Independent review calls for strategic reset at the Legal Services Board

An independent report has been published into the effectiveness of the Legal Services Board (LSB) as an oversight regulator: The Legal Services Board Independent Public Bodies Review. It has found that the LSB has “lost its way” and its “performance of frontline regulation has fallen short of what the government and Parliament could reasonably expect”.

The LSB was set up in 2009 to oversee the various ‘frontline’ regulators after the Legal Services Act 2007 was introduced to try to modernise England’s legal sector. Its role is to ensure that approved regulators, including the SRA and Bar Standards Board, act consistently with the statutory regulatory objectives.

The current legal regulatory framework is a complex system. The LSB is the only body with sector-wide remit, exercising that responsibility for the frontline regulators through statutory approvals, monitoring, enforcement and standard-setting, while also being subject to cross-sector standards such as the Regulator’s Code.

The LSB has in recent years come under scrutiny following scandals at Axiom Ince, SSB Group and PM Law, involving alleged misuse of more than £100mn in client money. The Serious Fraud Office is prosecuting individuals linked to Axiom Ince, while the frontline regulator, the Solicitors Regulation Authority (SRA), has disqualified former SSB staff from working in law firms. The LSB has also taken enforcement action against the SRA, but the scandals have raised wider questions about its oversight role.

The review finds that the LSB has lacked strategic clarity and has struggled to have the impact intended by parliament. As a result, “the interests of consumers have not been as well protected by the system as they might have been”, it goes on to say. Despite that finding, the review emphasises that the LSB is “staffed by professional people and board members deeply committed to improving legal services”. Within that context the review sets out 10 recommendations. 

Among these, the review notably recommends that the LSB should separate its enforcement functions from the rest of its broader collaborative role. This would somewhat mirror the position in the frontline bodies, where a convening body performs a ‘convening function’ (e.g., The Law Society, Bar Council and CILEX), and those bodies delegate its ‘regulatory function’ to another entity (e.g., SRA, Bar Standards Board and CILEx Regulation). This recommendation is borne from a concern that the two functions require distinct modes of working and cultures to be properly effective; the lines should not be blurred between independent scrutiny and a more open, collaborative form of working, or else both functions would be carried out less effectively.

The review also recommends that the LSB reset its strategic purpose by focusing most of its resources on strengthening consumer protection, including by better anticipating the impact of artificial intelligence and other legal technologies. It notes that the rapid growth of technology-enabled legal processes is now a significant consumer protection issue.

The scope of the review was to consider how the LSB could improve within the existing regulatory system, rather than propose wholesale reform. However, it records concerns that the current legislative framework is not sufficiently equipped to address AI and other emerging technologies, prompting calls for more activity-based regulation. The review concludes that this is “clearly a root cause of a major risk to the effectiveness of the system that is ultimately overseen by the LSB”. In the short term, the review recommends that the LSB can take steps within the existing framework to mitigate risks and support beneficial innovation, but more substantive reform, including any move towards activity-based regulation, would require Parliament to revisit the legal framework.

Related to this revisit, the review further recommended that the government should carry out its own review of legal services regulation by 2029 to decide which activities should sit within the purview of regulators. However, given the uncertainty around potential future legislative reform, the LSB should not defer following the review’s recommendations in anticipation of broader, structural change.

The review presents both immediate challenges and longer-term opportunity. For the LSB, a priority will be to rebuild confidence in its oversight role by clarifying its purpose, strengthening consumer protection and making better use of its existing powers. For government and Parliament, the report is a reminder that the framework created by the Legal Services Act 2007 may no longer be sufficient for a market shaped by new technologies, new providers and increasingly complex consumer risks. 

If you have any questions about this topic, please contact Melanie Carter, Partner and Head of Public and Regulatory Team.