Archive for the ‘Chapter 9’ Category
Regulating Alternative Business Structures
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.
Background
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
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#
Regulation of Claims Management Companies
One of the documents published with papers relating to the March 2016 Budget statement was a report of an independent review of Claims Management Companies (CMCs). Unusually, CMCs are regulated by a dedicated Unit which operates within the Ministry of Justice, rather than by a body more independent of a government department.
The review offers three options for the way forward: 1, creating a wholly now external regulator; 2, leaving things within the Ministry of Justice, while building on the reform programme currently being developed by the Unit; or 3, transferring the function to the Financial Conduct Authority.
The review concluded that the first option would be unlikely to be approved by Government, as it would be too expensive and disruptive. The second option would be the least disruptive to the market; option 3 would permit a new, refreshed approach.
The Government has now announced that it will transfer this function to the FCA – but as this will require legislation to achieve, it is unlikely to take place before 2018.
Details of the review are at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508160/PU1918_claims_management_regulation_review_final.pdf
Determining judicial pay – current concerns
Each year, the pay of judges is determined – along with other public sector senior appointments – by the Government, following recommendations made by the Senior Salaries Review Board.
They come to their views in the light of evidence received from government and the judiciary themselves.
In January 2016, the Ministry of Justice’s evidence to the Board was published. It provides a great deal of statistical material on the judiciary – both in the courts and in tribunals.
The Government’s position is that overall increases in judicial pay should be limited to the target that has been imposed thoughout the civil service that total pay should increase by no more than 1%.
But the MoJ concedes that there is some evidence that, especially for appointments to the High Court, the recruitment and retention of highly qualified and experienced judicial expertise is proving a bit tricky. The attraction of the knighthood/damehood that all high court judges receive on appointment and a good pension are – it is argued – no longer sufficient. The Ministry of Justice is therefore suggesting that the pay of High Court judges should be enhanced by 3% – to be funded by lower pay increases for other judicial ranks.
The Senior Salaries Review Board has not yet reached its determination for this year.
Looking ahead, the Ministry of Justice contemplates that – in light of all the changes currently taking place in the justice systems – there should be a more fundamental review of judicial pay, taking into account no doubt whether the current numbers of judicial appointments are appropriate.
I will note the outcome of the Board’s Review in due course.
The Ministry of Justice evidence is at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/492029/senior-salaries-review-report-2016-2017.pdf with a short summary at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/492028/ssrb-evidence-pack-covering-letter.pdf
The Future of the Legal profession – a view from the Law Society
I argue in my book that change is the key to understanding what is currently happening to the English legal system, and within that the legal profession.
In January 2016 the Law Society published its own challenge to the legal profession, looking at current trends and how they may have developed by 2020.
The press release accompanying publication of The Future of Legal Services states:
Changes to legal services will have an inevitable impact on the solicitor profession. We have identified the key drivers for change in the current landscape of legal services, and attempted to predict how solicitors’ and lawyers’ interests may change in the future, where they will face competition and what opportunities may present themselves in a changing market.
This report presents findings drawn from a range of sources: a literature review, round table discussions and interviews with a range of practitioners across different practice types, firm visit reports, and the outcomes from a series of three futures panels.
The key drivers of change in the legal services market can be clustered into five groups:
- global and national economic business environments
- how clients buy legal services (including in-house lawyer buyers, as well as small and medium-sized businesses and the public)
- technological and process innovation
- new entrants and types of competition
- wider political agendas around funding, regulation and the principles of access to justice
It seems inevitable that solicitors and lawyers face a future of change on a varied scale, depending on area of practice and client types. Business as usual is not an option for many, indeed for any, traditional legal service providers. Innovation in services and service delivery will become a key differentiating factor.
Two particular points stood out to me from an initial reading of what the Law Society has to say:
- They clearly take the view that the current model for the small ‘high-street’ practice has little future, particular as current practitioners retire. It is not a sustainable model for the future.
