CMA releases report and recommendations on Scottish legal services

On the 24th March, the Competition and Markets Authority (CMA) released its review and recommendations on the legal services market in Scotland.

One of the key recommendations put forward in the report is that an independent body should be set up to regulate the profession, separating representative and regulatory functions. The CMA has suggested that  “Separating regulation from representation will increase trust in this sector and result in better regulation.”

The report also included recommendations that the Law Society of Scotland should carry out a review of price and service transparency guidance, with possible mandatory rules in order to increase public confidence in pricing and to implement rules to allow ABSs to establish, following legislation allowing them a decade ago.

Andrea Coscelli, the CMA’s CEO said:

“It is important that people in Scotland have access to high-quality and good value legal services. In addition to increasing transparency of information, our recommendations are intended to introduce greater liberalisation that could foster growth and innovation in the delivery of legal services which would help the sector grow.”

The full report is available here.

The recommendations are available here.

The Law Society of Scotland’s response is available here.

 

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Japan Fair Trade Commission seeks comments on introduction of professional privilege

The Japan Fair Trade Commission (JFTC) has opened a public consultation into the draft of the amendment of the ‘Rules on Reporting and Submission of Supporting Materials Regarding Immunity from or Reduction of Surcharges’, and the draft of the ‘Guidelines to the Reduction System for Cooperation in Investigation’, following the passage of new anti-monopoly laws last year.

The rule changes being consulted on include rules stating that investigators cannot access documents containing confidential communication between an enterprise and an attorney regarding legal advice about unreasonable restraint of trade, assuming certain conditions are met. Leading to the introduction of professional privilege in Japan for the first time (only in relation to competition law). With Japan being one of only 3 OECD countries which do not recognise attorney-client privilege.

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Arizona set to become first state to allow ABSs

Arizona has become the first state in the US to formally file for the introduction of Alternative Business Structures (ABSs) in the US. The Arizona task force on the delivery of legal services has filed a petition with the Arizona Supreme Court which suggests eliminating rules which prevent fee sharing with non-lawyers and entering into a partnership with non-lawyers.

The petition is quoted as saying “Eliminating the rule would mean, for example, that a professional nonlawyer administrator in a law firm could have an ownership interest or that a Fortune 500 company could be a passive investor. It also could mean that a law firm could attract nonlawyer talent… by providing equity in the firm”.

The petition has also suggested introducing limited license legal practitioners to the state, filling a gap for lower-cost legal services and helping to bridge the justice gap in the state.

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Notes on the Westminster Legal Policy Forum keynote seminar – 25th February 2020

This ICLR special report has been compiled to give members a flavour of what was discussed during the annual Westminster Legal Policy Forum, held on the 25th February 2020. The theme of the day was ‘regulation, consumer protection and responding to innovation’, with speakers drawn from across regulators, representative bodies, academia and the legal services sector from across England and Wales. Further information about upcoming Westminster Legal Policy forum events, as well as publications from the forum, are available here.

The Independent Review of Legal Services Regulation – key issues to be addressed

Professor Stephen Mayson, Centre for Ethics and Law, University College London and Lead, Independent Review of Legal Services Regulation

The day began with a keynote speech by Professor Stephen Mayson outlining the progress of his hotly anticipated recommendations on legal services regulation. Professor Mayson took the opportunity to address some of the key issues that had arisen during the course of his research. Professor Mayson stressed that his report was written with the consumer as the primary concern, saying that given the scale of unmet legal need across England and Wales, it had become increasingly clear, both that the changes he will propose will be too radical to be achieved within the Legal Services Act 2007 (LSA) and that he increasingly views reform as something that will need to take place sooner rather than later.

