Blog Post

Rethinking regulation

Crispin Passmore • May 07, 2020

Taking the next steps towards simpler regulation that works for all consumers

Suddenly there are even more people struggling to access justice. Most courts and tribunals are physically shut. Some are operating via video platforms: a massive experiment in online justice is taking place after many years where reform could have prepared us for this crisis. Lawyers are even less accessible than usual at a time when the need for advice, assistance and representation is growing.

Regulation tends to limit supply – the more barriers remain the less that capital, people, technology, ideas and innovation flow. It is a good time to ask if the current regulatory infrastructure is fit for purpose, or if that regulation is doing more harm than good. In fact, it is overdue. Despite significant reforms and substantial progress, we remain stuck with an inflexible system built on nothing more than history. Reform could increase innovation and overall supply by reducing the solicitor monopoly. The legal market seems to lag other markets on the deployment of technology so it is no surprise that we have so many people for whom access to legal advice is simply inadequate.

The UK is ahead of the game. It is 8th out of 190 countries in The World Bank’s Ease of Doing Business report for 2020 and 9th out of 131 in The World Economic Forum’s Global Competitiveness Index for 2019. And the world's legal regulators do look to the SRA's reforms as a model to learn from. Indeed, many countries are responding to our reforms and their position in these league tables and the UK needs to keep improving its regulatory environment to avoid slipping down the tables.

The world’s largest legal market is starting its own process of regulatory reform. Arizona and Utah lead the way but Illinois, California, Florida, Connecticut, and Nevada are all taking their own steps. Their legal tech businesses and law companies are more sophisticated and have greater scale than those in the UK. To stay ahead the UK needs further reform. And the pressure is building.

The Independent Review of Legal Services Regulation led by Professor Stephen Mayson provides a more detailed analysis of the current regime and its (more thought through that mine) final proposals will be carefully considered by politicians and the judiciary. In January the CMA published a review of the evidence on Regulation and Competition. It recommends that regulation be designed to support disruption and innovation. It is very wary of regulation that supports incumbents, stressing again that it had…

“identified the concern that the existing approach to regulation, which focuses on professional qualifications (what we called ‘title-based model of regulation’), was not sufficiently flexible to apply proportionate, risk-based regulation reflecting differences across legal services areas and over time. As a result, we recommended that the Ministry of Justice to undertake a review of the current regulatory framework for legal services.”

There is a clear need then for a new regulatory settlement for legal services. The LSB is looking at the list of reserved activities. Influential Conservative Peer Lord Gold also called for reform this year. Increased competition should lead to more innovation and improved productivity. To be clear, this is not a free-market, anti-regulation position. It is simply about unpicking a centuries old guild - just as happened in most other trades and professions. Closed shops and guilds are long gone for the working class and it is time we removed them for professional and middle classes too. We need modern regulation that takes account of wider consumer and competition law, understands the major issue of inadequate supply and applies best regulatory practice. As the CMA notes:

“In practice, competition and regulation are not mutually exclusive. In order to get the appropriate balance between the two, i.e. to ensure that the level of regulation is proportionate and does not impose any unnecessary restrictions on competition beyond securing specific policy objectives…”

What reforms might Government explore? What might the CMA recommend when it returns to the legal market over the next twelve months to follow up its earlier market study?

Regulatory infrastructure

- Remove conveyancing, notarial, oaths, probate from the list of reserved activities. Only conduct of litigation and advocacy in higher courts need be reserved to authorised individuals. As Mayson and Marley pointed out in 2010, there is no rationale to the current list – and they are easily circumvented. Consumer and competition law have become increasingly sophisticated in the last 50 years, thus reducing the need for sector specific regulation. For example, conveyancing could be replaced by an obligation to buy title insurance and to only move money for property transactions through third party managed accounts such as operated by Shieldpay.

- End regulation by title in its current form. It is an inflexible approach to regulation. Regulation should focus on legal activities, with the scale of intervention proportionate to real world harm. But the solicitor and barrister titles are too woven into the fabric of our legal and economic systems for that to be easy, so special provision is needed for those titles which I touch upon below.

- Regulation and ombudsman should cover the whole legal market so as to boost consumer confidence, comparison and choice. We should design a negative licensing scheme where firms are obliged to register with the regulator and ombudsman. That could replicate the ICO approach to registration under GDPR. Only those offering reserved activities would need authorisation.

- Create a single independent regulator. Independent of both the professions and Government, this would be empowered by parliament to act across the legal market to:

- authorise individuals to conduct reserved activities. And it would uphold standards for those two activities with appropriate enforcement.

- enforce consumer law across the whole legal market. In the same way as individual trading standards teams operate nationally.

