are reproduced accurately and that the source and copyright status of the material is made evident to users. It should be noted that the right to reproduce the text of these Explanatory Notes does not extend to the Queen's Printer imprints which should be removed from any copies of the Explanatory Notes which are issued or made available to the public. This includes reproduction of the Notes on the internet and on intranet sites. The Royal Arms may be reproduced only where they are an integral part of the original document. The text of this internet version of the Explanatory Notes which is published by the Queen's Printer of Acts of Parliament has been prepared to reflect the text in printed form and as published by The Stationery Office Limited as the Legal Services Act 2007, ISBN 9780105629078. The print version may be purchased by clicking here. Braille copies of the Explanatory Notes can also be purchased at the same price as the print edition by contacting TSO Customer Services on 0870 600 5522 or e-mail: customer.services@tso.co.uk.
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These notes refer to the Legal Services Act 2007 (c.29) which received Royal Assent on 30th October 2007 LEGAL SERVICES ACT 2007
EXPLANATORY NOTESINTRODUCTION 1. These explanatory notes relate to the Legal Services Act which received Royal Assent on 30th October 2007. They have been prepared by the Ministry of Justice in order to assist the reader in understanding the Act. They do not form part of the Act and have not been endorsed by Parliament. 2. The notes need to be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So where a section or part of a section does not seem to require any explanation or comment, none is given. OVERVIEW OF THE ACT 3. This Act has 214 sections and 24 Schedules. The explanatory notes are divided into nine Parts, reflecting the structure of the Act. 4. An overview of the Act is set out below. A detailed description of each Part is contained in the commentary. Terms used are defined in the text where they first appear, and Schedule 24 contains an index of defined expressions. An explanation to accompany each Schedule is contained within the section that introduces the Schedule. TERRITORIAL EXTENT 5. This Act extends only to England and Wales, except for the provisions of sections 195 and 196(1) and Schedule 20 which extend to Scotland, and any amendments or repeals of legislation which extends to Scotland or Northern Ireland, which have the same extent as the enactment (or relevant part of the enactment) to which the amendment or repeal relates. 6. There is no effect on the National Assembly and no other effect specifically in relation to Wales. SUMMARY 7. Part 1: The Regulatory Objectives sets out the eight regulatory objectives, which guide the Legal Services Board (the Board), the approved regulators, and the Office for Legal Complaints (OLC) in exercising their functions. 8. Part 2: The Legal Services Board sets out the structure and functions of the Board, including its duty to act compatibly with the regulatory objectives, to assist in the maintenance and development of standards in regulation, education and training and to establish a Consumer Panel. It also sets out the requirements for both appointment to, and membership of, the Board and the powers that the Lord Chancellor has in relation to these processes. 9. Part 3: Reserved Legal Activities lists and defines the reserved legal activities. It explains who is entitled to carry out these activities, and the penalties for those who carry out, or pretend to be entitled to carry out, these activities where they are not entitled. It provides for transitional arrangements for those currently allowed to carry on reserved legal activities. It also explains the process for altering the scope of the reserved legal activities. Approved regulators are the bodies that authorise and regulate persons to carry on reserved legal activities. This Part of the Act explains what an approved regulator is, lists those bodies designated by the Act as approved regulators, and explains how other bodies can become an approved regulator in the future. 10. Part 4: Regulation of Approved Regulators prescribes the general duties of approved regulators, and the powers that the Board has to ensure that these are being properly carried out. It details how the Board can intervene when there is a problem, the procedures that it must follow, and the persons that it must consult. The Board's powers include target-setting, censure, financial penalties, direct intervention in the approved regulator's regulation of its members, and, ultimately, the power to recommend to the Lord Chancellor that an order be made cancelling the approved regulator's designation. 11. Part 5: Alternative Business Structures (ABS) makes provision for the licensing of new business structures in legal services. These will allow lawyers and non-lawyers to work together to deliver legal and other services. This Part of the Act sets out the arrangements for authorisation, by the Board, of licensing authorities and how, in the absence of an appropriate licensing authority, the Board can license ABS firms directly. It makes provision for the regulation of ABS. 12. Part 6: Legal Complaints establishes an independent OLC, which is responsible for administering an ombudsman scheme, under which all complaints will be dealt with by a Chief Ombudsman, assistant ombudsmen, and staff appointed by the OLC. Part 6 removes the ability of approved regulators to provide redress to complainants, and grants this power to the ombudsman scheme. The OLC will draw up scheme rules setting out the detail of the ombudsman scheme. This Part makes provision for the appointment process and terms of office for members of the OLC Board and the Chief Ombudsman and the assistant ombudsmen. It also makes provision for the accountability of the OLC to the Board, the framework of rules by which the OLC will establish its operating procedures, and changes to the regulatory arrangements of approved regulators. 