Professor Mayson raised four key issues that he has identified under the current regime:

  1.  The vulnerable – Professor Mayson highlighted the vast level of unmet legal need in the country, saying that the law is too complex and too important for the level of access available. Professor Mayson also criticised the “unprincipled” nature dichotomy of high barriers to entry to deliver reserved legal activities, which are treated as essential until a consumer can no longer afford them, at which point the consumer becomes able to self represent.
  2. The dabblers – Professor Mayson also criticised the narrow entry gate to the profession, which allows a wide range of practice. He highlighted the fact that the simultaneous licensing of title and activity allows legal practitioners to hold themselves out as capable of delivering in areas in which they have limited or no competence and experience, leading to a lack of credibility.
  3. Buridan’s ass – Professor Mayson discussed the philosophical concept of Buridan’s ass, in which a donkey placed equidistantly between two piles of food is unable to make a decision as to which one to move towards and starves. He compared this to regulatory reform, suggesting that unless a decision was made on either moving towards risk-based regulation, or some kind of reworking of the existing system then reform would become paralysed by a lack of choice.
  4. The Gordian Knot – Professor Mayson highlighted that his report will raise many questions as to what an independent regulatory system should look like, however, he highlighted that the current system creates the artifice of the approved regulator, which holds an unclear position between being a profession focused representative body and publicly focused regulator. Professor Mayson suggested that the time has come to sever the Gordian knot between the regulatory body and approved regulator.

The full text of Professor Mayson’s speech is available here, with further information about the independent review of legal services available here.

The future of legal services – technology adoption, the changing shape of professional services firms and regulatory development

A lively panel discussion followed the keynotes speech, with panellists providing analysis on what they saw as key issues in the regulation of legal services

Neil Rose, Founder and Editor, Legal Futures – Mr Rose discussed some of the need for reform, pointing out that whilst the current system works well for some, there remain an awful lot of people for whom it doesn’t. Neil pointed out that the attitude in the sector still gravitates towards “we do things this way because this is how it’s always been done”. He raised the idea that the LSA has acted as a catalyst in allowing new businesses to come in and disrupt the sector, pointing out that concerns over compromised standards have not been fulfilled. Neil also pointed towards the new Solicitors qualifying exam suggesting that it could lead to seismic changes in the profession. He also pointed towards further reforms as creating the opportunity for the sector to further grow and develop.

John Gould, Senior Partner, Russell-Cooke; Author, The Law of Legal Services and Member, Advisory Panel, Independent Review of Legal Services – Mr Gould began by asking if there is really a need and an appetite for change. He then went on to describe how the current system has become something of a “lottery winners bungalow”, with many developments and aspirational additions tacked on, with no coherent whole. Mr Gould suggested that this has created a system where compliance officers have become a necessity as a go-between between lawyers and regulators, with the public completely excluded, with no clarity as to how the system works. He suggested that a clearer and more understandable system must be developed with the relationship between activity and title being clearly defined, to create a system that can function for the public, practitioners and regulators.

Duncan Wiggetts, Executive Director, Professional Standards, ICAEW – Mr Wiggets discussed how the distinction between lawyers and non-lawyers has become increasingly blurred. He suggested that for consumers of legal services costs had become a key factor in how purchasing decisions are made, leading to a convergence between accountants, lawyers and other business advisors. Mr Wiggets pointed towards the Brydon and Kingman reviews into audit and financial reporting, suggesting that these could inform the ongoing work of the Mayson review. He suggested that both these reports pointed towards the primacy of public interest and the need for risk-based regulation.

Kirsteen Forisky, Head of Innovations, LEAP Legal Software – Ms Forisky pointed out that changes in the legal environment have fundamentally altered legal service delivery. She pointed out that to remain competitive firms must begin to use technology, particularly cloud-based software, in order to improve their efficiency and information-sharing capabilities. She pointed out that this will enable firms to work in an agile way, meeting client demands in today’s business environment, allowing them to offer an enhanced client experience, without creating added pressures and costs on employees.

Derek Sweeting QC, Vice-Chair, Bar Council – Mr Sweeting discussed the risks present in opening up the profession. He cited current concerns over unregulated legal providers, raising the example of Paul Wright v Troy Lucas & George Rusz, citing the danger of unregulated provision. Mr Sweeting suggested that consumers prefer to rely on named professionals, who they can trust and rely on to provide quality services. Mr Sweeting suggested that the growing number of solicitors entering into the profession combined with increased public legal knowledge would meet the unmet legal need gap in a way that allowed people to place trust in the legal sector.

