Do self-regulation and professional rules have a future? In the second part of our series on the Clementi review Stephen Ward looks at how much control consumers should have

Nothing could sound more like an open mind than David Clementi's review of how legal services are regulated.

His words to reporters last month were: 'I have no fixed views about the right approach to regulation.' So Mr Clementi starts with a clean sheet, but there are already many Post-it notes stuck around the edges.

The Department for Consti-tutional Affairs commissioned a scoping study for a regulatory review of legal services to prepare the ground for its review.

It was conducted by three academics and one of its officials, who spoke to a broad range of legal and non-legal representative bodies, and a sample group of practitioners.

One paragraph of their conclusion - under the heading of self-regulation and professionalism - says: 'There was almost unanimous support amongst respondents for the removal of self-regulation from the Law Society - with the exception of the Law Society and the Master of the Rolls (though neither argued very forcefully in favour of retaining the existing system).'

There was less concern expressed about the bar, although it is perhaps hard to see different rules for different branches of the profession as one of the review's purposes is to bring coherence to regulation.

Law Society chief executive Janet Paraskeva confidently hopes Mr Clementi sees things differently, with months of research followed by a consultation document still ahead of him.

'I would certainly not take the scoping study as the direction in which Mr Clementi is going to go.

The fact that those consulted have said "take away self-regulation from the Law Society" is not necessarily something he will pick up on.

'He has clearly said he is to recommend a regulatory framework of legal services that may include different ways of involving the profession in regulating itself.

Nobody has actually defined what they mean by the end of self-regulation.' For those hoping to hold the line of self-regulation, the first defence is to argue that the status quo is working better than most people (both inside and outside the profession) think.

Michael Mathews, past president of the Law Society, who represents the City of London on its council, argues that it would be wrong to criticise self-regulation other than by comparing its merits to a definite alternative.

'There are many forms regulation could take, and once one has been suggested, it would be possible to measure the present system against it.'

The present system might not be ideal, but 'I suspect the [government's] reason for reforming it might be to look better rather than to be better'.

Ms Paraskeva points out that self-regulation is a broad concept: 'Self-regulation starts with entering the profession, and continues through education and training.

The control of the standards of entry is where the process begins, the setting of ethical standards, enforcing the standards through conduct, then handling consumer complaints.

'We also want to make sure the review embraces the way enforcement puts right things that have gone wrong and looks at the public protections available from the self-regulatory mechanisms we currently have - the compensation fund, the requirement for compuls-ory indemnity enforcement.

These are very important planks in our regulatory machinery.'

And she says that over the past three years, the Society has been working hard to modernise every aspect of its regulation.

This includes its fundamental review of the education and training framework for solicitors, and a complete overhaul of the rules of professional conduct, modernising them and taking account of an environment where competition is driving the agenda.

George Owens, president of the Institute of Legal Executives, says the number of complaints at the Office for the Supervision of Solicitors (OSS) has acted as a lightning conductor for criticism of the Society's continued existence as a regulator.

One compromise model that is floated in the scoping study is the accountancy profession, which has a much better complaints-handling record and still retains self-regulation - but with a supervisory body over it.

On closer examination, even some of the fiercest critics of Society self-regulation cited in the scoping study did not mean all self-regulation - what they had in mind, perhaps unsurprisingly, was complaints handling.

Emma Harrison, who is co-ordinating the Consumers Association's approach to Clementi and has been tracking the issue for five years, says: 'Complaints handling is really poor when it gets to the OSS.'

She acknowledges improvements that have been made, and makes no suggestion that the Society turns a blind eye to solicitors' failings, but she says: 'If its complaints handling is slow then it loses one of the ways to be alerted to problems until much later than it should.'

But the Consumers Association maintains - as does Ms Paraskeva - that putting the Legal Services Complaints Commissioner in place to enforce targets on the OSS has answered many of the criticisms of internal complaints handling.

Worryingly for the Society, the scoping study hints that even winning the arguments on practicality and efficiency might not be enough.

'The literature of self-regulation in the professions identifies a significant risk that it will be exercised in favour of providers rather than consumers,' it says.

External regulation may also turn out to be provider driven, it adds, but the risk is not as great.

In short, there is a philosophical objection to the principle.

Mr Mathews is aware of the way the political wind is blowing, and it meant this review was bound to come sooner or later, he says.

'Self-regulation is not flavour of the month,' he remarks.

This political philosophy - in a troubling precedent for the profession - appears to have driven the political process in the Australian state of Queensland, where legislation is imminent to replace self-regulation with external regulation (see [2003] Gazette, 6 November, 6).

Again, the focus appears to be primarily on complaints.

A similar change - whatever the arguments against - is not out of the question in England and Wales, Mr Mathews acknowledges.

