Not all legal services are provided by lawyers or legal executives who are regulated by their professional bodies. There is a group of legal service providers who are not authorised and regulated under any legal sector specific legislation, but who are providing legal services for profit and as a significant focus of their work.
The Legal Services Board has recently (June 2016) published research on the work of this sector of the legal service market. The research looked in detail at will-writing, online divorce and intellectual property.
The Key Findings of the research were:
- For profit unregulated providers make up a small proportion of the legal services market. In the individual legal needs survey, they represented 4.5-5.5% of cases in which consumers paid for advice or representation.
- In contrast, not for profit providers, most of whom will be unregulated, accounted for approximately 37% of all legal problems where advice was sought.
- Benefits for consumers include lower prices and greater price transparency compared to regulated providers, innovation and service differentiation, and competitive impact on regulated providers.
- The main risks to consumers relate to consumers not making informed choices and misleading advertising claims. The research did not assess the technical quality of work.
- Consumer satisfaction with customer service is broadly comparable across regulated and unregulated providers – 84% versus 81% respectively.
- More than half of consumers who instruct for profit unregulated providers are aware of their regulatory status. Of those who don’t check, a significant proportion do not do so because they assume that they are regulated.
- There is a limited potential market for voluntary regulation beyond existing trade associations given the size of the market and low appetite for such initiatives among providers.
For the time being, at least, the policy conclusions for the Legal Services Board are that
- The for profit unregulated sector is smaller than expected, although in some segments these providers have gained a significant market share.
- Based on the evidence of benefits and risks to consumers and limited potential market for voluntary regulation beyond existing trade associations, the LSB will monitor developments but will not pursue a voluntary arrangement under the Legal Services Act.
- Consumers should be encouraged to check whether or not providers are regulated.
In other words no active intervention for the moment.
Notwithstanding these broad conclusions, the research did look more closely at the work of for profit unregulated providers in three areas: will-writing; divorce; and intellectual property, where not insignificant amounts of legal services work was being undertaken by unregulated providers – around 10% of the work. The dominance in the area of divorce by 5 on-line companies offering very cheap services can be particularly noted.
My guess is that, so long as the unregulated sector provides cost-effective services, with which consumers are satisfied, the lack of regulation will continue. But if there is a highly publicised scandal, then the regulatory context will change.
One of the last Ministerial actions taken by Lord Faulks, before he decided to leave the Government, was to publish a very important consultation on how Alternative Business Structures (ABS) should be regulated.
On 30 November 2015, the Government published, ‘A Better Deal: boosting competition to bring down bills for families and firms’ which set out the Government’s approach to encouraging open and competitive markets, for the benefit of the UK economy and UK consumers. A key part of the Government’s approach is to ensure that the statutory frameworks underpinning regulatory regimes allow regulators to regulate in a way that is proportionate and promotes competition and innovation.
As the legal services market is not only an important contributor to the UK economy, but also to ensuring individuals’ and companies’ access to justice, the Government seeks to develop a strong, independent and competitive legal services market, which will promote consumer choice and quality services at lower prices, ensuring greater access to justice for all.
The Better Deal document included a pledge to consult on two particular matters:
- making changes to the regulatory framework for legal services to remove barriers to market entry, and regulatory burdens on, Alternative Business Structures in legal services, and
- making legal services regulators independent from professional representative bodies.
The second of these is delayed, pending the final report from the Competition and Markets Authority – about which I have written separately.
However on 7 July 2016, the Government published a Consultation Paper on what changes might be needed to the regulation of ABSs.
Since 2010, when Alternative Business Structures were first licensed to provide legal services, over 600 ABS firms have entered the market. According to the Government:
The introduction of ABS businesses, particularly those that have access to external investment and business and commercial expertise, has benefited the market more widely. Recent research has indicated that ABS firms are more likely to be innovative than other regulated legal services firms. These new, innovative providers have increased competition in the market, which [the Government believes] encourages a wider variety of legal services in the market that are more accessible and affordable to consumers.
As a result of concerns raised at the time about the potential risks of new and unknown business models, the legislative framework for the regulation of ABS businesses, set out in the Legal Services Act 2007, is more onerous and prescriptive than that for traditional law firms.
