A joint pilot project has launched by the Solicitors Regulation Authority (SRA), the Council for Licensed Conveyancers (CLC), CILEx Regulation (CRL) and the Bar Standards Board (BSB), under which regulated law firms have been invited to help develop meaningful quality indicators, which will aid potential clients when choosing their legal service provider.
The exercise has brought together website providers and firms, as well as encouraging existing clients to post reviews, in order to identify what indicators they use when purchasing and assessing legal services. Currently, over 70 firms have signed up to the pilot to look at how reviews could add value to other comparison data, such as price.
The group of regulators will be carrying out research to find the best way to raise awareness amongst consumers of the benefits of shopping around for legal services. Legal services tend to be one-off or infrequent purchases, so the ‘triggers’ used in sectors such as energy and insurance are not as evident. The research will therefore explore options relevant to the legal services market. As well as this the research is aiming to explore objective data which may help consumers compare quality and will be liaising with comparison website providers and firms involved in the pilot to collect this.
Tracy Vegro, SRA Executive Director, Strategy and Innovation, has said, “We were obviously confident of seeing the project produce meaningful results that would help develop meaningful quality indicators, but we did not expect to see such a strong level of engagement initially and to see other, far-reaching effects emerging too. We originally said the pilot would run for six months, but we want to expand it to make sure we capture all the great work that firms are doing. So there is still time for more firms to get involved and become part of the momentum the pilot is creating. Stimulating the market so it is motivated to act allows for greater innovation in the long run when compared to moving straight to increased regulation, and the sector is clearly reaping the benefits of this already. We would encourage any other firm to join the project.’
Despite traditional resistance to change in legal professions, pro-competitive “disruptive” innovations are beginning to transform legalservices and the manner in which they are delivered. Online service delivery is allowing both legal professionals and unlicensed providers to serve clients remotely while taking advantage of the scalability of digital platforms. In addition, ranking and review information regarding legal professionals is becoming increasingly accessible, and is allowing clients to assess the quality of professionals before retaining them – a previously difficult proposition. Further, the unbundling of services, partially driven by increasing client awareness and fee pressure, is transforming the distribution of tasks in legalservices and ending traditional “black box” models of service delivery. As a result, standardized activities are being outsourced to low-cost providers (including unlicensed ones), and new billing models are being introduced. Finally, automation is changing the nature, and volume, of tasks that legal professionals perform. Although the extent to which the work of legal professions can be automated is subject to debate, automated systems have been introduced which offer new capabilities and, in at least some instances, improved performance relative to legal professionals.
As a result of these innovations and the new competition they bring, the regulatory framework in which legal professionals operate is under pressure. The exclusivity enjoyed by legal professionals, and the precise scope of activities to which it applies, is becoming unclear as unlicensed entrants offer a widening range of services. Restrictions on the quantity of professionals that can operate in specified regions are being questioned at a time where the services they provide could easily be made available online. Further, legal professional self-regulators may be unable, or ill-suited, to identify accommodations that permit innovative entrants to serve consumers.
Competition authorities, which may have limited experience in legalservices markets given that enforcement issues have been rare, should be aware of the challenges described above. Authorities can play a role in advocating for regulatory systems that reflect current market realities and ensure market access for pro-competitive disruptive innovations. Such a role could include advising policymakers who may be seeking to balance the benefits of competition with other policy objectives such as consumer protection. This process will require consideration of the objectives of legal professional regulations, particularly those addressing market failure, as well as the current design of those regulations.
Mancini, James, Protecting and Promoting Competition in Response to ‘Disruptive’ Innovations in Legal Services: OECD Background Paper (March 9, 2016). Working Party No. 2 on Competition and Regulation,
This work has been prompted by the Roberton Review, an Independent Review of Legal Services Regulation in Scotland, and will provide evidence to assist the Scottish Government in determining how to take forward the recommendations made by that report. Led by Esther Roberton, that Review made a number of recommendations, including that there should be a single independent body to regulate the legal profession, set standards and handle complaints.
Building on work already done as part of the Competition and Market Authority’s (CMA) market study into the supply of legal services in England and Wales, this work will examine whether there is evidence of a lack of competition among legal services providers in Scotland, as was the case in England and Wales.
The research will also focus on:
the benefits of independent regulation of legal services in Scotland and whether the current institutional arrangement – where the bodies regulating the professions are also those representing and lobbying for them – dampens competition
the impact of the current legal services regulatory framework in Scotland on competition, particularly on innovation and the entry of new business models to the market
It is the CMA’s first Scotland-specific project since the expansion of its Edinburgh office last year to help the organisation better identify and resolve issues that harm Scottish consumers.
This document was prepared by the OECD Secretariat to serve as an issues paper at the 61th meeting of the OECD Working Party No. 2 on Competition and Regulation (13 June 2016).
This paper introduces recent disruptive innovations in legal services markets, as well as the overarching trends giving rise to them. The role for competition authorities in the face of legal services disruptive innovation, particularly with respect to competition advocacy, is also identified. The rationale for legal services regulations and the composition of these regulations is then briefly summarised. It is hoped that this will provide a starting point for the discussion that follows of the impact of disruptive innovations on the motivations for, and design of, current regulations.