Chair’s closing remarks

Lord Gold

Based on the discussion throughout the morning Lord Gold took the opportunity to urge the Ministry of Justice to take action on simplifying the regulatory regime, highlighting the fact that unless there is political action, the profession will continue to debate and delay ad infinitum. The Conservative peer raised concerns over regulators ability to respond to technology and other challenges and said: “If you leave it to the brilliant lawyers we have in this country, they will obfuscate and delay and it will never happen … Now is the time for the MoJ to rip this up and decide what exact regulatory regime we need for the future.”

The state of the market – transparency, consumer engagement and reflections on the 2016 Market Study

Chris Jenkins, Economics Director, Competition and Markets Authority – Mr Jenkins gave his thoughts on the progress that had been made since the release of the CMA’s hugely influential 2016 study on the legal services market. He pointed out that in the initial study there had been a pledge to review the progress approximately every three years, and told the event that a review was planned for the second half of 2020. Taking a broad view Mr Jenkins suggested that tackling the issue of public ability to asses price and quality had not been fully addressed and that more work was needed on the issue to improve consumer ability to make purchasing decisions. He called for regulators to push forward on improving standards of transparency, making it easier to compare services and providers. He did point out however that there had been greater progress in implementing changes improving independence and regulatory transparency which had been a positive move, although he suggested that there was still more work needed in improving consumer redress.

The focus on consumers – public confidence, competition and managing ‘unmet legal need’

Simon Davis, President, The Law Society – Mr Davis discussed the findings of the recently published legal needs survey, which was produced by the law society in partnership with the LSB and YouGov. Mr Davis pointed out that the results of the survey suggested that when people did purchase legal services from a solicitor the vast majority were satisfied with the service and outcome. He pointed out that many consumers were unsure if their problem constituted a legal problem and therefore failed to seek advice. He suggested, therefore, that the solution in tackling unmet legal need was improving legal aid provision and increasing public legal education, to help consumers identify when they had a legal issue.

Dr Ashwini Natraj, Senior Economic Consultant, Consumer and Behavioural Economics Team, London Economics – Dr Nataraj outlined the work that London Economics has been doing on the relationship between behavioural economics and public engagement with the legal sector. She discussed some of the ongoing issues that exist in public decision making around legal services, highlighting problems such as the complexity of the market, stress purchasing, information asymmetry, and the infrequency of purchasing. She pointed out that this has led to low awareness of consumer protections, low confidence in the sector, particularly amongst vulnerable groups and difficulty balancing price and quality. She suggested that behavioural economics approaches could be used to improve engagement and understanding of legal regulation, particularly as there was a difficult balance between providing enough information to give consumers clarity, which has to be balanced against overwhelming consumers with a vast weight of information.

Mariette Hughes, Head Ombudsman, Legal Ombudsman – Ms Hughes discussed the role of the Legal Ombudsman in improving public confidence in legal services. She pointed out that as the last resort and last port of call the ombudsman is often the key touchpoint in maintaining public confidence amongst the most vulnerable and most challenging cases. However, she pointed out that there was still a presumption that the ombudsman would be able to provide consistent supply and quality, raising questions over the resources available to the ombudsman. She also pointed out whilst having a single ombudsman for the whole sector helps to improve confidence, there is also the risk that a single ombudsman can not leave some gaps, which must be met by specialised regulators to avoid damaging public confidence.

Rob Houghton, Founder and Chief Executive Officer, really moving and The Law Superstore – Mr Houghton discussed the role of price and quality comparison sites in providing consumers with resources to better understand the legal market. He pointed out that having resources to compare prices allows for greater influence of natural market forces over an opaque marketplace. He suggested that having greater price and quality competition could only stand to benefit consumers, as it would increase the information available whilst also pushing providers to improve the value proposition of their services, effectively creating a new way to sell their services on value and quality, allowing them to compete with larger organisations.

Julia Salasky, Founder and Chief Executive Officer, Legl – Ms Salasky discussed the role that technology can play in addressing consumer side challenges. She suggested that as expectations of a certain level of consumer experience increase, failing to meet this expectation reflects increasingly negatively on the profession.  She suggested that technology could provide an incredible opportunity for the industry to improve communication around value and transparency of products, which could go on to inherently improve public confidence in their legal purchases, and therefore public confidence in the law as a whole.

