The (in)effective regulation of incorporated legal practices: an Australian case study

The incorporation of legal practices exposes legal practitioners to great commercial pressures, posing particular challenges to the regulation of the legal profession. Regulatory theory suggests that an effective regulatory regime would: (1) address an identified collective problem; (2) have a regulator(s) responsive to the non-compliances of regulatees; (3) adopt a regulatory structure and a system of checks and balances to mitigate capture of the regulators by the regulatees; (4) delegate power appropriately amongst the actors; and (5) employ a hierarchy of sanctions with the credible threat of a heavy ultimate penalty. When the structure of Victoria's regulatory system and performance of its participants is compared to these theoretical prescriptions, it can be seen that the regulation of incorporated legal practices (ILPs) is currently ineffective. Correction will require, at a minimum, a more explicit recognition of the problems that ILPs present, a restructure of the regulatory environment, and redistribution of powers amongst the regulators. This conclusion carries implications for all Australian states and territories permitting incorporated legal practice, and should inform the British regulation of alternative business structures (ABSs).