- The Law Society notes that 25% of practitioners now work as in-house counsel, so the amount of reliance of the corporate sector on firms of solicitors in private practice would seem to be reducing.
At the same time, the Law Society is convinced that imaginative and innovative lawyers will be able to develop new forms of legal service which will both offer them a living and provide a needed service to the public.
The report reinforces the view that students coming new to the study of law will have a lot to keep up with if they are to understand the professional world they may hope to enter in just 5 – 6 years’ time.
To see the report, go to http://www.lawsociety.org.uk/news/stories/future-of-legal-services/
Legal services for small businesses: room for improvement
Business problems decline but are costly
- The number of legal problems faced by small firms reduced significantly over the last two years reflecting better trading conditions. The most common problems related to trading, employment and taxation. Other businesses were the main source of problems.
- Half of firms reporting a legal issue said it had a negative impact; one-quarter of them reported loss of income and one-fifth reported health related problems. Total annual losses to small firms due to legal problems is estimated at £9.79bn.
- Larger small businesses, and businesses with BME and disabled business owners-managers, were most likely to experience problems.
Limited engagement with legal service providers
- The large majority of firms had little contact with legal advisers. Less than one in 10 either employed in-house lawyers or had a retainer with an external provider. Over half of firms experiencing a problem tried to resolve it by themselves. When advice was sought, accountants were consulted more often than lawyers.
- There was a marked decline in the use of external support providers between 2013 and 2015, reflecting the decline in problems. Use of solicitors in the previous 12 months fell from almost 20% to almost 10%; and accountants from over 60% to just over 49%.
Mixed attitudes to legal service providers
- Only 13% of firms viewed lawyers as cost effective – little improved since the LSB’s 2013 survey. Microenterprises were the least likely to view lawyers as affordable.
- Almost 50% of respondents strongly agreed or agreed with the statement that they use legal service providers as a last resort to solve business problems compared with 12% who disagreed strongly or disagreed.
- Satisfaction that law and regulation provide a fair trading environment increased from 30% in 2013 to 45% in 2015 – improving economic conditions as well as improvements in the regulatory environment may explain this change.
This report was one of the items used by the Competition and Markets Authority in deciding to undertake a Market Review of legal services.
To read the research report in full go to https://research.legalservicesboard.org.uk/wp-content/media/PUBLISH-The-legal-needs-of-small-businesses-19-October-2015.pdf
Regulation of the Legal Profession: Competition and Markets Authority gets in on the act
After the regulatory upheavals which led up to the Legal Services Act 2007 and the creation of the Legal Services Board, lawyers might have been forgiven for thinking that the regulatory playing field might be left untouched for a bit. But no. The Competition and Markets Authority announced in January 2016 that it was going to take a close look at competition in legal services provision by launching what is called a Market Study.
The Press release of the annoucement states:
The Competition and Markets Authority (CMA) will examine long-standing concerns about the affordability of legal services and standards of service. Concerns have also been raised about the complexity of the current regulatory framework.
In light of these concerns, the CMA’s market study plans to examine 3 key issues:
- whether customers can drive effective competition by making informed purchasing decisions
- whether customers are adequately protected from potential harm or can obtain satisfactory redress if legal services go wrong
- how regulation and the regulatory framework impact on competition for the supply of legal services
The announcement also stated: According to recent surveys … around one in ten users of legal services in England and Wales have said that the overall service and advice provided to them was poor value for money …, [and] amongst small businesses, only 13% said they viewed lawyers as cost-effective and around half agreed that they used legal service providers as a last resort to solve business problems.
The outcomes of a Market Study are very varied, and may range from a finding that all is well and that no further action need be taken, to a full scale investigation into the particular market.
The time line for the present study is that after a very short consultation (ending early Feb 2016) an interim report will be published in July 2016, with a final report at the end of the year.