Regulation in the legal services market – structures, roles and independence

Matthew Hill, Chief Executive, Legal Services Board (LSB) – Mr Hill raised concerns over the fact that unmet legal need was still a major problem and that the legal market was not working for a significant proportion of the population and economy. He compared the current regulatory system to a chair with two legs, saying “You can sit on it perfectly comfortably provided a lot of people spend a lot of time holding it steady for you. We do spend a lot of time making independence work by investing time and effort in it.” Suggesting that the current system can be made to work and that further change can be wrung out of it, however, to truly create an impact there must be a wholesale change in legal regulation. He said “The existing system is undoubtedly complex. It’s built around professions and not consumers. For example, reserved legal activities and title-focused regulators make sense to regulators and sectors, but not necessarily to the public.” He suggested that whilst public legal education played a valuable role, it clearly had not significantly shifted public views on the sector and was sometimes used as a way of blaming the public rather than taking responsibility for change. He ultimately suggested that reform would have to come about at some point and should be built around meeting consumer needs first. Mr Hill also questioned whether, given the scale of some regulatory bodies, they were all fully able to deliver public outcomes.

Ewen Macleod, Director of Strategy and Policy, Bar Standards Board  (BSB) –  Mr Macleod agreed that change was needed to improve public confidence. He suggested that the greatest risk to consumers came about during the initial advice to consumers. He, therefore, suggested that the answer did not lie in creating further barriers, and instead lay in working to improve reputational issues. He said that through broadening the scope of after the event regulation, increasing access to the Legal Ombudsman and improving public information over how to access legal services, public confidence could be improved. He suggested that the board supported a greater focus on risk-based approaches, but that a title was necessary to provide clarity during purchase, suggesting that there is an issue over how risk-based approaches can map onto the public consciousness of existing titles and recognition. Mr Macleod also suggested that the BSB needs to be ready to respond to new developments in legal technology, in order to meet public expectation on the issue.

Chris Handford, Director of Regulatory Policy, Solicitors Regulation Authority (SRA) Mr Handford explained that given the fact that as of yet there have not been changes announced in the regulatory regime, therefore the SRA would continue to reform within the boundaries of the existing framework, stressing that the SRA was limited by decisions made at a government level and within the LSB, and within the confines of the LSA. He put forward several reforms that had been put implemented by the SRA, including rewriting solicitors standards to become more principles focused; work to increase trust and consistency, including exploring better quality indicators and ongoing competence; he talked about legal technology suggesting that there is significant potential in the area to improve access to justice, however, also flagging that the SRA must be alive to the potential risks technology could create. Mr Handford suggested that the direction of travel in the profession was towards increasingly blurred boundaries, with a lot of change coming, pointing out that regulators must be ready to embrace and act on this change in order to manage it and effectively fulfil their function.

Stuart Dalton, Director of Policy and Enforcement, CILEx Regulation (CRL) – Mr Dalton began by advocating strongly for the reforms being suggested by Stephen Mayson, suggesting that CRL could be ready to address much of the regulatory void that the report had identified, particularly around tech, helping to address much of the identified need, suggesting that under its current position CRL is already well equipped to deliver regulation around specific activities, given its current structure in regulation across the legal sector. Mr Dalton also took the opportunity to highlight CRL and CILEx’s strong commitment to regulatory independence. Emphasising that CRL has committed to achieving the highest possible degree of independence from CILEx as is possible under current statutory limits. He suggested that in the future regulatory independence, with a public focus would become the norm in legal regulation and that CRL would be leading the way towards this change.

Chair’s closing remarks

Rt Hon the Lord Falconer of Thoroton – Lord Falconer, the architect of the LSA gave his thoughts on the proceedings saying it was “apparent that the legal services market is not servicing the whole market properly and that market forces will not solve that problem”. He said that clearly the solutions had to come from a combination of regulators and public funding, pointing out that government buy-in is necessary to implement and initiate genuine change. The peer gave a nod to discussions about the complexity of the regime, as well as the growing role of technology, saying: “I am sure that there are things that could be done to improve the structure, but I believe that the structure is sufficiently flexible for the regulatory issues to be met. I am not that persuaded that a fundamental shift in the legislative structure is a good idea… but I do think one of the big problems is the failure of the state to provide sufficient legal aid and other forms of funding for advice that the market would not otherwise provide.”

