Clause
105
Trade
union
exemptions
Amendment
proposed: No. 115, in clause 105, page 57, line 5, leave
out ‘a’ and insert ‘an
independent’.—[Bridget
Prentice.]
Question put, That the
amendment be
made:—
The
Committee divided: Ayes 8, Noes
3.
Division
No.
22
]
Foster,
Mr. Michael
(Worcester)
Question
accordingly agreed to.
Amendment made: No. 116,
in clause 105, page 57, line 7, leave out second ‘a’ and
insert ‘an independent’.—[Bridget
Prentice.]
Clause
105, as amended, ordered to stand part of the
Bill.
Clause
106
Power
to modify application of licensing rules etc to special
bodies
Amendments
made: No. 117, in clause 106, page 57, line 10, leave out
‘a’ and insert ‘an
independent’.
No.
118, in
clause 106, page 57, line 36, leave
out ‘in shares’ and insert ‘or an indirect
interest’.—[Bridget
Prentice.]
Clause
106, as amended, ordered to stand part of the
Bill.
Clause
107 ordered to stand part of the Bill.
Clause
108
“Low
risk
body”
Mr.
David Kidney (Stafford) (Lab): I beg to move amendment No.
271, in clause 108, page 59, line 4, leave out subsection (2) and
insert—
‘(2) The management
condition is that—
(a)
the number of managers of the body who are non-authorised persons is
less than 10% of the total number of managers;
or
(b) the managers who are
non-authorised persons who provide services directly or indirectly to
clients within their own professional training, are members of one or
more recognised professional
bodies.’.
The
Chairman:
With this it will be convenient to discuss the
following amendments: No. 272, in
clause 108, page 59, line 6, leave
out subsection (3) and
insert—
‘(3) The ownership
condition for B satisfying the management condition set out in
subsection (2) is
that—
(a) the proportion
of shares in B in which non-authorised non managers have an interest is
less than 10%, and
(b) the
proportion of the voting power in B which non-authorised non managers
are entitled to exercise, or control the exercise of, is less than 10%,
and
(c) if B has a parent undertaking
(“P”)—
(i)
the proportion of shares in P in which non-authorised non-managers have
an interest is less than 10%,
and
(ii) the proportion of the
voting power in P which non-authorised non-managers are entitled to
exercise, or control the exercise of, is less than
10%.
No.
273, in
clause 108, page 59, line 16, at
end insert—
‘(3A) The
ownership condition for B satisfying the management condition set out
in paragraph 2(b) is that shares and voting power in B are only held by
authorised persons or members of recognised professional
bodies.’.
No.
274, in
clause 108, page 59, line 19, at
end
insert—
‘“recognised
professional body” means a body (other than an approved
regulator), incorporated by Royal Charter, which makes provision
for—
(a)
testing the competence of those seeking admission to membership of the
body as a condition for such admission;
and
(b)
imposing and maintaining professional and ethical standards for its
members, as well as imposing sanctions for non-compliance with those
standards.’.
No.
275, in
clause 108, page 59, line 23, at
end add—
‘(5) For the
purposes of subsection
(4)—
“member”
means a member or member firm as defined by the appropriate rules of
such a
body.’.
New
clause 15—Low risk and professional
bodies
—
‘(1) A
licensing authority may apply to the Board to determine the status of a
recognised professional body if it is in any doubt as to whether that
professional body meets the criteria set down in this
Act.
(2) A licensing authority
may apply to the Board to determine whether a body “B”,
which is “low risk” under section 108(2)(b) should not be
treated as low risk if it considers the services to be offered by B are
inconsistent with the “professional principles” set out
in section
1(3).’.
Mr.
Kidney:
Sir Nicholas, it is fortunate for Committee
members that you have returned safely from the Falkland Islands and
that consequently we are able to benefit from your firm and fair
guidance as Chairman of our proceedings. I remind hon. Members of my
registered interest as a non-practising solicitor. I am indebted to the
Institute of Chartered Accounts in England and Wales, which from now on
I shall refer to as the institute, for its assistance in drafting the
amendments in the group and the new clause.