For further information go to https://www.gov.uk/government/news/legal-services-study-launched-by-cma
This also provides links to some of the reports on which the case for launching the Market Study is based.
Increasing competition in the legal services market
HM Treasury has just published (30 November 2015) a policy paper: A better deal: boosting competition to bring down bills for families and firms.
It notes that 40% of the average persons post-tax income is spent on buying essential services, including
Housing costs including mortgage repayments: £4,880
Energy £1,280
Clothing £1,180
Insurance £875
Telecoms £725
Water £385
Health products and services £325
Legal and Banking £35
Total £9,685
The policy paper sets out its aim of ensuring that there os more competition in all these markets to drive down costs to the indovidual and small business. This is also part of the drive for increased productivity.
Although only a small part of the total, the provision of legal services is not going to be immune from scrutiny. In a Consultation paper, to be published in Spripng 2016, ideas will be set out on new business models, and independent regulators, for legal services.
The White Paper states:
2.10 According to a recent survey by YouGov, 62 per cent of adults have used a law firm or solicitor at some point in their lifetime and the cost of legal services is now considered the most important factor when searching for a legal representative. The government wants to ensure that innovative businesses are able to enter the market, providing greater choice for consumers. Alternative business models are around 15 percentage points more likely to introduce new legal
services than other types of regulated solicitors’ firms.
2.11 The government will launch a consultation by spring 2016 on removing barriers to entry for alternative business models in legal services, and on making legal service regulators independent from their representative bodies. This will create a fairer, more balanced regulatory regime for England and Wales that encourages competition, making it easier for businesses such as supermarkets and estate agents among others, to offer legal services like conveyancing, probate and litigation.
But that is not all. The policy paper promises other initiatives as well. These include:
Saving motorists money on their insurance policy
2.13 The government is determined to crack down on the fraud and claims culture. Whiplash claims cost the country £2 billion a year, an average of £90 per motor insurance policy, which is out of all proportion to any genuine injury suffered. As set out at the Spending Review and
Autumn Statement 2015, the government intends to introduce measures to end the right to cash compensation for minor whiplash injuries, and will consult on the details in the New Year. This will end the cycle in which responsible motorists pay higher premiums to cover false claims
by others. It will remove over £1 billion from the cost of providing motor insurance, and the government expects the insurance industry to pass an average saving of £40 to £50 per motor insurance policy on to consumers.
These changes are likely to have significant impact on those firms which specialise in providing legal services to the victims of road accidents.
Injecting innovation into the process of home buying
2.18 The government wants to inject innovation into the process of home buying, ensuring it is modernised and provides consumers with different – and potentially quicker, simpler and cheaper – ways to buy and sell a home. Encouraging new business models (for example, online only estate agents) is key to enhancing price competition in the real estate sector, but these have yet to penetrate the market.
2.19 In addition, emerging findings from government research suggest that consumers incur costs of around £270 million each year when their transactions fall through and they have already spent money on legal fees and surveys, and many more sales are subject to costly delays. Similar issues can affect businesses trying to buy or sell commercial property – the UK ranks 45th for registering property in the World Bank’s Doing Business index, and improving performance will help unlock additional economic growth.
2.20 The government wants to consider and address the way the real estate and conveyancing markets have developed around the existing regulatory frameworks, encourage greater innovation in the conveyancing sector and make the legal process more transparent and efficient. The government will therefore publish a call for evidence in the New Year on homebuying, exploring options to deliver better value and make the experience of buying a home more consumer-friendly.
The knock on implications for changes to conveyancing are also likely to impact significantly on law firms and conveyancers.
In addition, the Government has promised a further review of how the regulatory structure created by the Legal Services Act 2007 is operating, with a view to making it more efficient. Although nothing will happen immiediately, the legal profession faces considerable policy change which will require innovative and and imaginative reponses, which professionals need to start thinking about now.