Six years on, experience suggests that ABS businesses have not been shown to attract any greater regulatory risk than traditional law firms. In consequence, the Legal Services Board and front-line regulators suggest that the current statutory requirements act as a deterrent and an unnecessary barrier to firms wanting to change their current business model to a more innovative one, as well as to new businesses considering entering the market.
The proposals set out in the consultation aim to enable legal services regulators to reduce regulatory burdens on ABS, while taking a more effective risk-based approach to regulation. The proposals are very technical in nature. The following summary is set out in Legal Futures.
- ABSs should not have to provide reserved legal activities from a practising address in England and Wales. The consultation said this restriction can prevent online businesses being licensed as ABSs, while traditional firms are not required to do reserved work.
- ABS licensing authorities should be able to make their own rules around ABS ownership, in line with guidance to be provided by the LSB. The consultation said the current “inflexible” rules on which non-lawyers need to be investigated before assuming ownership of an ABS leads to unnecessary checks on some people who have no real control or influence over an ABS, but others who should be checked fall outside the definitions set out in the Act.
- Abolishing the requirement to consider whether an ABS applicant explicitly meets the regulatory objective of improving access to justice. There is no equivalent on non-ABS firms or individuals, while all the regulators and licensing authorities are separately under an obligation to improve access to justice anyway. “We consider that this would save cost and time for applicants who wish to become an ABS as well as for regulators.”
- Amend the Act so that heads of legal practice and of finance and administration (COLPs and COFAs in traditional firms) only have to report ‘material’ failures to comply with licensing rules, rather than ‘all’ failures as now. This would bring ABSs into line with non-ABS firms.
The Consultation runs until 3 August 2016.
For Lord Faulks Ministerial statement, see https://www.gov.uk/government/speeches/legal-services-regulation.
For the Consultation paper, go to https://consult.justice.gov.uk/digital-communications/legal-services-removing-barriers-to-competition
For the summary in Legal Futures go to http://www.legalfutures.co.uk/latest-news/government-lays-plans-encourage-abss-enter-market#
In appointing Lynne Truss MP to be Secretary of State for Justice and Lord Chancellor, the new Prime Minister, Theresa May, has made history. Truss is the first woman to hold this office – ever.
What is important, of course, is what policies she will take forward. Although his last weeks in Government were surrounded in controversy, Truss’ predecessor Michael Gove had taken some important initiatives, in particular on prison reform and reform of the civil justice system.
I will note developments as they occur in these blogs.
On 24 January 2016 I noted here that the Competition and Market Authority was going to undertake a new survey of the Legal Services Market to see whether it was working as effectively as it should to deliver innovative, quality and cost-effective services, especially to individuals and small businesses. They promised an interim report on July 2016.
Well, the CMA has been as good as its word and an initial, interim report has just been published. This triggers a further period of consultation with a final report merging early in 2017.
The ‘nuclear option’ for the CMA is what is known as a full-scale investigation into the market under review. This can take a lot of time and be very disruptive for the industries affected. The Legal Services Market so far seems to have avoided this outcome – which I suspect comes as a considerable relief to practitioners and their representative bodies – the Bar and the Law Society.
But it is far from the case that the CMA has given the Legal Services Market a clean bill of health. On the contrary, it is very critical of the ways in which many legal services are delivered, which have failed to keep pace with developments in other service sectors.
The headline findings are:
- the Competition and Markets Authority (CMA) has provisionally found that competition in legal services for individual and small business consumers is not working as well as it might. While there have been some positive developments, such as an increased use of fixed fees for more commoditised services, the CMA has found that upfront information on price and quality is often not available to consumers in order to allow them to compare offers and choose the one that most suits their needs.This is because few service providers (17%) publish their prices online.
- It is also difficult for providers to signal quality in this sector and there are a lack of digital comparison tools to make comparisons easier for consumers.As a result only a minority of individual consumers (22% according to our survey) compare providers before choosing one.
