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Amendment No. 108D would compel the licensing rules for alternative business structures to include a provision relevant for those cases where the new business structure is intent on conducting business outside England and Wales. The amendment is probing what steps the Government will take to oblige licensed bodies to comply with the law, professional rules and other provisions in the jurisdiction where the body intends to conduct business. There are very many statutory or common law provisions that could apply to licensed bodies if they extend their reach outside England and Wales, as it is likely that many of them
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Amendments Nos. 108E and 108F involve the duties of non-authorised persons. Clause 88 provides that a non-authorised person who is an employee or manager of an ABS must not cause or substantially contribute to a breach of duties by either a licensed body or an authorised person who is an employee or manager of that body. This pair of amendments would extend that provision. In some circumstances, a non-authorised person may have authority over an employee who is subject to the professional regulation of either the Law Society of Scotland or that of Northern Ireland, or alternatively the Faculty of Advocates or the General Council of the Bar of Northern Ireland. It would be important that the non-authorised person does not act in such a way as to cause professional difficulty for such employees, who will be subject to their own conduct rules.
Amendment No. 108G is necessary because in some circumstances non-English lawyers may be able to form ABS firms with English lawyers. Clause 107 is an extra-territorial clause and should be amended accordingly to read outside England and Wales. The amendment would allow the Secretary of State to modify Part 5 to take account of where non-English lawyers come from, no matter what regime they are subject to, including Scotland and Northern Ireland.
Lord Kingsland: I apologise. I was operating from a list that emerged last night, and I am afraid that I have muddled it up with the most contemporary list. I apologise for confusing the noble Baroness and my noble friend Lord Hunt of Wirral, who no doubt would have said more or less everything that I said, but at a later stage of the proceedings.
Baroness Ashton of Upholland: The noble Lord is very generous; I thought he was just keeping me on my toes. I can respond to all the amendments. I do not know whether the noble Lord, Lord Hunt, wants to come back and talk a bit more about the others, and I can cover all three groups together if that would be of assistance.
Baroness Ashton of Upholland: I shall certainly try; it may sound a bit more disjointed than it would otherwise, but perhaps Members of the Committee will bear with me. I am grateful to the Law Society of Scotland for suggesting these probing amendments, because it is helpful to be able to talk through them and put them on the record.
I shall start with Amendment No. 108D. Licensed bodies will be obliged as a matter of course to comply with the rules of the jurisdictions in which they operate. That has always been true, as noble Lords will know, for lawyers or authorised firms conducting business abroad, and the same automatic obligations will apply to licensed bodies. The actual monitoring and enforcement of compliance with foreign laws, on the other hand, should rest with foreign regulators. While the board, approved regulators, and licensing authorities may be interested if there were breaches of foreign rules by the persons that they regulate, it would be difficult to place them under a specific statutory duty to ensure that none of those rules was breached. That would be disproportionately burdensome and inappropriate. Any failure to comply with any specific statutory duty to this effect could leave those bodies open to judicial review.
The way in which the Bill is framed makes the primary function of approved regulators, including where they act as licensing authorities under this part, to regulate the carrying out of reserved legal activities in England and Wales. To subject licensing authorities to a duty to be aware of and monitor ABS firms compliance with a potentially endless range of foreign laws and rules would go far beyond this purpose and could even detract from it. Local standards are best enforced by local regulators. That is how it has worked before, and it should continue in these new forms of practice.
I am aware, and we have already discussed in your Lordships House, that concerns have been raised that elements of our proposed ABS firms may not be acceptable to regulators overseas or elsewhere in the United Kingdom. I emphasise that that is no reason to deny a greater choice of opportunities for those providers and consumers who are in a position to benefit. The provisions are facilitative. This Bill is not for one moment seeking to encourage the legal sector to attempt to establish structures in those foreign jurisdictions where the regulatory framework does not allow it. I hope that will deal with that point for the record.
Amendments Nos. 108E and 108F, spoken to by the noble Lord, Lord Kingsland, seek to extend the scope of the duties of non-authorised persons to provide that duties of Scottish and Northern Irish solicitors and barristers are treated as equivalent, for the purpose of this clause, to duties of authorised persons under this Bill. The duty that the existing Clause 88 imposes is important. It ensures that in the new forms of practice that Part 5 makes possible, non-lawyers will have to refrain from causing or substantially contributing to breaches of lawyers professional conduct obligations.
Non-lawyers can play a greater role in the management and ownership of legal practices, but they will not be able to act in a way that jeopardises the professional obligations of authorised persons. It is an important part of our safeguards, and it is deliberately focused on the professional conduct obligations and other rules of approved regulators and licensing authorities under this Bill. I have no doubt that the spirit behind the amendment is in
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It should not, however, be the function of Clause 88 to extend this duty to laws and legal professional rules from other jurisdictions. That would create duties for alternative business structure employees and managers to be aware of and respect laws and rules outside the sphere of regulatory arrangements, at the risk of significant penalties; and it would put licensing authorities under the increased regulatory burden of monitoring compliance with laws and rules from other jurisdictions.