The text of the paper is at https://www.gov.uk/government/publications/a-better-deal-boosting-competition-to-bring-down-bills-for-families-and-firms
Enhancing the Quality of Criminal Advocacy
In 2014, a review of criminal advocacy services by Sir Bill Jeffrey was published. In his report he pointed out some harsh truths for the legal professions:
For example:
- Recorded and reported crime are down.
- Fewer cases reach the criminal courts.
- More defendants plead guilty, and earlier than in the past.
- Court procedures are simpler.
- There is substantially less work for advocates to do.
- Its character is different, with more straightforward cases and fewer contested trials.
- In the publicly funded sector (86% of the total), it pays less well.
- There has been a marked shift in the distribution of advocacy work in the Crown Court between the two sides of the profession. There are many more solicitor advocates than there were in the years following the liberalisation of rights of audience. Between 2005-06 and 2012-13, the percentage of publicly funded cases in which the defence was conducted by a solicitor advocate rose from 4% to 24% of contested trials and from 6% to 40% of guilty pleas. Both figures are on a rising trend.
- In 2012-2013, Crown Prosecution Service (CPS) in-house lawyers led the prosecution in approximately 45% of Crown Court trials.
He noted that there would be serious implications for the criminal justice system, if current trends towards the use of solicitor advocates and away from the criminal Bar continue. Sir Bill was clear that it would be neither feasible nor desirable to wind the clock back on rights of audience. He found that solicitor advocates are a valuable and established part of the scene. But if the Bar’s share of the work continues to decline, as the current generation moves to retirement, the supply of top-end advocates to undertake the most complex trials would be in doubt.
This stark assessment is the background to a new consultation, launched in October 2015 by the government, setting on a number of measures it argues are necessary to enhance the quality of advocacy in criminal cases.
The paper sets out two principal reasons why it feels it must undertake this consultation:
- The Government has a responsibility to ensure the delivery of an efficient, fair and effective justice system in which the public has confidence and therefore has a legitimate interest in making sure that good quality criminal advocacy services are available to those that need them.
- The government, via the Legal Aid Agency (LAA), is also the largest single procurer of criminal defence advocacy services, and has a responsibility to ensure that, where such advocacy services are being paid for with public money, they are of a good quality.
The specific proposals on which the Government is seeking views can be summarised as follows:
- the proposed introduction of a panel scheme – publicly funded criminal defence advocacy in the Crown Court and above would be undertaken by advocates who are members of this panel;
- the proposed introduction of a statutory ban on referral fees in criminal cases;
- how disguised referral fees can be identified and prevented; and
- the proposed introduction of stronger measures to ensure client choice and prevent conflicts of interest.
The period of consultation expires at the end of November 2015. If these, or measures similar to what is proposed go ahead, they will have a profound impact on the ways in which criminal practitioners work and the way in which the Legal Aid Agency operates.
For Sir Bill Jeffrey’s report go to https://www.gov.uk/government/news/advocates-must-adapt-to-a-changing-landscape.
For the consultation go to https://consult.justice.gov.uk/digital-communications/enhancing-the-quality-of-criminal-advocacy
Legal Ombudsman – complaints about Claims Management Companies
After some delay, the Legal Ombudsman acquired jurisdiction to deal with complaints against Claims Management Companies in January 2015.
On 5 November 2015, Simon Tunnicliffe, the Legal Ombudsman’s Head of Claims Management Complaints, reported in an interview that they have had 9,000 enquiries about claims management companies since they widened their remit to consider complaints about these companies, in addition to their previous remit. Many of the complaints concern the amount of money retained by CMCs, and not passed on to the original claimant, e.g. for personal injury.
Further information about the work of the Legal Ombudsman in relation to CMCs is available at http://www.legalombudsman.org.uk/helping-cmcs/#publications
Martin Partington: Introduction to the English Legal System 15th ed 2021
Oxford University Press Learning Link Resources
Martin Partington: Spotlight on the Justice System 