'If they can abolish the office of Lord Chancellor overnight with no consultation, anything is possible,' he reflects.

The president of Queensland Law Society, Glenn Ferguson, grumbles that the decisions were taken without hearing what the society had to say in its own defence, to make sure the change was practical and workable.

It was several times given draft Bills hundreds of pages long, then two or three days to comment.

Has the society been left pondering what remains for it to do? Mr Ferguson says: 'We have been largely stripped of our regulatory function apart from the audit function and we have to ask ourselves whether we want the society to be some sort of police officer for the profession.

Or rather, is it appropriate that we become entirely an organisation which simply represents the profession as its advocate and which provides member services?'

The examples of options for reform laid out in the scoping study start with the 'minimalist' adjustment of oversight mechanisms, such as enhancing the powers of the Legal Services Ombudsman, and adding a lay element to the Society's governance.

This already exists to a degree, with five of the 105 council members being lay people, and lay people heavily involved in complaints work.

The study says 'modest' reform could include 'new oversight mechanisms' and a controlling lay presence in the Society, or as a radical step, all regulation could go to an external body, with complaints and discipline taken away from the Society, and with professional ethics ended in favour of external rules.

The issue of professionalism is one that has received less coverage but many would argue goes to the heart of being a lawyer.

The Bar Council stressed to the researchers 'the virtues of regulatory regimes being founded on notions of professionalism and professional ethics'.

It argued that such systems encourage best practice through broad ethical statements rather than detailed masses of rules, the effectiveness of professional modes of sanctioning, and for the involvement in complaints and disciplinary processes of senior members of the profession.

By contrast, others - such as the Legal Services Ombudsman and Consumers Association - argued that ethical standards could be sustained without 'the edifice of professionalism' and that 'notions of professionalism often stood in the way of consumer satisfaction', by discouraging a consumer-driven approach.

Some called for 'consumer-driven regulation', giving the public a 'significant voice in rule making'.

The scoping study gives some encouragement in a passage slightly qualifying its suspicion that the current system benefits providers not consumers: 'This does not ignore the possibility that self-regulation and the inculcation of professional values do confer great benefits on the consumer in terms of the independence and probity of the legal system, which might not be available if the relationship was just a provider and consumer in the market place.'

Ms Paraskeva accepts the premise that 'any regulatory framework must be established in the public interest', adding that 'ours is not self serving'.

There is minority lay representation on both the standards and compliance boards, the Society's main two policy making committees, while lay representatives sit on OSS adjudication review panels - in the majority in relation to service complaints and the minority in relation to conduct issues.

'Maybe we don't advertise this well enough in terms of helping the public to understand, but this is certainly not a self-serving regulatory function.'

Ms Harrison concedes that other aspects of self-regulation, such as education and ethics, are not necessarily part of her critique.

And she says: 'Professions often enforce their rules more robustly than anybody else would.'

Many solicitors themselves are not persuaded that self-regulation is such a good thing for the profession.

Local law societies say firms are still at an early stage in responding to Clementi.

Ms Paraskeva says: 'There is a lot of misunderstanding about the Law Society.

Many of the profession have mistakenly thought of the Law Society as their representative body only.

We are by charter their regulator and we also represent them.

The practising certificate fee is collected for regulatory and educational purposes.

We are governed for that purpose by legislation and I think people are sometimes surprised by that.'

She adds: 'Maybe we haven't been very good at explaining to the profession that regulation is one of the main reasons for our existence.

It is what they pay their practising certificate fee for.

If they want to be a solicitor, they need to be on the roll.'

Mr Mathews, a former partner at Clifford Chance, says the City would 'probably shed few tears' at the loss of the Society as a regulator.

Paradoxically, he says, the City is unlikely to be happy with many alternatives, 'which could be substantially more expensive'.

An alternative regulator might be funded on the basis of an income tax, he suggests.

'And there could be a double whammy, with even more regulation,' he fears.

'For many firms, better the devil you know.'

Internationally, there is a severe risk that external regulation would make solicitors appear to be controlled by the state, which would be just the excuse protectionist countries such as India, China and Korea and even the US might be looking for to restrict their practising rights as foreign lawyers, Mr Mathews argues.

Mr Owens says the wide-ranging approach is making it hard to get to grips with the Clementi review.

The way it has been set up, almost every answer to any of the questions has to be conditional on the answers to others, he says.

'It would have been more straightforward if Clementi had been able to decide first what the structure of the legal system will be, and then decide how to regulate it.'

The problem for all lawyers and critics is that to defend or attack self-regulation, they will have to do it not after, but while the whole structure is being hammered out.

Stephen Ward is a freelance journalist