- This may reduce the incentives for providers of legal services to compete. This lack of competition may mean some providers are able to charge higher prices when substantially cheaper prices are available for comparable services.
- The CMA has also considered whether legal services regulation has an adverse effect on competition. Its provisional view is that this regulation does not create significant barriers to entry or distort competition between regulated and unregulated providers of legal services.
- However, the CMA thinks that the current regulatory regime does impose significant costs on providers that in some cases may be excessive relative to the benefits in consumer protection. While the CMA welcomes the liberalising steps that have already been taken by regulators to address these issues within the current regulatory framework, the CMA is open to more fundamental change of the regime. However, at this stage it believes that there is a risk that such change might lead to increased regulation and might involve significant transitional costs as well as regulatory uncertainty.
- It has noted the complexity of the current regulatory framework with its multiplicity of regulators and questions around regulatory independence. In this context, the CMA notes that the government intends to examine the issue of regulatory independence.
The services covered by the market study include areas such as commercial law, employment law, family law, conveyancing, immigration, wills and probate and personal injury and represent an estimated annual turnover of around £11 to £12 billion. In carrying out its market study so far, the CMA has surveyed individual and small business customers, analysed existing data and research and heard from a wide range of interested parties.
What is clear is that pressures on legal service providers to adopt different and more transparent working practices are still very much in evidence and that failure to take heed of these recommendations could ultimately result in more draconian measures being adopted by regulators.
Further detail about the report can be found at https://www.gov.uk/government/news/cma-seeks-views-on-ways-to-help-legal-services-customers
So, we now know the outcome of the vote on whether or not the UK should leave the EU. Clearly, over coming months and years, there will be considerable ramifications for the English Legal System. In particular the chapter in my book (chapter 3) on law making will – eventually – need considerable amendment. I will endeavour to keep an eye on developments as they occur. I do not intend to get drawn into essentially political speculation about what may or may not happen.
While the result has been welcomed by many, it has come as a shock to many others. I note that a Petition proposing a further referendum has already been proposed.
In a number of key cases taken to the Supreme Court and th Court of Appeal, the legal arguments presented to the courts have been supplemented by ‘Third Party interventions’ in which submissions are made by organisations who are not directly involved in the specific case, but who have considerable expertise in the area of law the subject of analysis in the courts.
One of the consequences of the reforms to the procedures for judicial review, introduced in 2015, was that the rules on the costs implications for making such interventions were changed – with a view to trying to reduce their number.
During Parliamentary debate, it was acknowledged that there would be cases where the courts really would be assisted by additional expert submissions. In such cases, it was argued that the bodies making those submissions should not be penalised in costs.
The human rights group, JUSTICE, who have successfully intervened in many key human rights cases have just published a guide to the new law To assist the Court: Third Party Interventions in the Public Interest. This sets out the steps that need to be taken to ensure that costs penalties will not be imposed.
The guide is available for download, free, from:http://justice.org.uk/our-work/third-party-interventions/
One of the most intractable issues in the criminal justice system is enabling prisons do more to try to draw offenders away from a life of crime and to become more productive and engaged citizens.
In the Queen’s Speech, delivered on 18 May 2016, the announcement of a new Prisons Bill was made. The details are not yet available but at the heart of the reforms are proposals to significantly improve educational opportunities for inmates – and to give Prison Governors more autonomy over how they run their prisons.
Accompanying the text of the Queen’s speech was an announcement that in the short-term 6 pilot ‘trailblazer’ reform prisons would be established to test the effectiveness of new approaches. The intention is that 5000 prisoners should be in the reform prisons by the end of 2016.
The importance of education of prisoners was emphasise in a review, published at the same time by Dame Sally Coates.
For further (preliminary) information on reform prisons see https://www.gov.uk/government/news/biggest-shake-up-of-prison-system-announced-as-part-of-queens-speech
The Coates report can be found at https://www.gov.uk/government/publications/unlocking-potential-a-review-of-education-in-prison
The big challenge, noted by many commentators, is how such reforms can be made effective given the large numbers of people currently detained in prison. Many think that it will be essential for numbers in jail to be reduced if those who would really benefit from the reform proposals are to be helped.