LSUC adopts entity regulation recommendations

The Law Society of Upper Canada has come a step closer to bringing firms under its regulatory wing, but some critics still have concerns about how a new disciplinary framework will work.

The Convocation body adopted two recommendations laid out in a report that tackled how the LSUC can regulate entities that provide legal services.

The report recommended an amendment to the Law Society Act that would allow the LSUC to regulate such firms and organizations. The Law Society Act currently authorizes the regulation of professional corporations but not limited liability partnerships.

The report also recommended the development of a proactive compliance-based regulatory framework, which will guide firms with a number of management principles.

Convocation passed both of the recommendations, much to the chagrin of some critics who wanted to see more detail in the report before they were adopted.

“The report in my view contains nice words, nice intentions, too much jargon, too much Law Society speak, but not enough detail,” Sidney Troister, of Torkin Manes LLP, said at Convocation before the vote on the recommendations.

Troister said he agreed that law firms and other entities should be subject to regulation, but that the report lacked “concrete terms.”

Troister asked Convocation to defer its decision on the second recommendation so that more details could be fleshed out. Others asked for the first part to be deferred or for both recommendations to be rejected until more consultation is done.

“The devil is indeed in the details,” Troister said.

Ross Earnshaw, the chairman of the task force behind the recommendations, says it was important to adopt these recommendations before consultations have fully unfolded, because seeking an amendment to the Law Society Act can be a long process.

“We knew that we wanted to be able to regulate entities . . . but we will work on the details of that after the legislative amendment is in place or indeed while the legislative amendment is being put in place,” he says.

He adds that just because there will be an amendment, it does not necessarily mean that the LSUC would regulate all entities.

Earnshaw says the task force is seeking an amendment to the Law Society Act that asks for a broad definition of what is an entity so that it can work through how to define the groups that will be regulated.

Some small firms and solo practitioners have expressed concerns about the regulatory burden compliance regulations might have on their entities if they are included.

Greg Temelini, of Wright Temelini LLP, says that while he supports regulating entities he worries applying the same compliance regulations to smaller firms may “create crushing regulatory burdens.”

“I do have concerns that the smaller firms might get swept up in an initiative that’s really designed to better regulating larger and national entities,” he says.

“It’s important that any regulatory requirements recognize smaller firms have fewer individuals and fewer resources.”

Raj Anand, of WeirFoulds LLP, who serves on the task force, says the task force is not looking to burden smaller firms with overregulation.

“This isn’t regulation for regulation’s sake. The goal is practical solutions,” he says.

“There is no desire to overregulate. The desire is to raise standards and to do it in the way that’s the least burdensome while at the same time achieves the goals.”

Earnshaw says compliance-based regulation would be flexible to give firms the freedom to adapt the principles in a way that is suitable to their size.

“The principles that were identified in the report would apply to all lawyers and paralegals across the board, but the application of those principles might look different if you were a solo practitioner than if you were with a large firm,” he says.

The task force’s report also recommended having a designated practitioner serve as a liaison between each firm and the LSUC.

Temelini’s firm has only two partners and an administrative assistant. If one of them is kept busy carrying out the role of designated practitioner, Temelini says he is worried that person might not have time for client services.

“The difficulty is if the burden of the compliance function becomes too great that that person is doing that all the time,” Temelini says.

Task force members say these are all details that will be worked out in the coming months with consultations.

The lack of detail in the report made some members of the Federation of Ontario Law Associations uneasy, says the group’s executive director, Michael Ras.

“It is a little bit presumptive of the law society to say that they’re moving forward before the bar has been able to say one way or another we support it, but I guess that’s their right,” he says.

Ras says FOLA appreciates that the LSUC is looking at entity regulation, but that the organization’s members, who are predominantly small firms and solo practitioners, need to see more detail before they can formulate a definitive position on it.

“Some of our members do have some concerns. Some are open to it, but the consistent position from just about everyone is we need to see more details,” he says.

The LSUC set up its task force to figure out how to set up a framework to implement entity regulation in June 2015. It released a consultation paper in January and requested input from legal professionals about entity regulation. The LSUC received 97 responses from individuals and legal organizations.

Earnshaw says most feedback was generally supportive of the concepts and ideas that are in the report but that there were also many concerns about how the potential regulations might be applied to smaller firms and sole practitioners.

The task force is set to organize an additional round of consultations in multiple regions, which will be organized by practice size or type. This next round of consultations will be more focused on specifics so that the regulations can be fleshed out, Earnshaw says.

“The first consultation was from 50,000 feet,” he says.

“So we now want to come forward with some options that have some details attached to them,” he adds.

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