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Legal Services Regulatory Authority publishes annual report

The Legal Services Regulatory Authority (LSRA) in Ireland has published its 2019 Annual Report which provides an overview of its performance for the year, including its new role in handling public complaints relating to solicitors and barristers.

The Annual Report contains statistical data on complaints and early trends, including:

  • During the 12 week period from 7th October to the end of December 2019, the LSRA’s Complaints and Resolutions Unit received a total of 304 complaints (301 relating to solicitors and 3 relating to barristers).
  • A total of 141 complaints alleged inadequate standards of services, with 134 alleging misconduct and 29 relating to alleged excessive costs (overcharging).
  • The Complaints and Resolutions Unit received 954 phone calls and emails requesting information and/or complaint forms.
  • Among the areas of legal services complained about were wills and probate, litigation, conveyancing and family law.
  • A total of nine complaints in 2019 involved issues relating to alleged criminal activity, with the majority related to allegations made against what is suspected to be a bogus law firm.

LSRA Chief Executive Brian Doherty said:

“The LSRA had been expecting an early spike in complaints and that is exactly what we have experienced. It is still too early to point to particular trends in relation to the complaints we have received. However, allegations of poor communication between legal professionals and their clients is emerging as a strong feature across almost all complaints. Regular and timely communication with clients appears to be a key lesson for practitioners in preventing and settling complaints before they escalate.”

As well as looking at complaints the report also looked at new statistics available on LLPs

In November 2019, the LSRA introduced a new framework allowing partnerships of solicitors to operate as LLPs.

This new business model is intended to put Ireland on a par with other jurisdictions and has the potential to increase competition in the legal services market, reduce professional indemnity insurance costs for LLPs, and consequently lower costs for consumers.

By the end of 2019, 88 valid applications for LLP authorisation were submitted by legal firms, and 28 authorisations were issued by the LSRA.

The full report is available here.

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Regulatory Abdication in Practice

Abstract

“Meta-regulation” refers to deliberate efforts to induce private firms to create their own internal regulations—a regulatory strategy sometimes referred to as “management-based regulation” or even “regulation of self-regulation.” Meta-regulation is often presented as a flexible alternative to traditional “command-and-control” regulation. But does meta-regulation actually work? In her recent book, Meta-Regulation in Practice: Beyond Normative Views of Morality and Rationality, Fiona Simon purports to offer a critique of meta-regulation based on an extended case study of the often-feckless process of electricity regulatory reform undertaken in Australia in the early part of this century. Yet neither Simon’s case study nor her book overall succeeds in undermining the rationale for using meta-regulation.

In this review essay, I highlight the many limitations of Simon’s argument. I show how, in making existing scholarship her foil, Simon mischaracterizes what regulatory scholars have had to say about meta-regulation. Not only does Simon misleadingly make scholars out to be naïve and overly optimistic about what can be expected from meta-regulation, but she also ignores entirely the peer-reviewed empirical research that shows that meta-regulation can work. She also misstates what existing work has to say about the mechanisms that can make meta-regulation effective. The most significant problem with Simon’s book, though, is that the case study she presents in her effort to criticize meta-regulation theory does not actually describe a strategy based on meta-regulation. Rather, it shows Australian electricity regulators as passive, defensive, and weak. What Simon’s book actually offers is a detailed case study of regulatory abdication in practice.

Citation
Coglianese, Cary, Regulatory Abdication in Practice (February 7, 2020). U of Penn, Inst for Law & Econ Research Paper No. 20-11.

Available from the SSRN site.

