Legal Services Board writes to SRA and the Law Society regarding anti-money laundering supervision
The Legal Services Board has written to the Solicitors Regulation Authority and the Law Society in response to a query on whether being a supervisor under the anti-money laundering regulations is a regulatory function.
Regulation that is independent of the professions and government is important in delivering confidence to consumers, legal services providers, investors and society as a whole.
Background
LSB business plan 2017/18 – IGR review
Other relevant work:
Compliance certificates
Practising fee rules
Investigations
Anti-money laundering supervision
Background
Concern about self-regulation by some categories of lawyer was one reason why the Legal Services Act 2007 was introduced, which brought separation of regulatory and representative functions. Section 30 of the Act places a duty on the LSB to make internal governance rules (IGR). The IGR set out requirements to be met by approved regulators for the purposes of ensuring that:
- the exercise of their regulatory functions is not prejudiced by any representative functions; and
- so far as reasonably practicable, decisions relating to the exercise of regulatory functions are taken independently from decisions relating to the exercise of representative functions.
Putting IGR in place in 2009 was one of the LSB’s first priorities.
Since then the approved regulators have implemented their arrangements for securing independence (including in response to our amendments to the IGR in 2014 on Board appointments and reappointments) and produced certificates on compliance with the IGR.
Independence remains central to our work, with recent developments including:
- our vision for legislative reform document (published in September 2016) explained why the current lack of full independence between approved regulators and their frontline regulatory bodies is unlikely to be sustainable and noted the potential scope for representative bodies to delay reforms that would benefit competition and consumers
- the CMA legal services market study final report (published in December 2016) identified a number of issues arising from the current regulatory structure. It considered that full regulatory independence from providers and government is a fundamental principle for the regulatory framework and consequently that the government should undertake a review of the independence of regulators
- public comments by regulatory and representative arms of some approved regulators on independence issues and matters raised during their engagement with us, which suggest issues with the current IGRs.
LSB business plan 2017/18 – IGR review
In light of our experience and developments in the legal sector we are considering whether changes are needed to the IGR. This review is part of the performance, evaluation and oversight strand of our work programme for 2017/18, the final year of our three-year strategy.
Our milestones for the review in 2017/18 are:
- Q1 – stakeholder engagement on the IGR review
- Q2 – initial consultation and stakeholder engagement
- Q4 – publish decision (further work/updated IGRs)
We expect stakeholder engagement to include regulators and representative bodies, but may also look at arrangements in other comparable sectors.
Other relevant work
Compliance certificates
Independence certificates produced by approved regulators and the LSB’s assessment of them against the IGRs are available for the following years.
The last dual self-certification exercise was undertaken in 2013. Since then issues relating to independence have been considered on an individual basis.
Practising fee rules
The LSB has also made the Practising_Fee_Rules_2016. These rules explain what approved regulators are allowed to spend money on, given that this money comes from fees paid by lawyers as a mandatory condition of being authorised to practise. They also explain how the LSB will consider and approve applications from approved regulators when they want to set the level of such mandatory practise fees.
Information about the annual applications made by the approved regulators to the LSB under section 57 of the Act can be found on the Section 51 – practising fee pages.
Investigations
Where the LSB considers that there may be a breach of the IGRs, it can launch a formal investigation. You can find details of all formal investigations launched by the LSB here.
Anti-money laundering supervision
Following a request from the SRA the LSB has considered whether being a supervisor under the anti-money laundering regulations is a regulatory function. Our response can be found here.