The clause defines a low-risk
body. Under clause 106, which we approved a moment ago, the licensing
authorities may in relation to low-risk bodies disapply some of their
rules and disapply schedule 13, in whole or in part. That clause
therefore recognises that the full panoply of regulation is unnecessary
for some alternative business structures. Taken together, the
amendments in the group would define as low-risk those
multi-professional practices that consist of already highly regulated
and trained professionals. The new clause would incorporate a get-out
clause for the licensing authorities in some circumstances. Further,
one of the amendments in the group would tighten the “10 per
cent.” category of low-risk bodies in the clause, such that it
would apply only to internal owners and with the full oversight of the
regulator.
I believe that
there is a growing willingness across the political parties, and
certainly in the professions, that part 5 should facilitate alternative
business structures but ensure that the right protections are in place
to deal with risk to consumers. That is certainly the thrust of the
Clementi report, and I know that a lot of people in business and the
professions are keen for the Government to do what they say by
accepting the Hampton principles of risk-based regulation. Although
there will be opportunities for significant benefit for consumers and
the economy, we need to ensure that in cases where there is a low risk
the process can be enabled as easily as possible. The flexibility of a
low-risk category is appropriate, but clause 108 defines low-risk
bodies as those with up to 10 per cent. non-lawyer ownership and up to
10 per cent. non-lawyer management, irrespective of the training,
professional standards and ethics of those owners and managers and
whether they are external or internal owners. Licensing authorities can
vary licensing conditions for those low-risk bodies.
The vast majority of likely
combinations of well-regulated professionals and lawyers could
conceivably be regarded as offering positive benefits for consumers but
low risk to consumers. For example, there would need to be 10 lawyer
partners to allow one equal partner to come on board for a body to be
defined as low risk. That deprives smaller high street or rural
practices of the opportunity to come together as low-risk bodies, and
inhibits the benefit to consumers of such alternative business
structures. Such multi-professional practices have the potential to
support access to justice on the high street and in rural
areas.
As my hon.
Friend the Member for West Bromwich, West said this morning, it is
wrong to think that allowing alternative business structures will
impact only negatively on access to justice. By offering extra
commercial opportunities to small legal practices, and a reduction of
back-office and marketing costs, they might aid the survival of such
firms in an increasingly competitive market. When different professions
combine across different towns, access to justice could be
increased.
The
current approach of part 5 plunges that combination of small
professional practices into the panoply of licensing conditions for
alternative business structures of a much higher risk. In effect, it
favours those alternative business structures developed by larger law
firms and puts extra restrictions and costs on smaller law firms and
firms of other professionals that would like to be ABS. Allowing
multi-professional practices also offers sizeable benefits to business
and consumers. Small enterprises have to go separately to both lawyers
and accountants for general business advice. One-stop shops would
increase competition, reduce costs and reduce the time taken to develop
understanding of a business and its needs. The benefits for our
enterprise economy could be significant, and allowing their lawyers and
surveyors to come together could cut time and complexity for home
buyers.
What is
proposed is a recognition that for the vast majority of professionals,
coming together with lawyers when they are both owners and managers of
the practice will be low-risk. That will help to ensure opportunities
for all sizes of legal practice while enhancing fair competition. The
classification of recognised professionals uses a definition used in
recent Home Office legislation
on money laundering reporting obligations, but makes it tougher by
referring to the chartered status of each institute. Furthermore, the
additional safeguards that have been proposed would enable the
authorised licensing body to challenge the presumption of low-risk and
appropriate cases.
Approved
regulators in the board can act in cases where it might be argued that
certain professional organisations have regulatory systems that are
unacceptable or where certain combinations of services require greater
regulatory oversight. I want to pause for a moment to talk about that
point. I have seen a lot of support for the institute’s
position, most recently from the Federation of Small Businesses. It
wrote to the Minister this week—I do not know whether she has
seen this yet—to say that it supports the position. It
said:
“Lawyers
and accountants are the most common sources of small business advice
and they can play a vital role in assisting entrepreneurs.
