Martin Partington: Spotlight on the Justice System

Keeping the English Legal System under review

Posts Tagged ‘legal services board

‘Looking to the future’ – proposals for regulatory changes from the Solicitors’ Regulation Authority

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In June 2018, the Solicitors Regulation Authority published its Looking to the Future reforms which include a range of changes to how it regulates solicitors. In outline, they are

Shorter, simpler rules and standards

  • A shorter, more accessible Handbook – focussing on the behaviours and principles that support high professional standards.
  • A separate Code of conduct for solicitors and one for firms.

Greater flexibility for solicitors and firms

  • Opportunities for solicitors to provide ‘reserved legal activities’ on a freelance basis, in certain circumstances. They will need to have at least three years’ experience, appropriate indemnity insurance, and will not be able to hold client money.
  • Opportunities for solicitors to do non-reserved legal work in a business not regulated by us or another legal services regulator. They will be bound by our solicitors’ Code.
  • In both instances, solicitors will need to be clear with prospective clients about the protections they bring.
  • Our new, simpler rules will also give firms greater flexibility to make decisions about how they work, helping to make doing business easier.

Simpler Accounts Rules more focused on keeping client money safe

  • Less prescriptive Accounts Rules which focus less on technicalities, and more on issues directly linked to keeping client money safe.
  • Providing a definition of ‘client money’ which maximises the need to protect the public while not placing unnecessary burdens on firms.

Improving clarity on when we take action

  • Our new enforcement strategy will provide greater clarity for the public and profession about when and how we would – or would not – take action against a solicitor or law firm.
  • It will also help us focus on the most serious matters.

Better information on price

  • All regulated firms will need to publish price information for the public and small businesses for seven types of legal services.
  • This includes conveyancing, employment tribunals and probate.

Better information about protections

  • SRA-regulated firms will be expected to display an SRA digital badge on their websites, which will provide a direct link to information on the protections their regulated status gives customers.
  • A modern digital register that will help people more easily find core information about who we regulate.

The proposals are currently with the Legal Services Board. The SRA hopes that the proposals on the publication of price information will come into effect in the autumn of 2018; the rest during 2019. They are at least in part a response to the Competition and Markets Authority Report on competition in legal services published at the end of 2016.

One of the most interesting proposals is that solicitors should be able to work in contexts other than solicitors’ offices, which may create opportunities for the development of new types of legal service work.

For further information see https://www.sra.org.uk/sra/policy/future/looking-future-reforms-summary.page from which this entry has been adapted.

 

 

 

 

 

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Written by lwtmp

October 14, 2018 at 2:47 pm

Research into Alternative Business Structures: the Legal Services Board

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Since licensing began in 2011 there have been 950 ABS licences issued. As of March 2017 there were 892 active licences.  In April 2017, the Legal Services Board published a significant report into ABS. It sought to address 4 questions, which I have adapted from the report and which I try to summarise here:

1.What kind of investment activity has there been in ABS?

These businesses are predominantly existing legal service businesses converting to ABS status, with one in five respondents to our survey being new firms. Three fifths of ABS have less than 50% non-lawyer ownership. Just under one in five ABS are wholly owned by non-lawyers, with a similar proportion being fully owned by lawyers but having some proportion of non-lawyer managers….

The research shows that the majority of ABS firms (66%) either have already invested 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. The LSB sees this as evidence of the increased scale that allowing non-lawyer ownership was designed to enable.

2.Is the market attractive to all sources of finance?

The survey shows ABS firms accessing a wide range of sources of finance, and only a small proportion of ABS indicating 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 us ing 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. Partnerships are more likely to use debt funding for finance, with 55% using loans or overdrafts, but none had used external investment. Companies limited by guarantee had the highest proportionate use of any form of external funding, with 24% issuing shares, investment from private equity, or becoming a subsidiary of another company.

3. What do investors think of the legal services market?

According to the investors interviewed, 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. They appear to have concerns about the ability to exit the legal sector once their investment has matured, although there are some examples of private equity investors having sold on their investment and exited the sector.

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.

This might explain the investor’s perspective of the legal sector as being reluctant to seek investment from private equity firms, and reports of investors struggling to find appropriate firms in which to invest. While the overall size of the market and the scale of businesses operating may limit opportunities for some investors, the LSB thinks that cultural norms, governance, and non-commercial financial management practices in some businesses are likely to be more important factors.

4. Are there any regulatory barriers to investment?

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… However there is anecdotal evidence of some areas of regulation causing concern to investors. These includes restrictions on ownership and picking up liabilities for historic complaints and insurance claims.

Only 1.5% of ABS identified some aspect of wider regulation that prevented them accessing finance. The regulatory barriers to investment cited by the investor and investment consultant we spoke to relate mainly to wider regulatory and governmental activity, particularly in relation to personal injury reforms

Conclusion:

The potential link between investment and enabling better access to legal services is well–rehearsed elsewhere. However, investment remains an under-explored area of research and generally licensing authorities have not used their data to understand trends in investment and financing. [Overall it may be concluded that] levels of innovation are not increasing.

The dynamics of competition create incentives for suppliers to increase productivity through innovation, which lowers costs and hence prices through time. This is likely to involve taking a different approach to delivering a service, or developing new services completely. In the absence of strong competition, there is insufficient impetus for law firms to take the greater risks (and rewards) involved with using external capital.

Until these incentives change the LSB thinks there is unlikely to be significant growth in the use of external capital by ABS firms.

The report can bee seen at http://www.legalservicesboard.org.uk/news_publications/LSB_News/PDF/2017/20170613_LSB_publishes_investment_in_legal_services_research.html

Written by lwtmp

October 19, 2017 at 5:15 pm

Competition in Legal Services: new report

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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

Unregulated providers of legal services

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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:

  1. 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.
  2. In contrast, not for profit providers, most of whom will be unregulated, accounted for approximately 37% of all legal problems where advice was sought.
  3. Benefits for consumers include lower prices and greater price transparency compared to regulated providers, innovation and service differentiation, and competitive impact on regulated providers.
  4. 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.
  5. Consumer satisfaction with customer service is broadly comparable across regulated and unregulated providers – 84% versus 81% respectively.
  6. 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.
  7. 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

  1. The for profit unregulated sector is smaller than expected, although in some segments these providers have gained a significant market share.
  2. 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.
  3. 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.

For the research go to https://research.legalservicesboard.org.uk/wp-content/media/Economic-insight-in-depth-unregulated-research.pdf

Written by lwtmp

July 17, 2016 at 9:53 am

Regulating Alternative Business Structures

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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:

  1. 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
  2. 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#

 

Increasing competition in the legal services market

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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

Written by lwtmp

December 4, 2015 at 5:16 pm

Unbundled legal services

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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/

Written by lwtmp

November 4, 2015 at 11:56 am