Part 2 – Regulation of Legal Businesses
103.This Part makes provision for category 1 regulators to authorise legal businesses to provide legal services.
Introductory
Section 38 – Overview of Part
104.This section gives an overview of the provisions in Part 2 to help readers navigate them.
Requirement to be authorised to provide legal services
Section 39 – Requirement for legal businesses to be authorised to provide legal services
105.This section defines what constitutes a legal business (and associated expressions) for the purpose of Part 2. It also makes it an offence for a person to own or operate a legal business which provides legal services to the public for fee, gain or reward without that business being authorised in accordance with this Part. A person who commits an offence under this section is liable on summary conviction to a fine not exceeding £20,000. The Scottish Ministers may by regulations substitute a different sum. Before making regulations, the Scottish Ministers must consult each category 1 regulator and other persons or bodies they consider appropriate and must publish the consultation responses. Those regulations are subject to the negative procedure.
106.A legal business is any business entity that provides (or offers to provide) legal services to the public for fee, gain or reward that is either wholly owned by a solicitor or solicitors, a qualifying individual or qualifying individuals, or a solicitor (or solicitors) and a qualifying individual (or individuals). Qualifying individuals are other persons who are regulated by a category 1 regulator and include registered foreign lawyers (“RFLs”) and registered European lawyers (“RELs”) defined in, and registered and regulated under, the 1980 Act. Under that Act, RFLs can own and operate a business known as a multi-national practice (as defined in the 1980 Act) but only where the owners of the business also include solicitors qualified to practise in Scotland.
107.Accordingly, a legal business may include sole traders, partnerships and corporate bodies, including those which are regulated as incorporated practices under the 1980 Act. A licensed legal services provider under the 2010 Act is not a legal business for these purposes as it can be owned by persons who are neither solicitors nor, as the case may be, qualifying individuals. Law centres and charities which provide legal services and other forms of charitable or third sector providers are also not included as they do not offer their services for fee, gain or reward.
108.In the event of a new regulator coming to the market, or an existing category 2 regulator being reassigned as a category 1 regulator, the offence will not bite until such time as the regulator is confirmed as a category 1 regulator and the persons that it regulates are regulated as such. Appropriate transitional processes will be put in place to ensure that any businesses that will become legal businesses under such a regime will have time to acquire authorisation before the regulator is formally assigned to category 1. Authorised legal businesses that already exist at the time the section comes into force are automatically treated as being authorised in accordance with this Part.
Section 40 – Offence of pretending to be an authorised legal business
109.This section makes it an offence for a person to, without reasonable excuse—
take or use any name, title, addition or description implying that the person is an authorised legal business, or
otherwise pretend to be an authorised legal business.
110.A person who commits an offence under this section is liable on summary conviction to a fine not exceeding £20,000. The Scottish Ministers may by regulations substitute a different sum. Before making regulations, the Scottish Ministers must consult each category 1 regulator and other persons or bodies considered appropriate and must also publish any responses to the consultation. Those regulations are subject to the negative procedure.
Regulation of authorised legal businesses
Section 41 – Rules for authorised legal business
111.This section requires a category 1 regulator to prepare and operate a set of rules to authorise and regulate legal businesses. For the purposes of the Act they are called, collectively, the ALB rules. The ALB rules may relate to one or more types of legal business, and some or all legal services. They must contain authorisation rules and practice rules, include provision for reconciling different sets of regulatory rules, and deal with such other matters as the Scottish Ministers may by regulations specify (but only if requested to do so by the Lord President, a category 1 regulator or the independent advisory panel of the Commission). Before making a request, the requestor must first consult each category 1 regulator, the independent advisory panel of the Commission and other persons considered appropriate) and, except where the requester is the Lord President, secure the Lord President’s agreement to the making of the request. Subsections (10) to (12) set out the documents that must accompany a request and that they must be published.
112.A regulator may amend its ALB rules with the prior approval of the Lord President. Where a regulator is making its ALB rules or making a material amendment to those rules, it must consult its members, the Competition and Markets Authority, the Commission, the independent advisory panel of the Commission, Consumer Scotland and any other persons or bodies considered appropriate.
Section 42 – Authorisation rules
113.This section sets out what authorisation rules under section 41 are generally to make provision about and sets out some particular matters that they must include (such as grounds for suspension or withdrawal of authorisation where the provider is breaching the regulatory scheme(6) of the regulator). For the purposes of Part 2, a legal business that is authorised under any such rules is referred to as an authorised legal business.