- ban individuals and firms from working in the legal sector. This is the key enforcement power alongside those powers that usually apply to Trading Standards.

- award the solicitor and barrister titles.

- Its powers would be limited so that it cannot introduce new burdens on the market beyond reserved activities, though it may be able to develop a simple Code of Conduct so long as it did not restrict competition.

- Regulator obliged to publish triennial assessment on the state of competition in the legal market and what steps it plans to improve that in public interest, with CMA to respond within three months in order to influence strategic plan.

- Complaints handling services to be provided by a new professional services ombudsman. Based on the Financial Ombudsman Services this would replace the struggling Legal Ombudsman.

Solicitor and barrister titles

It is tempting to remove regulation by title entirely. There are two options to achieve this:

- abolish the protection of title that exists in law and rely solely on activities to regulate. Anyone would be able to call themselves a solicitor.

- revert to self-regulation and allow The Law Society to regulate solicitors as they did prior to the Legal Services Act.

Not all professions have a protected title. Anyone can call themselves a doctor – but we predominantly access doctors through the NHS, hospitals and insurers that provide a regulatory style filter. Could we remove the protection of the solicitor title?

‘Solicitor’ is woven through legislation, public administration and international trade. Allowing anyone to call themselves a solicitor would upend parts of our legal and financial systems beyond the operation of the legal market. Moreover, it remains an important signal to consumers about price, quality and consumer protection – though that must be improved. I am unconvinced that a free for all is credible. This takes us back to self-regulation.

Self-regulation has been shown to be ineffective. The Law Society has consistently put the interests of solicitors ahead of the public – in fact that is their strategy and strap line. They have also consistently resisted liberalising reforms that might increase competition. And of course we can explore their behaviour in Socrates Training v Law Society at the Competition Appeal Tribunal.

The Law Society’s approach over the last 20 years, covering Clementi, the passage of the Legal Services Act, the creation of the Legal Services Board, the independence of the SRA, and the modernisation of regulation would not lead many informed observers to think it a credible way forward. My view is that it is institutionally incapable of recognising the public interest. Self-regulation would lead to a two-tier market.

That leaves the new regulator to regulate the solicitor title. That must be proportionate in a new regulatory infrastructure that is no longer built on title. A stripped back Solicitors Qualifying Exam and a power to remove the title for misconduct may be all that is needed. It can and should be more focused and simpler than at present which is designed for the current regulatory system. It should be done in a way that facilitates and encourages a flexible labour market where other qualifications can grow and diversity and social mobility are enhanced.

Barristers are fewer in number and at the elite they are a referral profession with less significance in consumer markets. The mass of barristers undertaking family and crime are seeing their work eroded by justice system, social and economic factors – law firms are doing more of this work and there is less of it to do. But barristers are (though do not have to be) the most important source for our senior judiciary and there remains a public interest in the title – so regulation should mirror that proposed for the award of the solicitor badge.

In this new world, membership of the Law Society and Bar Council would be voluntary. There must be an end to the £30 million tax on solicitors that the Law Society currently enjoys from the practising certificate. Some solicitors would join but they would have to deliver for their individual members in a way that has probably not happened for many years.

Regulator governance

In 2012 the OECD set out seven best practice principles for the governance of regulators. Any objective assessment would likely see the current structures fail on all seven criteria. What might a modern single legal regulator look like?

- Created by statute but independent of Government. Public process for appointment of Chair and CEO with scrutiny hearings before joint meeting of Justice and Business Select Committees.

- Regulatory objectives

- Secure the public interest through promotion of competition in the legal market

- Support the rule of law and proper administration of justice through maintenance of standards in reserved activities

- Accountable to Parliament and the public through laying of annual report and costed three-year strategic plan. Annual scrutiny by joint meeting of Business and Justice Select Committee. Fully transparent public meetings and covered by FOI. No lawyers on the Board. Two advisory panels: regulated individuas and consumers.

As we start to contemplate the end of lockdown we can all feel that our economy is on a precipice. Whatever happens to corporates, small businesses and individuals through this crisis the future will involve issues that could benefit from the advice and assistance of lawyers. That needs to be accessible, proportionate and affordable. We need to unleash technology, entrepreneurship and innovation to meet this demand once and for all. Reform of regulation is needed for that to happen quickly.

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By Crispin Passmore • 12 Dec, 2023

The Legal Tech Fund ran the best event for innovators int he legal market that I have found. TLTF 2023 was a a great opportunity to learn new things but best of all were the connections made and friends seen. These enabled new discussions and deeper debates about technology, capital deployment and liberalisation. TLTF 2024 is just one year away - I'm already excited.