Integrated Review of Security, Defence, Development and Foreign Policy - and legal services

There are three ways it matters:

          - It gives a signal on the importance of UK regulatory models and legal services to the enhancement of soft power

          - It sets out areas where the UK Government will focus support for economic activity.

          - It gives a steer on the importance of anti money laundering for law firms.

My primary interest in this blog is the first of these but I will touch on the other two towards the end.

In his foreword to the paper, the Prime Minister, Boris Johnson, says that:

The legal services market is valued in excess of £35bn. Gross value-added reaches around £60bn. And exports exceed £5bn. It is the second biggest legal market in the world. The UK’s largest 100 law firms post around 1 in 5 of their lawyers into Europe, 1 in 10 into Asia, almost as many into the US and others across the world. UK Judges operate in Courts as far and wide as Qatar and Dubai, Singapore and Hong Kong, Kazakhstan and a long history in International Courts.

The Integrated Review recognises the importance of this:

                “Legal diplomacy: supporting open societies through capacity-building and justice reform, and promoting UK legal services, ensuring that the principles and values on which our domestic system is built remain the global standard.” 

It is about much more than exporting legal services. The arguments in favour of the common law and the UK courts and judiciary are well recognised. There is a reinforcing cycle between language, common law, culture and our legal system that has to be nurtured if it is to thrive. 

‘Global Britain’ goes on to talk about how the various strands of the review are integrated. There is a strong focus on the exercise of the UK’s soft power. The paper cites evidence that puts the UK as the country ranked third in terms of soft power. 

And the paper brings to the fore the importance of what it calls ‘regulatory diplomacy’. It argues the case for UK standards to become global standards; commits to support and enhance free trade; and promises to ‘tackle unfair and pernicious practices’ in trade. The UK Government will, in short:

The Government recognises that legal services, open and fair trading in services, and better regulation are core to the UK using its comparative advantages to drive its ambition for the country. How should lawyers, legal businesses and regulators respond?

Of course, they should remind Government that the legal system also has to operate effectively for ordinary people and small businesses facing the day-to-day challenges that are at their core legal issues. And they should make clear that for the disadvantaged and most vulnerable there is no levelling up without access to justice.

I want to make the case however that the legal market needs to make the case to this Government that it has a role to play in delivering the Prime Minister’s ambition as set out in the integrated review.

Regulators need to review their own plans and see where they can be enhanced and modified to better align with Government. To me that is one aspect of their duty to follow best regulatory practice. Democratic Governments set the direction and standards and those exercising statutory functions - as regulators do – need to accept that steer. Each regulator is well placed to do this but let me highlight a few ideas.

The Solicitors Regulation Authority will launch the first exams for its new Solicitor Qualifying Examination (SQE) this year. SQE1 is an online test. It can be sat anywhere subject to various quality and security controls. The SRA should engage with Government to seek support to roll it out internationally in 2022. SQE2 should follow. That is harder but still feasible. The SRA should also provide guidance to the legal profession on how those that work in global law firms can be effectively supervised overseas as qualifying work experience for the purposes of SQE. The SRA should be supporting universities around the world to help students learn English & Welsh law as well as their local law. Why should candidates have to come to the UK to qualify?

The SRA should be making the case to Government that rolling out SQE globally supports its strategic direction. It will increase the supply of English & Welsh qualified solicitors globally. That is likely to increase the use of our common law in business, support the development of English language skills globally and enhance our soft power.

RICS and ICAEW already lead the way. The Bar already has strong links to qualification in many countries. The SRA should be seeking Government financial and other support to make Solicitor the global standard. That is soft power in action.

That is not it for regulators. England & Wales leads the world in the liberalisation of its legal market. This is having positive effects in tackling poor access and increasing choice for all consumers from the poorest through to the richest and from micro and small businesses right up to global businesses. But other countries are learning fast and the US in particular is starting to allow non-lawyer ownership in some States. The UK needs to keep reforming to stay ahead. And it needs to make the case for its liberal, public interest, independent approach to the regulation of lawyers and legal services.

And regulators can do more to facilitate technology and growth. They can make their rulebooks 'digital ready', marking up versions with tags for coders to work from, noting what is an obligation, what is a 'may' and a 'must', what is a 'how' - so that start ups can take their legwork and apply technical know-how. There will be other 'dirty work' that can be done by regulators to facilitate technology. It doesn't all have to be sandboxes and innovation speeches.