Perhaps I may explain further. Unlike registered European lawyers, Scottish and Northern Irish lawyers may not conduct reserved legal activities in England and Wales simply by using the qualifications they have earned in their home jurisdiction and registering with a regulator here. They must become specifically authorised by a regulator here, as lawyers in England and Wales must, which typically means becoming qualified as a barrister or solicitor in England and Wales. In other words, Scottish and Northern Irish lawyers must become authorised persons in order to carry out reserved legal activities, and they will therefore be regulated under the Bill as authorised persons and subject to the professional conduct rules and other regulatory arrangements of approved regulators.
It is true of course that Scottish and Northern Irish lawyers will be able to work in alternative business structure firms and draw on their training and experience in providing non-reserved legal services. The same would be true of other non-registered foreign lawyers, chartered tax advisers and academic lawyers, to give but a few examples. But that does not mean that any duties to which lawyers from other jurisdictions may be subject should be treated in the same way as the duties of authorised persons.
The amendment would place licensing authorities under an obligation to recognise law and legal professional duties and ensure that non-lawyers within ABS firms refrain from causing breaches of these. This goes well beyond current practice. As noble Lords will know, no such statutory duty applies to existing legal services regulators or providers. This duty would present a number of difficultiesit would increase the regulatory burdens for licensing authorities and apply sanctions to employees and managers who cause or substantially contribute to non-compliance with these duties. It would increase the burden upon non-lawyers in ABS firms, who will need to be familiar with these duties in order to ensure that they do not contribute to breaches. The amendment would be onerous, burdensome and inappropriate, especially in light of the current position.
Amendment No. 108G would extend the scope of the provision at Clause 107 to apply not only to bodies formed outside UK law or relevant statutory provisions affecting those bodies, but to bodies formed outside England and Wales. Clause 107 allows for Part 5 to be adapted to differences in company structures and other
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However, we are looking into whether there could be any material differences in laws deriving from devolved matters or otherwise and I would like to take that amendment away and investigate the issue further. I would be grateful if the noble Lord would withdraw the amendment, so that we can return to it when we have carried out those investigations.
Lord Hunt of Wirral: I am very grateful to the Minister for what she said on all these amendments and I am particularly grateful to my noble friend for speaking to the remaining amendments in what perhaps should have been the group before us. Obviously, I would like to reflect on what the Minister has said and to seek the advice of the Law Society of Scotland. In the mean time, I beg leave to withdraw the amendment.
They are probing amendments designed to ask the Government two questions. The first is completely innocent: why should trade unions have the exemption from certain requirements under Schedule 11, given to them by Clause 103? That is a request for information.
Secondly, if trade unions have exemptions of that sort, why should those exemptions not be granted also to other low-risk bodies? Amendment No. 108FA would allow low-risk alternative business structures the same exemptions as those that are sought to be given to trade unions. We recognise the overall need for the safeguards put forward in this part of the Bill, but in these special circumstances, if the Government are already making exemptions, they might appropriately make another exemption here. Those bodies could utilise existing positions, as they would already have the equivalent of a head of legal practice and a head of finance and administration. Here the Bill is promoting unnecessary measures with regard to low-risk bodies.
Finally, Amendments Nos. 108FB, 108FC, 108FD and 108FE seek, shortly, to raise the number of non-lawyers that could allow an alternative business structure to qualify as low risk. The amendments reflect the belief that in assessing risk, it is not the number of lawyers that should be taken into account, but rather the professional and ethical standards of the individuals involved in ownership and management of the ABS. For example, professional accountants do not contribute any greater risk to the structure. I beg to move.
Amendment No. 108FA would give what the Bill calls low risk alternative business structures merely the same exemptions as those that are already offered by the Bill to trade unions. Like my noble friend, I cannot see the justification for a more heavy-handed approach with regard to low-risk bodies which would consist of a considerable majority of regulated professionals who would already hold positions of head of legal practice or head of finance. The crucial consideration must surely be that of the risk to the consumer.
To my mind, the most important amendments in the group are Amendments Nos. 108FB to 108FE, which would extend the definition of low-risk alternative business structures to allow them to include more non-lawyers. Again, I would ask that the decision be taken on the level of risk to the consumer. Risk does not come from the number of non-lawyers, but derives from the number of non-professionals. The real concern over alternative business structures is a potential lack of effective regulation and professional standards. The amendments would not reduce the number of highly qualified professionals needed to make a low-risk body and would not lower the number of strictly regulated individuals necessary.
