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Reviewing the cost of regulation

What are we doing?

Our work on cost of legal services regulation has two phases:

Phase 2: (ongoing) increasing transparency around regulators' costs
Phase 1: (complete) understanding regulators' costs and their impact on the regulated community

Phase 2: increasing transparency around regulators’ costs

Our Aim

This phase is focused on putting more information about the regulators' costs into the public domain.

Increasing transparency by regulators about their costs could help to address low awareness among providers - as identified in phase one - about how the practising certificate fee is spent and offer assurance around value for money.

Work so far

To inform this work, we have carried out a desk review which looks at how oversight is used to apply pressure on costs transparency for regulators elsewhere in the economy. The review, which drew on a large number of publicly available documents and expertise within the LSB on public sector accounting and reporting, is available here.

Key points from the review are:

Transparency is a basic expectation of government and of the public for companies, the public sector and regulators, including on income and costs. More than this, in many cases it is a duty.
Transparency plays a role in trust (which is relevant to the promotion of the regulatory objectives in the Legal Services Act).
Key is not just what information is supplied, but the way in which this is done.

We have also initiated discussion with the regulators to agree an approach that will make a greater level of information about their costs publicly available.

Next steps

The next steps are as follows:

Once there is resolution on what further information about regulatory costs will be put into the public domain and this is made available, we will undertake a further exercise reporting on the transparency of regulatory costs.
We will be scrutinising closely the approval process for practising certificate fees.
We understand that improvements in the quality of regulation can lead to additional regulatory costs being incurred. If costs increase following agreed action plans from our ongoing regulatory standards work, this should be visible within the information that regulators publish about their costs.
If anticipated Government reforms to fully separate the regulation and representation functions of the regulators are implemented, in due course we will work closely with the regulators on transitional arrangements and seek to embed build greater financial transparency within the new structures.

Phase 1: understanding costs and their impact on the regulated community

The initial phase of the project, which has now concluded, had two strands:

Investigating the costs of regulation faced by legal services providers.
Exploring the costs of the regulators, including the LSB.

Our aims

The aims of the initial phase of work were to gather information about the regulatory costs that providers face and perceptions of these costs; and to provide greater transparency around the costs of the regulators by publishing analysis of their historic costs.

Why we did it

Effective, well-designed regulation plays a vital role in protecting consumers, businesses and employees. However, some regulations may be unnecessary, overcomplicated or out of date. These regulations can waste providers' and consumers' time and money, and damage economic growth.

The research we carried out found that many lawyers assessed their practising certificate fees and compliance costs as being poor value for money. However, the research also uncovered a lack of awareness of what is paid for by practising certificate fees. The LSB's analysis of the historic costs of the regulators suggested that regulators account for their costs in different ways and overall we considered levels of transparency to be mixed.

How legal services providers took part

We are grateful that many took the time to contribute to this project.

We ran an online survey in 2014 which nearly 1,000 legal service providers completed. The results of this survey, together with a report on the findings, can be found here.

Building on this online survey, the LSB commissioned ICF International to undertake a study into the costs of regulation for legal services professionals. The study focused on the incremental costs of regulation – costs that are incurred solely to comply with legal services regulation and that do not serve any other business or wider regulatory purpose. 64 authorised legal services professionals participated in this research and told the LSB about the 'real world' cost of regulation that they face. The results of this study can be found here.

We also held regular stakeholder meetings to allow regulators, representative bodies and the Legal Ombudsman to input into this project. The slides from our stakeholder meetings can be found below.