Entity regulation: Governing the forest as well as the trees

  • March 29, 2016

Outcomes-focused entity regulation that is harmonized across jurisdictions in Canada is the way to go, says the CBA’s Ethics and Professional Responsibility Committee.

Regulating legal entities as well as the individuals who practise in them reflects the reality of modern practice that many regulatory requirements are fulfilled by the law firm not the individual lawyer. And moving to outcomes‐focused regulation will shift the regulatory focus from reacting to complaints to proactively encouraging ethical best practices.

In a submission to the Federation of Law Societies of Canada, after consulting with a wide range of CBA groups and law firms, the committee said it “supports the introduction of entity regulation to better reflect the reality that ethical practices of many Canadian lawyers are heavily influenced by the culture and ethical infrastructure of the entity in which they work. For that reason, the entities should also be subject to regulation, in the public interest.”

Noting that some jurisdictions are further ahead than others when it comes to the idea of entity regulation – law societies in Nova Scotia, B.C., Saskatchewan and Manitoba already have legislative authority to regulate entities; Ontario and Alberta are actively looking at the issue – the committee suggests that Canadian law societies take a coordinated approach to the issue.

“The objective of more effective regulation requires harmonization of entity regulation across the country,” the committee says. “The burden on law firms operating in more than one jurisdiction, and the heavy costs of compliance in that scenario (that will be passed on to clients), calls for a concerted effort by law societies and the leadership of the Federation to circumvent a patchwork of regulations.”

Moreover, the committee suggests establishing outcomes-focused regulation, which sets out regulatory objectives but allows regulated entities and lawyers themselves to determine how to achieve the desired result. Law societies should provide examples of ways to comply with the objectives, but not prescribe measures to do so. The committee believes this not only encourages accountability but relieves the regulatory burden on the profession and has the potential to significantly reduce client complaints.

To date entity regulation appears to be designed for law firms, and the rules would be an awkward fit for the realities of practice for in-house counsel and public-sector lawyers, the committee noted. It recommends more study and consultation before deciding whether to include these two groups in the scope of entity regulation.

What will entity regulation mean to you? Check out the video of the presentation on entity regulation made to Council at the Mid-Winter meeting in February, and the blog on nationalmagazine.ca.

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