The ICAEW has been left considering its next steps after the lord chancellor and secretary of state for justice, David Lidington unexpectedly rejected the Institute's application to offer reserved legal services.
Explaining his reasons in a letter to the ICAEW’s chief executive Michael Izza, Lidington expressed concerns about the Institutes’ proposed governance arrangements and independence.
The lord chancellor revealed that the lord chief justice “strongly opposed” the application and said the ICAEW’s intention to become an approved regulator was “premature” as it did not intend to offer qualifications immediately.
Lidington added that it is not in the public’s interest for an organisation providing these services to be regulated by a separate regulator “to the entity that they worked within”. Such an approach, he said, not only adds complexity to the regulatory landscape but could lead to “consumer confusion”.
ICAEW ‘disappointed’ by the decision
In a statement Duncan Wiggetts, ICAEW’s executive director of professional standards, said: “We are very disappointed at the lord chancellor’s unprecedented decision and struggle to understand the basis on which he has reached it.”
When the ICAEW’s Peter James spoke with AccountingWEB shortly after the legal services board recommended the ICAEW’s application to be a regulator on 23 June, the feeling was that a green light was a foregone conclusion.
At the time, James expected the reserved services would recoup work firms may lose due to tax digitalisation. The ICAEW’s scope for its reserved legal services regulation centred around taxation services.
But the lord chancellor raised concerns that such limitations would “add complexity to the regulatory landscape”, which would not be in the consumer’s interest. There were questions raised about the material distinction between the tax work which accountancy firms may currently undertake and the additional reserved legal activities they seek to undertake.
“It is one thing for accountancy practices to be an expert in taxation, but quite another to be proficient in the conduct or criminal litigation in courts,” Lidington concluded.
The lord chancellor also noted concerns from two professional bodies which represent the notarial profession.
Decision does not ‘seize the opportunity’
Disagreeing with the verdict, Wiggetts argued that the legal services board encouraged the Institute’s application and recommended it to the lord chancellor: “The decision also cuts across the recommendations of the Competition and Market Authority who, in its market study in 2016, had found that competition in legal services for individual consumers and small businesses was not working well and had indicated their support for the application.”
Wiggetts accused the lord chancellor and ministry of justice of not seizing this opportunity “to liberalise and regulate the market for legal services in England and Wales, to encourage more competition and to create better options for the consumer”.
However, Lidington closed the letter with a glimmer of hope for the ICAEW: “I believe that it is extremely important that regulation should be, and should also be seen and understood to be, sufficiently separate from any representative functions.
“I am of that before any extension of the ICAEW’s legal services regulatory work can be agreed, this and each of the other issues highlighted need to be fully addressed.”
Back to the drawing board
Commenting on the decision Debbie Farman, Jordans corporate law's managing director, said that although this setback means the ICAEW will have to go back to the drawing board, the lord chancellor has given the Institute a clear indication where the failings in its original application are.
In terms of the ICAEW showing independence from its main board and governing council, Farman said: “It may well be that they have to work alongside another legal services regulator or look at an element of independence but has the inclusion of individuals revered in the legal profession that can see the benefits of having a regulator in this field as an alternative.”
However, Farman commented that an interesting point is the lord chancellor pushing back on the ICAEW not actively promoting its probate regulation outside the profession, which shows a lack of public and consumer interest.
On the lord chancellor saying the application is premature, Farman said: “That's a slightly unfair argument because you wouldn't want to start practices in an area where you haven't got a licence yet.”
About Richard Hattersley
Richard is AccountingWEB's practice correspondent. If you have any comments or suggestions for us get in touch.