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Consultation on the unification of the solicitors’ and barristers’ professions in Ireland

The Legal Services Regulatory Authority (LSRA) in Ireland is inviting submissions as part of a public
consultation prior to a report to the Minister for Justice and Equality in relation to unification of the solicitors’ profession and the barristers’ profession.  The consultation is seeking views from a wide range of organisations and individuals in the legal services arena, including service providers and consumers, as well as academics, law firms, statutory agencies, representative bodies, non-governmental organisations and providers of legal training and education.

The LSRA is interested to hear respondents’ views on existing business structures for the delivery of legal services, as well as any opportunities or challenges that might arise from the unification of both branches of the legal profession.  Responses which provide insight into the experience of arrangements in operation in other relevant jurisdictions would also be useful.

Read more about this consultation and participate

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Legal services reform in Scotland – regulation, international competitiveness and seizing opportunities for innovation

Edinburgh,  Wednesday, 25th March 2020

This conference will discuss the next steps for legal services in Scotland.

Delegates will examine:

  • Major proposals for regulatory reform;
  • The sector’s international competitiveness going forward; and
  • The impact of innovation in legal technology.

The conference includes a ministerial contribution – and will be an opportunity to discuss the issues as The Scottish Government consults on the future of legal services regulation following its response to the Independent Review of Legal Services Regulation in Scotland, also known as the Roberton Review.

We also expect discussion on the CMA research which is currently being undertaken, and anticipated to be published soon, to support The Scottish Government in its final response to the review.

With the review recommending the creation of a single independent regulator for all providers of legal services, accountable to The Scottish Parliament, stakeholders and policymakers will assess the next steps for government and what any decision will mean for the sector, its customers and partners.

Read more and register

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Norwegian Ministry of Justice and Public Security publishes analysis of changes in lawyer regulation

Following the March 2015 report submitted by the Advokatlovutvalget (the Lawyer Commission), which suggested changes to the regulation of lawyers in Norway (Report in Norwegian available here), the Norwegian Ministry of Justice and Public Security has decided to further evaluate the recommendations.

The Ministry has commissioned research consultancy Copenhagen Economics to provide further analysis on two of the proposed changes: 1) the regulation of the right to provide legal services, and 2) the ownership regulation for law firms.

The report has suggested that the current competitive climate for legal services in Norway is relatively good, with no signs of a decline in competition and good competition between smaller firms and larger firms, especially for less complex cases. The report also suggested that increased liberalisation of legal activities, particularly non-court based activities would prevent a monopoly forming around legal services, and would allow new entrants to enter the market. The report also recommended that ownership regulations should not be tightened. Currently, anyone in Norway can hold a stake in a law firm, provided they spend a “significant part” of their professional activity in the firm’s service. The Lawyer Commission had proposed only allowing lawyer ownership of firms. The report has suggested that this is not appropriate as it stifles innovation and capital investment, and therefore competition.

Copenhagen Economics English language summary of the report is available here.

The full report in Norwegian is available here.

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Law Society of Saskatchewan amends Legal Profession Act to expand access to legal services

The Law Society of Saskatchewan has announced amendments to the Legal Profession Act, 1990, effective from 1 January 2020. The Law Society is an independent regulator with the core mandate of the protection of public interest.

In 2017 the Law Society and the Ministry of Justice established the Legal Services Task Team, comprised of lawyers, member of the public and other non-lawyers working in legal services, as part of the strategic plan to increase access to legal services. The task team was asked to explore the possibility of non-lawyers being allowed to provide low-risk legal services.

The team’s recommendations included clarifying the definition of the practice of law, and identifying what constituted unauthorised practice of law; expanding the list of exemptions to the unauthorised practice provisions; and creating limited licenses that may be granted by the Law Society on a case-by-case basis.

Amendments to the Act which have been introduced include:  a clearer definition of the practice of law and allowing limited licensing, the first example of this approach in Canada. The Law Society of Saskatchewan Rules were also amended to include an expanded list of exemptions to unauthorised practice. The Law Society is attempting to identify further groups and individuals providing limited legal services, who are not lawyers, that may not fall neatly within the new list of exemptions.

The Society is hoping to encourage low-risk providers to self identify to be considered for exemptions, especially as the Society has historically not pursued low-risk providers. The Society feels that self-identification will allow for more effective management and regulation of such providers.

Further information about the reforms is available here.

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