13. Part 7: Further Provisions Relating to the Board and the OLC makes provision as to the guidance that the Board may give. It also requires the Board to make rules providing for the payment by approved regulators of a levy, to recoup the expenditure of the Board and OLC. The rules may include provision as to the rate and times at which the levy is payable, and circumstances in which the levy may be waived. This section also makes provision for the Board to enter into voluntary arrangements with any person, for example to promote best regulatory practice. 14. Part 8: Miscellaneous Provisions about Lawyers makes provision for the following matters:
15. Part 9: General makes provision regarding offences committed by bodies corporate and unincorporated bodies. It provides that certain functions conferred on the Lord Chancellor by the Act may not be transferred to another Minister by a transfer of functions order. It states how notices issued pursuant to provision made in the Act are to be given and makes provision governing the procedure for making orders and regulations under powers in the Act. It allows for minor and consequential amendments to be made by order, and makes provision regarding the extent, commencement and short title of the Act. 16. The Legal Services Act establishes a new framework for the regulation of legal services in England and Wales. 17. The Act makes provision for:
BACKGROUND 18. In 2001 the Office of Fair Trading (OFT) 1 published a report recommending that rules governing the legal professions should be subject to competition law and that unjustified restrictions on competition be removed. Following this, the Government carried out a consultation, and published a report into competition and regulation in the legal services market. 2
1Office of Fair Trading, 2001, Competition in the Professions - A Report by the Director General of Fair Trading 2Department for Constitutional Affairs, 2003, Competition and Regulation in the Legal Services Market - A Report Following the Consultation "In the Public Interest?" 19. In 2003 Sir David Clementi was appointed by the Government to conduct an independent review of the regulation of legal services. He found that many areas were in need of restructuring and development, and agreed with the Government's earlier conclusion that the current regulatory framework was "inflexible, outdated and over-complex". 3 Sir David highlighted concerns about the current: 3Clementi, Sir David, 2004, Review of the Regulatory Framework for Legal Services in England and Wales - Final Report
20. In October 2005 the Government published a White Paper, The Future of Legal Services: Putting Consumers First. 4 The White Paper set an agenda for reforming the delivery of legal services. It proposed a new regulatory framework that would direct regulation to those areas where it is needed: 4Department for Constitutional Affairs, 2005, The Future of Legal Services: Putting Consumers First "We will create a Legal Services Board, an Office for Legal Complaints and we will take steps to enable firms to provide services under alternative business structures to those presently available." 21. The draft Legal Services Bill was published in May 2006 and was subject to pre-legislative scrutiny by a Joint Committee of both Houses of Parliament. The Joint Committee reported in July 2006, and the Government published its response to this in September of the same year. The legal services sector prior to the Act 22. Six pre-existing forms of legal service or activity are covered by the Act. These are:
23. Prior to the commencement of this Act, these services were regulated by legal professional bodies such as the Law Society or the Bar Council, as well as - to varying degrees - higher level regulators such as the Secretary of State, the Master of the Rolls and the OFT. In addition to these different regulators, there were also a range of major purchasers in the market who acted as quasi-regulators, by setting their own contract terms and prices - for example, the Legal Services Commission, and commercial organisations who operate "panel" systems. This Act does not directly affect these quasi-regulators. 24. Prior to commencement, there were a number of restrictions on the type of business structures through which legal services could be provided, mainly in regulators' professional rules. Some existing regulators prohibited lawyers from entering into partnership with non-lawyers. They also placed restrictions on unregulated persons being formally involved in the management of these businesses, and unregulated persons having any stake in the ownership of such businesses. In many cases, these restrictions were at least partly due to the fact that legal regulators did not have the powers they needed to effectively regulate practices in which non-lawyers exercised some form of control. This generally meant that lawyers were limited in the extent to which they could form businesses with non-lawyers or with different types of lawyer. The Act seeks to facilitate a regulatory framework in which different types of lawyer and non-lawyer are able to form businesses together, and in which regulators can be given effective powers to regulate such businesses. 