Using a unique data set comprised of original research of both the corporate websites of the Big Four — PwC, Deloitte, KPMG, and EY — and their affiliated law firms, as well as archival material from the legal and accountancy press, this article documents the rise and transformation of the Big Four legal service lines since the enactment of the Sarbanes Oxley Act of 2002. Moreover, it demonstrates that there are good reasons to believe that these sophisticated players will be even more successful in penetrating the corporate legal services market in the decades to come, as that market increasingly matures in a direction that favors the integration of law into a wider category of business solutions that these globally integrated multidisciplinary practices now champion. The article concludes with some preliminary observations about the implications of the reemergence of the Big Four legal networks for the legal profession.
Citation: Wilkins, David B. and Esteban, María J., The Integration of Law into Global Business Solutions: The Rise, Transformation, and Potential Future of the Big Four Accountancy Networks in the Global Legal Services Market (August 3, 2017). Law and Social Inquiry, 2017; HLS Center on the Legal Profession Research Paper No. 2017-2. Available at SSRN: https://ssrn.com/abstract=3013154
A major aim of the introduction of alternative business structures (ABS) in England and Wales was to allow new forms of capital into regulated law firms to improve market efficiency. Enabling external investment in law firms was designed to allow less reliance on short term sources of financing such as personal debt and overdrafts. The expectation was that the admission of new capital would increase competition and reduce the cost of legal services, to the benefit of the regulatory objective of access to justice. In turn reduced cost should improve access to legal services translated through lower prices, as cost –perceived and actual – is a key barrier to accessing legal services for individuals and small businesses.
However, investment in law firms remains an under-explored area of research. To address this knowledge gap, the Legal Services Board (LSB) commissioned a piece of research to identify current sources of capital and establish how the investor community views the market and any barriers to investment.
Key findings of the report
The research showed:
The majority of ABS firms (66%) either have already invested (in themselves) or are planning to do so, since they gained their ABS licence. These investments have mainly been made to hire more staff, increase marketing activity or to purchase IT.
Overall, 52% of ABS had made an investment in their business since obtaining their licence, and 14% are planning to do so. Although only limited data is available about investment by non-ABS entities, where it exists it suggests that a greater proportion of ABS make investments than non-ABS entities.
ABS firms access a wide range of sources of finance, and only a small proportion of ABS indicate difficulties in accessing finance. The most frequent source of funding for investments was business profits or cash reserves, which were used by 49% of those who had invested in their business. Just over a quarter of investments were solely funded using a loan from a bank, and a quarter were solely funded using the business’ overdraft facility.
External sources of equity finance accounted for only a minority of investment funding sources either as the sole or joint source of investment funds, and only 12% of ABS had used any form of external finance.
According to investors, the legal sector is seen as a ‘sleepy’ market with opportunities for investors to grow their investment capital by improving efficiency within the business itself. Investors appear to have concerns about the ability to exit the legal sector once their investment has matured.
Except perhaps in the personal injury sector, it would appear that bank lending is a substitute for external capital. For the firm this means they do not have to cede ownership control of part of their business. In addition, there is a view that many firms do not present financial information in the ways investors expect and/or have a weak grasp of the value of their businesses.
Only 6% of ABS identified some aspect of legal services regulation that prevented them accessing finance. Nor does the cost of legal services regulation appear to be a barrier.
The low level of external investment seen to date may be a symptom of weak competition in the market overall, as found by the Competition and Markets Authority market study, LSB’s Market Evaluation and the joint SRA/LSB research revealing that levels of innovation are only increasing slowly. In the absence of strong competition, there is little impetus for law firms to take the greater risks (and rewards) involved with using external capital. Until these incentives change we may not see significant growth in the use of external capital by ABS firms.
The month of May saw two technology and legal regulation issues come to light in the US.
Cyber security and client communications
The changing technological landscape and rising incidence of “cyber intrusion” prompted the ABA’s ethics committee to update an 18-year-old opinion on whether lawyers must use encrypted e-mail when communicating with clients. Technologically, much has changed in the past 18 years regarding how lawyers and clients communicate. Unfortunately lawyers are often the weak link in the cyber security chain making them an obvious target for cyber criminals. Read more…
Florida Supreme Court rejects proposal to regulate online ‘legal matchmakers’
The Florida Supreme Court on May 3 rejected a controversial proposal—supported by state bar leaders but opposed by some of the most successful legal technology startups—that would have subjected companies in the burgeoning “legal matchmaking” industry to regulation by state bar authorities. The proposed rule changes could have subjected some of the most disruptive industry startups—including LegalZoom, RocketLawyer, UpCounsel and Avvo—to a host of regulatory requirements that may have increased their operating costs or required them to revise plans to plow resources into the legal matchmaking sector. Read more…
In a fast-changing marketplace, how do regulators build public confidence and balance public protection with the need to support an open competitive market that provides high-quality, affordable services? Trust and the market: Rethinking regulation addresses this question. Chaired by broadcast journalist Krishnan Guru-Murthy, experts from several sectors share their views on the UK regulatory landscape.
In January 2016 the UK’s Competition and Markets Authority (CMA) began a market study on the supply of Legal Services in England and Wales, to see whether the market is working sufficiently well in the interests of consumers. The CMA is the UK’s primary competition and consumer authority.
In its statement of scope, the CMA observed:
perceptions that demand in legal services is ‘unmet’
concerns about the affordability of legal services
concerns about service standards by both regulated and unregulated providers
concerns about the complexity of the regulatory framework
‘markedly different’ views on how the current regulatory framework could be further reformed
relatively low levels of consumer empowerment in the sector
new developments in how legal services are provided to consumers
concerns about how effective the redress mechanisms for legal services are and whether there are gaps in the current redress framework