Section 43 – Appeals in relation to authorisation decisions
114.This section allows for appeals to a sheriff against a decision taken under authorisation rules (made in pursuance of Part 2) to—
refuse an application for authorisation of a legal business,
impose, vary or revoke conditions or restrictions in relation to its authorisation (for example, which may limit the services that can be provided in some way), or
suspend or withdraw its authorisation.
115.An appeal may be made by an applicant for authorisation, or by a legal business that has been authorised, under any such rules.
Section 44 – Practice rules
116.This section states what practice rules under section 41 are about and sets out some particular matters that they must include, such as the operation and administration of authorised legal businesses, the standards they must meet and operational positions within them. The practice rules must also include rules on accounting and auditing, professional indemnity and the making and handling of complaints. They must set out the measures that a category 1 regulator may take where an authorised legal business has breached the regulatory scheme or a complaint against it is upheld.
117.The rules must also require authorised legal businesses to adhere to the professional principles.
Section 45 – Financial sanctions
118.This section allows practice rules under section 44 to provide for the imposition of a financial penalty and for its withdrawal where the regulator considers it would not be reasonable to seek (or to continue) to seek payment. It also allows the regulator to recover the reasonable costs incurred in collecting the penalty. The Scottish Ministers may by regulations (subject to the negative procedure) specify the maximum amount, but they can only make such regulations with the agreement of the Lord President. Before making regulations, the Scottish Ministers must consult each category 1 regulator and any other persons or bodies they consider appropriate and publish any representations received.
119.An authorised legal business may appeal to a sheriff against any such financial penalty (or the amount of it).
Section 46 – Reconciling different rules
120.This section sets out what the rules under section 41 must include as regards provision for reconciling different sets of regulatory rules. The Scottish Ministers may by regulations make further provision about such regulatory conflicts (but only if requested to do so by the Lord President, a category 1 regulator or the independent advisory panel of the Commission). Before making a request, the requestor must first consult each category 1 regulator, the independent advisory panel of the Commission and any other persons or bodies it considers appropriate). Except where the Lord President is the requester, the requester must secure the Lord President’s agreement to the making of the request, Subsections (8) and (9) set out the documents that must accompany a request, which the requester must publish as soon as practicable after making a request.
121.This section (which should be read with the regulatory objectives) places an obligation on category 1 regulators to minimise duplication or unnecessary difference in the rules it makes. For example, many authorised legal businesses are already regulated by the Law Society as incorporated practices(7) in terms of section 34 of the 1980 Act. While a wider range of legal businesses will now require to be regulated, in making ALB rules, the Law Society will be required to consider how best to avoid duplicating those rules unnecessarily in relation to incorporated practices. To assist them in that regard, section 48 gives the Law Society discretion as to which powers it uses to create the rules in question and schedule 1 adjusts section 34 of the 1980 Act to facilitate that.
Section 47 – Monitoring of performance of authorised legal businesses
122.This section deals with how a category 1 regulator is to monitor and investigate the performance of authorised legal businesses. A category 1 regulator must review the performance of each of its authorised legal businesses as it considers appropriate, or when requested to do so by the Lord President. Following a review, the regulator must prepare a report on its review and send a copy of its report to the authorised legal business to which it relates. If the review was requested, the regulator must also send a copy of its report to the Lord President.
Miscellaneous
Section 48 – Law Society of Scotland
123.This section—
requires the Law Society to prepare its rules for authorising and regulating legal businesses under section 41 within such period (not exceeding three years) as it may agree with the Lord President, and
allows the Law Society to use its powers to make rules under the 1980 Act (as amended by Part 2 of schedule 1) to authorise and regulate legal businesses under Part 2.
124.The Law Society’s ALB rules are invalid unless they have the prior approval of the Lord President.
Section 49 – Entities changing regulatory regime
125.This section caters for circumstances in which a licensed legal services provider (under Part 2 of the 2010 Act) becomes an authorised legal business under Part 3 of the Act, and circumstances in which the opposite happens. A body might need to change its regulatory regime in this way if, for example, it changes the way it is owned. By default, the body is deemed to continue to be regulated under the original regime for 90 days, but the new regulator may end the regulatory arrangement earlier than this. This arrangement also ends if the body ceases to be regulated under the new regime (whatever the reason might be). This allows for a smooth regulatory handover from the original regime to the new regime.
The regulatory scheme of a regulator may be wider than just its ALB rules.
An incorporated practice is defined in section 34(1A) of the 1980 Act. It relates to bodies corporate (e.g. companies).