The Ministry of Justice needs to grasp the nettle and drive faster regulatory reform. Time to remove all the reserved services other than advocacy in higher courts and the conduct of litigation - which should be narrowly construed. This would facilitate investment in technology to deliver conveyancing, probate and other legal services that we have already seen in will writing, contract review and disclosure. There are better ways to protect consumer standards and client money than reservation. 

BEIS and Treasury need to be more interventionist and drive a new wave of regulatory reform similar to that unleashed by the Office of Fair Trading’s report “Competition in the Professions’ in 2001.

The Government also needs to put legal services into the heart of the trade deals it seeks as part of its tilt to the Indo-Pacific region. The potential for inclusion of legal services in any trade deal with Singapore, India, and the rest of South East Asia is as great as the opportunities for finance. If Government wants to support, enhance and export the rule of law and democracy it needs to put its world leading approach to regulation of legal services at the core. Legal services must be part of any trade deal with the US.

The UK is home to lawyers from across the world and welcomes law firms and legal businesses from elsewhere with few barriers to entry and low establishment costs. It is time for the UK Government to negotiate reciprocal entry to other markets.    

Regulators, the legal profession and legal businesses need to make the case. They need to offer leadership.

‘Global Britain’ also paints a picture of economic growth driven by investment in technology – particularly data and artificial intelligence. It talks about significant (and long overdue) increases in investment in research and development to 2.4% of GDP within 6 years. It identifies a green revolution to tackle climate change including green finance, manufacturing of low carbon energy infrastructure, buildings and transport. It highlights the continued focus and strength of UK for inward investment. And it stresses the UK’s ambition to be a scientific and technology superpower.

All of these are opportunities for the UK legal market to grow. But to do that they need to take a strategic approach. They need to invest in research and technology. They need to work to attract global talent and inward investment. The global talent initiatives signalled in the paper link back to this and SQE.

City law firms may need to up their game in particular on technology – or the spoils will go to the technology rich, capital laden, alternative providers that are already marching forward and looking at global expansion. Those alternative providers (or as I prefer to call them, enterprise legal services) are growing quickly and may be better placed to take advantage of the changing economy.

Investing in research and development and turning that into customer enhancing technology is more likely to come from start-ups and enterprise providers than traditional law firms, though there are some notable exceptions like Pinsent Mason and BCLP who are going beyond traditional legal services effectively. Axiom, United Lex, Elevate, Factor, and other enterprise providers are more focused on harnessing technology because they tend to have longer horizons and a focus on capital growth rather than maximising annual profits. KPMG and the rest of the big four have technology budgets to dwarf law firms. Tech Nation is part of the Government’s strategy and I expect to see more work with real world disruptors whether they are start-ups or growing, enterprise businesses. 

The paper talks less about growing financial services than I might have expected. Of course, they will remain an important part of our economy, and FinTech may be a growing element, but considered alongside the decision not to seek to stay with the EU financial services regime, one might get the message that Government wants to lesson our reliance on financial services for tax income, jobs and economic significance. City firms built on the growth of UK finance since the 1980s will need to think about the impact of this and subtly shift their strategy accordingly.

Law firm leaders need to look outwards, consider the Government’s ambitions and ask themselves how they need to change to be at the centre of these strategic debates now and over the next ten years. Those that don’t will stagnate.

Beyond the opportunities for legal services businesses in this Command Paper, the Government signals its desire to tackle the financing of terrorism and crime. There is a commitment to more money for the various institutions tackling economic crime and illicit finance; an overhaul of suspicious activity reporting; new legislation on money laundering including a look at UK corporate structures and registers of foreign ownership of property.

All of this should matter to every law firm. Many are already struggling to keep up with their money laundering obligations. So many traditional law firms still seem to think that its ok to do client onboarding badly and blame the Government. Increasingly customers – including small and large businesses – will demand a smoother journey.

That takes us back to investment in research and development. Beautiful technology can deliver great customer experience and companies like Legl are making the AML and other client due diligence obligations into something positive for customers. Law firms need to be investing now so that they can cope with increasing obligations in the coming years.

I have seen little or no coverage of the Integrated Review in the legal press. I hope that law firm strategists, commercial directors and chief executives have read it and are thinking about what it means for their sector and what opportunities it might present.