It went
on:
“This is
why the enablement of multi-professional practices, and greater
competition and innovation in the professions, has so much potential
for UK enterprise and the wider public interest.”
2.15
pm
I
note, too, that the institute’s position is supported by a
number of other chartered institutes—the Chartered Institute of
Patent Agents, the Institute of Trademark Attorneys and the Royal
Institution of Chartered Surveyors. If I have one hesitation about the
matter, it is that in much of what I have said about access to justice
provided through such alternative business structures, I have referred
to quite small businesses. However, there is nothing in the amendments
to stop an extremely large law practice—or a large practice of
chartered accountants, for that matter—from forming and claiming
that it is a low-risk body.
That is why
new clause 15 is important. It could be said that although the same
principle still applies—they should all be highly regulated,
well-motivated and honest professionals doing their jobs within their
competencies—the very fact that large groups of people doing
many different kinds of work come together adds a layer of complexity
that would not be present in a much smaller firm. That is why the new
clause would allow the licensing authority to say in some circumstances
that they will not accept designation as a low-risk body or disapply
any of the
rules.
Amendment No.
271 is a means of introducing an alternative class of low-risk body
related to professionals coming together who are all subject to
supervision through a chartered institute. Of the grouped amendments,
No. 272 introduces the tie that I mentioned between ownership and
management, No. 273 is effectively a consequential amendment
concerning professionals as owners, Nos. 274 and 275 are the
definitions and, as I have explained, new clause 15 provides a
get-out clause for the licensed authorities if it is seen that a
particular combination ought not to be regarded as a low-risk
body.
Mr.
Burrowes:
It is a pleasure to follow the hon. Member for
Stafford, who served with me on the Joint Committee and was a vocal
member. I have been awaiting his voice expectantly, and it has been
worth the wait. I support the amendments. I shall try to allay
concerns—I can think of one particular hon. Member who may have
some—that there might be just some love-in going on among
lawyers, accountants and members of established professional bodies.
That is certainly not what is going on. In many ways, this is a love-in
with
consumers.
We
must not forget that small businesses are also consumers of legal and
professional services. The hon. Member for Stafford referred to the
support of the Federation of Small Businesses, whose 2006 report
“Lifting the Barriers to Growth in UK Small Businesses”
stated that accountants are the main source of business advice, being
consulted at a rate of 54 per cent., followed by solicitors at a rate
of 28 per cent. One-stop advice shops could reduce costs to business
consumers and increase competition and innovation. The voice of a
consumer body is also worth referring to. The National Consumer
Federation believes that one-stop shops promise greater convenience and
more choice for consumers. It is good that an alliance of consumers,
businesses and professionals alike should endorse the
amendments.
The
high benefits and low risk of multi-professional practices are of prime
importance. When well-regulated professions come together in
alternative business structures, such businesses will be subject to
regulatory regimes. In many cases, all employees will be subject to two
regimes—the Bill deals with those regulatory
conflicts—but if different skills and backgrounds are brought
together, even if professionals remain within the sphere of their
expertise, the quality of service is likely to increase.
The Government have set the
risk bar at 10 per cent. ownership, but that pays no attention to the
individuals’ background or what they will be doing in the
practice. Well regulated, multi-professional practices clearly fall
below the low risk bar that the Government have set in the Bill, yet
they will not be able to take advantage of that low-risk
definition.
In
essence, the amendments establish that low risk stems from the nature
and type of ownership, not necessarily from a percentage interest. I
support this balanced group of amendments because the approach has a
degree of caution, which the hon. Member for Bassetlaw might welcome.