25. Previously, if consumers wished to complain about any of the legal services listed above, they needed to take that complaint up, in the first instance, with the person they were complaining about. If the complaint was not resolved in-house, consumers could then make a complaint to the regulatory body responsible for regulating the person providing the service (for example, the Law Society, the Bar Council). In the event that a complainant was not satisfied with the way in which a complaint has been handled by a regulatory body, the complainant was then able to refer the complaint to the Legal Services Ombudsman. The Ombudsman investigated the way in which the complaint was handled and the response from the professional body. If the Ombudsman believed that a complaint had not been investigated properly, they could require that the professional body look at the matter again. The Ombudsman also had powers to investigate individual complaints. In 2004, the Ombudsman exercised this power in less than 1% of cases. 5 5Legal Services Ombudsman, 2005, Annual Report of the Legal Services Ombudsman for England and Wales 2004/2005 SCHEDULES 26. Explanatory notes to accompany each Schedule are contained within the notes for the section introducing the Schedule. COMMENTARY ON SECTIONS PART 1: THE REGULATORY OBJECTIVES Section 1: The regulatory objectives 27. This section sets out the eight regulatory objectives that the Board, the approved regulators and the OLC will be under a duty to observe when exercising their functions. These include promoting and maintaining adherence to the professional principles by those authorised to carry on reserved legal activities. 28. The Act does not rank these objectives and principles in order of importance. The Legal Services Board, the Office for Legal Complaints and the approved regulators will be best placed to consider how competing objectives are to be balanced in a particular instance. Section 3 sets out the Board's responsibilities in relation to the regulatory objectives. Sections 28 and 116 do the same in respect of the approved regulators and the Office for Legal Complaints. PART 2: THE LEGAL SERVICES BOARD 29. This Part of the Act makes provision regarding the Board's constitution and its functions. Background 30. Part 3 of the Act identifies the "reserved legal activities", that is the forms of legal activities or services the provision of which is subject to the new regulatory regime. 31. Prior to commencement of the Act, regulators, such as the Law Society and the Bar Council, regulated the practitioners providing these services. In addition to these regulators, the system involved a number of other bodies acting in a regulatory capacity, including:
32. In his 2004 independent review of legal services, 6 Sir David Clementi referred to observations that the current regulatory arrangements resembled a "maze" and stated that he agreed with the Government's earlier statement 7 that the existing regulatory system for legal services was "outdated, inflexible, over-complex and not accountable or transparent enough". In 2005, following Sir David's report, the Department for Constitutional Affairs published a White Paper, The Future of Legal Services: Putting Consumers First. 8 The White Paper detailed proposals to reform the current system by implementing a new regulatory framework that would remove the "regulatory maze" of oversight regulators. 6Clementi, 2004 7Department for Constitutional Affairs, 2003 8Department for Constitutional Affairs, 2005 33. This Part of the Act establishes the Legal Services Board which acts as an independent oversight regulator. It sits at the head of the new regulatory framework. The Board oversees the new approved regulators, and seeks to ensure that they carry out their regulatory functions to the required standards. Both the Board and the approved regulators must have regard to the regulatory objectives when exercising their functions. 34. This Part of the Act sets out the structure and functions of the Board. It outlines the functions that the Board has in relation to the regulatory objectives, and the ways that it will maintain these objectives. It also sets out the requirements for both appointment to and dismissal from the Board and the powers that the Lord Chancellor will have in relation to these processes. Section 2: The Legal Services Board 35. This section establishes a corporate body called the Legal Services Board to act as an independent oversight regulator. 36. Schedule 1 is about the Board and includes:
37. Sub-paragraph (1) of paragraph 1 provides that the Board is to be constituted by a chairman, a Chief Executive and between seven and ten other persons. The Lord Chancellor will appoint all Board members other than the Chief Executive, following consultation with the Lord Chief Justice. The Board will appoint the Chief Executive. 38. The chairman and the majority of the Board must be a lay as defined by sub-paragraph (4) of paragraph 2 of Schedule 1. "Lay persons" are persons who have never been authorised to conduct activities that are reserved legal activities under the Act. Claims managers and Scottish and Northern Irish lawyers also fall outside the definition of "lay person". 39. Paragraph 3 makes provision regarding criteria the Lord Chancellor must have regard to when appointing "ordinary" Board members. "Ordinary members" are members of the Board other than the Chief Executive. 40. As required by the Commissioner for Public Appointments, all Ministerial appointments to the Board must be made in accordance with the Commissioner's Code of Practice. As part of the planning of the appointments process, the Lord Chancellor will seek the views of interested parties on issues such as selection criteria and the diversity of skills and experience needed on the Board. The Lord Chief Justice will also be consulted on the appointments process (sub-paragraph (3) of paragraph 1). In accordance with the Commissioner's Code of Practice, a selection panel, including, amongst others, a representative from the public body itself and an independent assessor will conduct the key stages of the appointments process. The outcome of the Panel's deliberations will form a recommendation to be made to the Lord Chancellor, who will then consult the Lord Chief Justice. 41. Terms of appointment are set out in paragraphs 4 to 9 of the Schedule. An ordinary member must be appointed for a fixed period, which must not exceed five years. A person may only be re-appointed once for a further period not exceeding five years. 42. Paragraph 7 of Schedule 1 sets out the circumstances in which the Lord Chancellor may remove ordinary Board members. Where the Lord Chancellor wishes to remove an ordinary Board member, the Lord Chancellor must first consult with the Lord Chief Justice. Where the member is not the chairman, the Lord Chancellor must also consult the chairman. 43. The chairman or other members may also resign by giving notice to the Lord Chancellor. These provisions do not apply to the Chief Executive who is appointed by the Board. 44. Paragraphs 10 to 12 set out the terms of remuneration of members. The Board is able, if it is considered necessary, to pay pensions, allowances or gratuities to the chairman and other ordinary members of the Board. The Board may also pay compensation to the chairman or other ordinary members in certain circumstances. 45. Paragraphs 13 to 18 make provision regarding the appointment of staff members by the Board. The Board must appoint a Chief Executive, and may appoint any other staff that it considers appropriate to assist in the performance of its functions. Paragraph 17 allows the Board to pay compensation to its staff or former staff for loss of employment. Paragraph 18 provides that a member of staff may also be a member of the Board, but may not be the chairman. 46. Paragraph 20 sets out the Board's powers to form committees which may in turn form sub-committees. Paragraphs 21 and 22 enable the Board to regulate its own proceedings and those of its committees. 47. Paragraph 23 allows the Board to authorise individual Board members, committees and sub-committees of the Board and members of the Board's staff to carry out the Board's functions on its behalf. The Board may not delegate its rule-making functions under the Act, save for any rule-making functions it has in respect of its own procedures, the procedures of its committees and sub-committees and in its capacity as an approved regulator or a licensing authority. 48. Paragraph 24 allows the Board to borrow money, subject to the authorisation of the Lord Chancellor. 49. Paragraph 25 requires the Board to keep proper financial accounts. Requirements to produce an annual report are set out in section 6. At the end of each financial year the Lord Chancellor must lay before Parliament a copy of the statement of accounts for that year and a copy of the Comptroller and Auditor General's report on that statement. 50. Paragraph 26 states that the Board is not to be regarded as having the same status as the Crown. Accordingly, the Board's property is not to be regarded as property held on behalf of the Crown and staff are not to be regarded as servants or agents of the Crown or as enjoying the same status. 51. Paragraphs 30 to 32 make provision for amendments to the House of Commons Disqualification Act 1975, the Northern Ireland Assembly Disqualification Act 1975, the Freedom of Information Act 2000 and the Public Records Act 1958. These are standard provisions which apply to many public bodies. 52. Paragraph 33 provides that the Board, its members and its staff will not be held liable for any damages resulting from the exercise of the Board's functions, except in the cases where an act or omission is carried out in bad faith or was unlawful in accordance with section 6(1) of the Human Rights Act 1998. Section 3: Board's duty to promote regulatory objectives etc 53. This section states that the Board must, so far as reasonably practicable, act in a way that is compatible with the regulatory objectives. It also requires the Board to have regard to the principles of best regulatory practice. Specifically, the section refers to the importance of regulatory activities being transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed. | |
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