Members of the Committee will appreciate that there is a significant difference between, on the one hand, highly qualified professionals, such as chartered accountants or chartered surveyors, collaborating, and, on the other, the supermarket law concept that is liberally raised in discussion of this issue. Furthermore, these professionals are not undertaking to provide legal services themselves. I sympathise with concerns voiced at earlier stages by noble Lords on all sides of the House in those respects.
Finally, why should alternative business structures involving other regulated, properly trained professionals be made to wait significantly longer under the new regime than legal disciplinary practices involving solicitors and barristers?
We do not think that the requirements relating to Clause 103 would be appropriate. First, there is the issue of ownership: trade unions are not owned except by their members, and so different issues apply. They also generally provide services only to their members and ex-members and sometimes to members families. They are regulated under specific industrial relations legislation and their lawyers are regulated by individual regulators such as the Law Society. In some cases, they are highly dispersed organisations. They rely heavily on non-lawyer advisers in the workplace to carry on the front-line role of advising their members. We believe that all those features make some of the licensing provisions unnecessary or unworkable.
Clause 103 removes the Part 5 requirement to designate a head of legal practice and a head of finance and administration, and it removes the ownership requirementthe fitness-to-own testset out in Schedule 13. That is why trade unions are treated differently in this context. I should be very happy to get further information from my colleagues if that would be of benefit to noble Lords.
I turn to the specific issues raised with regard to what we could describe as the second potential category of low-risk bodies. As we have made clearnoble Lords have discussed this today and on previous occasionsa body must have less than 10 per cent management and ownership by non-lawyers if it is to qualify as a low-risk body. The amendment would effectively raise that level to 25 per cent where the non-lawyer managers and owners were members of a recognised professional body. That would include professionals such as chartered surveyors and accountants, as well as professional firms regulated by the relevant institutes. So, in the context of the amendment, a partnership with a quarter of partners who were other professionals, or indeed a legal practice that was 24 per cent owned by an accounting firm, would be a low-risk body.
We do not think that this change would be appropriate. Practices within this category are a type of multi-disciplinary practice, albeit a majority lawyer-controlled one, and perhaps should not be so readily judged low-risk as practices with genuinely de minimis levels of non-lawyer control. We would move away from risk-based regulation into the possibility of regulatory loopholes. I wholeheartedly endorse the potential for lawyers to form practices with other professionals, with the benefits that that might bring for them and for the consumers whom they serve. But we need effective safeguards to ensure that legal professional principles and ethical practices are maintained. The head of legal practice and the head of finance and administration and the tests that Part 5 creates for external owners are key to this. Taking practices with significant levels of non-lawyer control outside the scope of those safeguards would go against the recommendations of Sir David Clementi and could leave them open to the types of risk that Part 5 seeks carefully to mitigate.
I understand the basis on which the noble Lord moved the amendment and the basis on which it has been supported, but we think that there are differences in the de minimis risk of 10 per cent and below, moving up to a much higher level of ownership. An important point is that we do not want this regulation to be heavy-handed. That would not be the basis on which we would operate. Therefore, noble Lords need to think of this issue in the context of ensuring that we act effectively and properly to safeguard not only the consumer but especially the legal practitioners. Therefore, I hope that the noble Lord will withdraw his amendment.
Lord Kingsland: I am most grateful to the noble Baroness. I found her response extremely well argued but quite unconvincing. I shall go away and read it and consider whether to bring this matter back on Report. Meanwhile, I beg leave to withdraw the amendment.
The noble Lord said: This amendment is intended to ensure that the licensing rules can put the whole cost of dealing with an application on to the applicant, rather than leaving a part to be borne by others regulated by the licensing authority concerned.
It is an important principle that the costs of regulation should be borne by those whose activities give rise to the cost rather than by the regulated sector as a whole. This is vital in the case of alternative business structures, where some applications could give rise to extremely complex issues.
It follows that it would be quite unsatisfactory for a single flat fee to be applied to all applications, whether from an applicant filling a modest and localised gap in legal services or from a supermarket seeking to set up a substantial new service. If a single fee were set so as to meet all the costs of dealing with ABS applications, the result would be grossly unfair to the small applicant. On the other hand, a single fee at the level appropriate for the small applicant would involve an unacceptable cross-subsidy from the rest of the regulated sector. In any event, if licensing authorities were unable to match the fee to the cost of dealing with the application, they might be inhibited from investigating applications as thoroughly as they should, particularly where access-to-justice considerations arise.
Amendment No. 108DAB, which is also in this group, is designed to ensure that the onus of demonstrating fitness to own rests on the applicant, rather than the licensing authority having to approve them unless it can demonstrate that they are not fit or proper persons. The effectiveness of the fitness-to-own provisions is a critical element of the public protections that need to be in place before alternative business structures involving external ownership can be safely permitted. The Bill provides for licensing authorities to consider whether those who hold more than a small interest in a prospective alternative business structure firm are fit and proper persons.
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