It is right to be cautious; although someone might believe themselves
to be professional, they might not yet have reached that stage, so
proper regulatory systems need to be in place. There needs to be a
check on a combination of services and systems that might threaten the
principles of the legal profession. New clause 15 would deal with that
by allowing the rebuttal of the presumption of low risk. The board
would be at the centre of that decision and it would be allowed to set
standards of appropriate professionalism and encourage the professions
to take the new opportunities.
The amendments would address my
concerns about the impact of this part of the Bill on small businesses.
For example, a small legal practice of two persons that comes together
with a non-legal professional will be classified as having a higher
risk than a practice of 100 partners that takes on 10 non-legal
professionals. Given that the non-lawyers would remain in their own
area of professional expertise, how would the risk be established
consistently? I wonder whether the 10 per cent. rule is appropriate in
such a situation, and
whether the Government appreciate what its impact will be on the ability
of small businesses—and larger ones, to which the hon. Member
for Stafford referred—to enter the market and provide a good
service to consumers.
The
amendments would benefit consumers as well as businesses of various
sizes. They would improve our competitive standing, not least in the
City. The difficulties of international regimes and conflicts of
interest will, in the main, deter the mergers of larger firms. Those
offering services such as forensic investigation and due diligence
could benefit especially from specialist, multi-disciplinary practices.
If people dealing with business turnaround and insolvency were brought
together with those offering legal and other professional advice, it
could only help business survival. The one-stop services extolled by
the National Consumer Federation, which we wish to support and
encourage, would help to reduce costs. That would result in more money
for business survival, which would be of assistance to
employees.
One might
rebut the arguments behind the amendments by asking whether we are not
just creating the spectre of Enron. However, we should take comfort
from, rather than be concerned about, the interaction between
regulatory regimes. The Financial Reporting Council is a good example
because it has regulations to prevent the combination of audit and
legal services, which has a material impact on the independence of
audit. Indeed, such auditing is taking place in only 10
companies of the larger ilk. The FRC no doubt has the concerns of the
public in its sights. However, we should not deny opportunities to the
vast majority of businesses.
The Institute of Chartered
Accountants, which was referred to, has a membership of 12,000
registered accountancy firms. If one does not take the word of the
bodies that have been mentioned, one might take note of the approach of
Sir David Clementi, whom Members on both sides of the House have sought
to pray in aid. We might do so particularly with regard to his
intention to ensure that alternative business structures are allowed to
develop in a controlled manner.
The Joint
Committee recommended a step-by-step approach. The amendments would
create the right structure and utilise the expertise of the licensing
authorities and the board to set detailed conditions. They would ensure
that barriers to ABS were proportionate to risk, which is one of the
Bill’s intentions, and would allow low-risk ABS to be set up
more easily. That would provide a better risk-based approach than part
5 of the Bill that would be of benefit to the consumer and would help
to mitigate concerns about threats to access to justice. Regulatory
scrutiny would be focused on ABS that posed high risk and greater
potential for conflicts in respect of access to
justice.
As we have
heard, the Institute of Chartered Accountants supports the amendments.
It should be commended for
saying:
“A
better risk based approach to facilitation of differing forms of ABS
should be adopted. This should utilise existing systems of regulation
to concentrate resources on the greatest risks to
consumers.”
That would
provide appropriate transitional arrangements for existing ABS that
should
“ensure minimal
disincentives to their continuation.”
The institute
says:
“Through
such an enhanced risk based approach, costs to the consumer and
barriers to innovation can be
minimised.”
It is for
those reasons that I commend the amendments to the
Committee.
Bridget
Prentice:
I absolutely agree with my hon. Friend the
Member for Stafford and the hon. Member for Enfield, Southgate about
following the Hampton principles in respect of the risk-based approach.
We very much want to do that. The proposed bodies would not have a
maximum percentage threshold for non-lawyer management or control.
Instead, any number of non-lawyers could be managers and
owners—if I understand amendment No. 273
correctly—provided that they were all members of recognised
professional
bodies.
