Posts Tagged ‘competition in legal services’
Competition in Legal Services: new report
The Competition and Market Authority Final Report on legal services was published in December. Its interim report was noted in this blog in July 2016.
The CMA found that competition in legal services for individual and small business consumers is not working as well as it might. In particular, there was a lack of digital comparison tools to make comparisons easier for consumers. Lack of competition meant some providers can charge higher prices when substantially cheaper prices are available for comparable services.
In response to these findings, the CMA set out a package of measures which challenges providers and regulators to help customers better navigate the market and get value for money. These changes were drawn up after discussions with key stakeholders, including the 8 frontline legal regulators, and will be overseen by the Legal Services Board, which will report on progress.
They include:
A requirement on providers to display information on price, service, redress and regulatory status to help potential customers. This would include publishing pricing information for particular services online (only 17% of firms do so at present).
Revamping and promoting the existing Legal Choices website to be a starting point for customers needing help, information and guidance on how to navigate the market and purchase services.
Facilitating the development of comparison sites and other intermediaries to allow customers to compare providers in one place by making data already collected by regulators available. At present only 22% of people compare the services on offer before appointing a lawyer.
Encouraging legal service providers to engage with feedback and review platforms to ensure that customers can benefit from the experience of others before making their choice.
Recommending that the Ministry of Justice looks at whether to extend protection from existing redress schemes to customers using ‘unauthorised’ providers.
In addition, the CMA considered the impact of legal services regulation on competition. The CMA found that whilst the current system is not a major barrier, it may not be sustainable in the long term. In particular, the framework is not sufficiently flexible to apply proportionate risk-based regulation which reflects differences across legal services which could harm competition. The CMA therefore also recommends that the Ministry of Justice reviews the current framework to make it more flexible and targeted at protecting consumers in areas where it is most needed.
The Legal Services Board has welcomed the report and announced that it will publish its response in due course. The Ministry of Justice response is also awaited.
For more detail https://www.gov.uk/government/news/cma-demands-greater-transparency-from-legal-service-providers
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#
Unbundled legal services
The concept of unbundling legal services is still relatively new, but has already been the subject of an important research paper from the Legal Services Board, published in September 2015.
Unbundling is where a package of legal services is separated into parts and the work shared between the consumer and lawyer. An example of unbundling is a consumer preparing the evidence and the court bundle themselves and then directly instructing the barrister who represents the consumer at the court hearing.
The Press release on the research states:
This research paints a picture of law firms beginning to respond to consumer demand and changes in their commercial environment by developing affordable alternatives to full-service representation. It suggests that:
– reduced cost and the opportunity to exercise greater control over the case were the primary reasons why those consumers interviewed chose to unbundle
– unbundling tended to be identified as an option during the initial interview between a consumer and their legal advisor rather than being actively marketed to potential clients. As a result, while some consumers are making savings on their legal bills, this development is not benefiting large numbers of people who are currently put off approaching lawyers in the first place due to cost concerns
– no regulatory barriers to unbundling were identified, but some concerns were raised around assessing consumer capability, giving advice based on limited information and ensuring there is clarity on agreements about the scope of work, and
– members of the judiciary felt that if full representation could not be obtained then, as a starting point, some legal advice and assistance ought to be beneficial. They also echoed some potential difficulties with unbundling identified by providers and felt it important that advice and assistance is given by regulated advisers.
There is a clear indication that the Legal Services Board would like to see unbundling develop further.
The Co-operative Legal Services is an example of a legal service provider who do make clear in their advertising that they are offering unbundled legal services, leaving the clients to choose which parts of the service they wish to pay for. (Of course clients can also go for a full legal service.)
For further details on the research go to http://www.legalservicesboard.org.uk/news_publications/LSB_news/PDF/2015/20150916_LSB_Publishes_Report_Into_The_Unbundling_Of_Legal_Services.html
For Co-operative Legal Services go to https://www.co-oplegalservices.co.uk/
Provision of legal services – expanding the roles of Legal Executives
Two decisions from the Legal Services Board (LSB), announced in December 2013, will – if approved by Government – have the effect of enabling legal executives to compete more fully in the legal services market.
The first decision approved at application from ILEX Professional Standards’ (IPS) applications to enable it to authorise members of the Chartered Institute of Legal Executives (CILEx) to practise independently in Probate and Conveyancing. This is likely to pave the way for CILEx members to practise independently in all areas of law. The decision goes to the Lord Chancellor, Chris Grayling, and for subsequent parliamentary approval, anticipated during the course of 2014.
See: http://www.cilex.org.uk/media/media_releases/lsb_approves_practice_rights.aspx
The second decision enables CILEX to regulate Chartered Legal Executives exercising litigation and related rights of audience independently, as well as new rules for regulating immigration advisers.
The ability for individual Chartered Legal Executives already working in a regulated entity to conduct litigation, exercise rights of audience and provide immigration services without supervision requires no further government approval. Thus IPS expects to begin accepting applications from CILEx Fellows in the Summer of 2014. This will benefit thousands of law firms who currently have unnecessary bureaucracies in place to sign-off on the work of experienced Chartered Legal Executives, including those working as fee-earners and partners.
IPS will be able to start authorising independent legal practices offering litigation and immigration services when Parliament has granted powers to set up a compensation fund and to intervene in practices. The LSB has confirmed it will approve IPS’s rules for establishing a compensation fund once Parliament has awarded the relevant powers. This is likely to be taken forward in 2015.
See http://www.cilex.org.uk/media/media_releases/lsb_approves_full_rights.aspx
Provision of legal services: accountants getting in on the act!
Competition in the legal services market will hot up even more in 2014, following the announcement that the Legal Services Board (LSB) has agreed that the Institute of Chartered Accountants in England and Wales (ICAEW) should be a regulator of probate services and also licensing authority for Alternative Business Structures (ABS), subject to approval from the Lord Chancellor.
This is an important step by the Legal Services Board in opening up the provision of legal services. In making this recommendation, the Legal Services Board has recognised that consumers can receive legal services relating to probate work from appropriately regulated ICAEW Chartered Accountants that are of equal quality to traditional legally qualified providers.
It has also recognised that ICAEW is a suitable body to licence ABSs which will facilitate the creation of new business structures between lawyers, accountants and other professionals (such as Independent Financial Advisors).
For initial information, see http://www.icaew.com/en/technical/legal-and-regulatory/legal-services-act/alternative-business-structures
Martin Partington: Introduction to the English Legal System 15th ed 2021
Oxford University Press Learning Link Resources
Martin Partington: Spotlight on the Justice System 