New clause 15
would provide the board with the power to restrict the professional
bodies that would be acceptable in that context for the purpose of
determining whether certain professionals could qualify for low-risk
status. I can tell that a great deal of thought has gone into the
amendments and I commend my hon. Friend for the way in which they have
been drafted. Various attempts have been made to add the necessary
safeguards, but that may still provide for a wide range of practices to
emerge without the requirement of full ABS regulation. I would be
reluctant to allow that to happen because I do not believe that they
would necessarily all be low
risk.
For example,
there is no requirement that the non-lawyer owners and managers must be
the same or, indeed, that they must be individuals. As a result, a body
could be at least partly owned—for example, up to 95 per
cent.—by an audit firm and, under the amendments, still be
classed as low risk. That is not a desirable outcome and nor is it the
outcome that my hon. Friend would
want.
More
importantly, the amendment would class some forms of multidisciplinary
practices as low risk. Even if the non-lawyer professionals were
effectively regulated, things would need to be faced when combining
different codes and rules, and different services. That is why part 5
is so important because it creates such safeguards to address exactly
that situation. I recognise that multidisciplinary practices might
bring many benefits, but they must be carefully regulated, as both Sir
David Clementi and the Joint Committee recognised. I am therefore still
reluctant to waive part 5 safeguards for bodies of that
type.
My hon. Friend
put his argument succinctly. A young friend who owns an outstandingly
successful IT business wrote to me before Second Reading about the
one-stop shop that is necessary when people are starting up a small
business because of the variety of professionals they have to get in
touch with, such as lawyers, conveyancers and bankers. The whole gamut
of people who are needed can lead to quite an expense at the early
stage of setting up a business. I understand the problem and have a lot
of sympathy with small businesses, especially for that reason. I take
on board what the Federation of Small Businesses says, and my friend
Leigh Caldwell made clear the importance of the one-stop
shop.
2.30
pm
My
concern is whether it is appropriate to ditch the safeguards in part 5,
so I say to my hon. Friend and the hon. Member for Enfield, Southgate,
who has been supporting him, that although I shall resist the
amendment, I have heard the concerns of hon. Members and small
businesses about legal disciplinary practices and the need to ensure
that we take a genuinely risk-based approach, as I have said in
previous debates. I am exploring whether we can bring forward a viable
alternative to cover that until part 5 is up and running. If that is
possible, I shall do so on Report. On that basis, I ask my hon. Friend
to withdraw the
amendment.
Mr.
Kidney:
We have had a useful, albeit short, debate. My
hon. Friend the Minister’s response was extremely constructive,
and it was pleasing to hear her say that she would give further
consideration to the matter and perhaps say something more positive on
Report. Will she give us an assurance that she will continue the
dialogue with the various chartered institutes and legal bodies that
have an interest, such as the Law Society? Perhaps she will keep
Members with an interest in the subject informed of how those
negotiations are
progressing.
Bridget
Prentice:
I am more than happy to give my hon. Friend that
reassurance. I shall certainly keep him and other members of the
Committee abreast of how successful we are in dealing with the matter.
I hope that, in turn, he and others will encourage those professional
bodies to work closely and positively with us to see whether there is a
solution that would be satisfactory all
round.
Mr.
Kidney:
That is very helpful. I beg to ask leave to
withdraw the
amendment.
Amendment,
by leave,
withdrawn.
Amendments
made: No. 119, in clause 108, page 59, line 7, leave out ‘in
which non-authorised persons have an interest’ and insert
‘held by non-authorised
persons’.
No.
120, in
clause 108, page 59, line 9, leave
out ‘power’ and insert
‘rights’.
No.
121, in
clause 108, page 59, line 12, leave
out ‘in which non-authorised persons have an interest’
and insert ‘held by non-authorised
persons’.
No.
122, in
clause 108, page 59, line 14, leave
out ‘power’ and insert
‘rights’.
No.
123, in clause 108, page 59, leave out
lines 20 to 23.—[Bridget
Prentice.]
Clause
108, as amended, or
dered to stand part of the
Bill.
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