Westminster Legal Policy Forum: The legal services market - regulation, innovation and the future of the Legal Services Act

Location: Central London

Bringing together key policymakers and stakeholders, this seminar will focus on the future development of legal services regulation in England and Wales.

Paul Philip, SRA Chief Executive will be talking about delivering regulation - challenges ahead for competition, standards and cost.

Delivering regulation - challenges ahead for competition, standards and cost - Paul Philip

These are exciting times for the legal sector. Challenging yes, but there are great opportunities. The legal market is already changing rapidly and so, of course, is the world around us - and we need to keep pace.

We have all seen the figures – the sector is worth over £25bn to the UK economy. And there is no shortage of people claiming credit for that. But to be clear this is not down to the SRA, the LSB or, indeed, the Law Society – it is the firms that do the work, the firms that secure the contracts, the firms that bring in the money and the firms that need to be able to innovate, compete and grow. That is important when the economy is booming, and the legal sector with it. And it's just as important at a time of change – not least as we all adjust to Brexit.

Sir Michael raises some interesting points on the wider regulatory landscape and there is much to welcome. For example , I am sure we would agree that if we had a blank sheet we might not start with the current reserved activities. And some consolidation across the regulators seems to be inevitable in the longer term.

But the question is whether constitutional solutions to what are market problems are the right solutions at the right time? Can we afford the 'planning blight' of such fundamental changes - right here, right now? And the change that would make a real difference to public confidence and how we work is independence from the professional body.

My own view would be that the wider priority, particularly in light of Brexit, must be to deliver an effective, open and competitive legal market, with a nimble, diverse profession, providing quality services to the high consistent standards that business and the public expect. And a healthy legal market that attracts inward investment, makes inroads into new international markets and has a thriving UK base supporting commercial growth.

In this post Brexit world, it's never been more important to ensure we are open for business. So at this time, more than any other, reform must focus on market problems.

As we regulate in the public interest, the way we regulate solicitors and law firms has to be good for small businesses, for big business and for the public and, of course, we also know that there is much unmet need for legal services.

  • Around two thirds of the public think that professional legal services are simply too expensive; And small businesses agree
  • and fewer than 1 in 10 people experiencing legal problems instruct a solicitor or barrister for their legal needs.

That can't really be acceptable. Legal services are simply unaffordable for the vast majority of the public and the small businesses that form the backbone of our economy. And the public purse does not have the resources to close that price gap.

The implications for individuals who need legal services are obvious – we can’t have a two tier society where we write off most of the population from enforcing or defending their rights.

And what about small businesses? Over 99 percent of British businesses are small businesses and 2015 government figures show that these businesses turn over £1.8 trillion. Legal services are key to, for example, taking on the first employee, the first lease, the first online sales or the first exports. These hurdles are existential for small businesses. Legal services can help them clear those hurdles - but only if they can afford them.

Again, in this post Brexit world, where there is much discussion on the future of international trade and our reputation abroad, our home grown businesses need to step up and compete globally. We can only do that with a vibrant legal market – a market that gives business what it needs.

Small businesses recognise the challenges with 86% saying legal services are essential for running their businesses, yet only 14 percent say solicitors provide a good value way to resolve their problems.

So what can done to reduce costs?

The answer has to be more competition, innovation and better information for consumers and potential consumers.

There are already some green shoots. Comparison websites are beginning to emerge, offering consumer information, helping businesses and individuals find the right services and perhaps even the chance for consumer review. Surely an opportunity for law firms to reach a wider market and yet many in the sector see them as a threat.

It's not all about price; this is about delivering the right service, at the right price and at the right time. What can we do as the regulator to help? I think there are three key things. We can:

  • help to open up a competitive market and welcome innovation
  • reduce the burden of bureaucracy and costs for law firms
  • make information really work for consumers.

We can remove barriers to entry, including for ABSs which are already bringing new investment and new thinking into the market, and welcome innovative thinking that offers new services in a way people can afford. With over 1000 new law firms expected into the market this year, we have much to be pleased about. And, of course we must balance that openness with with public protection.

But that is very different from the old fashioned protectionism. Protectionism is all about vested interests. Preserving a closed market, ensuring supply is always outstripped by demand so prices remain high. Exclusive - not inclusive. Wanting international business but not international investment. Restricting access to legal services to those who can afford traditional services provided in a traditional way.

That is of course a recipe for stagnation. It will hinder the ability for small businesses to grow.

Unnecessary bureaucracy and excessive red tape constrains services and costs firms money, costs that are passed on to their customers. So, secondly, we are reducing superfluous bureaucracy at pace with well over 40 examples so far and much more to come.

We are moving away from complex and confusing rules to concentrate on principles we can all agree with – thou shalt not steal is of course unarguable. But we have 130 pages of accounts rules in our current handbook saying exactly that. Reducing bureaucracy and focusing on high professional standards – standards like independence, confidentiality and integrity - reduces the cost of compliance, which can be an industry in itself. We want to move away from compliance management to a focus on professional standards and holding solicitors to account against those standards.

And there are other areas where regulation can actively reduce the cost base for firms. For example, Professional Indemnity Insurance is essential for consumer protection but it can too easily become a blanket requirement and a major barrier to entry. Last year we issued a discussion document on making PII requirements more flexible and more risk based. This followed on from our 2014 consultation on minimum levels of cover. We have been busy continuing this work and We will be coming back to all this later this year, or early next with very specific proposals to change our regulatory requirements here, to make sure this is not a barrier to entry, to ensure our arrangements are proportionate and do not add extra cost, with little value.

Our current consultation on our regulatory rules is another example. Legal advice is not reserved and can be provided to the public by anyone in all sorts of businesses.

Incongruously, solicitors can only provide unreserved services to the public through regulated law firms. We want to change that so that solicitors can provide legal advice while working within other unregulated businesses.

It has to be right that individual solicitors should be able to practise as solicitors regardless of who their employer may be, offering greater career opportunities for solicitors and better access to the services of solicitors for the public.

Thirdly, a major and well documented problem for potential consumers is finding out whether they need legal services and if so, where to go. We are working with others in different ways to help people establish if they need a legal service. For example, we run the joint legal regulators public facing website Legal Choices. We run major social media campaigns through platforms such as Facebook and Twitter reaching out to say students, or pet owners, letting them know what their rights are and how to tackle difficulties.

And of course we work closely with advocacy groups such as Which? and Citizens Advice to help people find the services they need.

But actually choosing a service or law firm is a challenge. The LSB, CMA and Legal Service Consumers Panel, amongst others point to the need for better information. That can range from what the firms themselves can provide – such as transparency about fees and prices – to core regulatory data.

So what are we doing to help?

In April this year we launched a law firm search on our website. Here you can find basic information about a firm we regulate, such as their address and contact information.

But we're now looking to find a longer-term, strategic solution which will help consumers with choices. The sort of information we're looking at publishing includes enforcement action, practice conditions, complaints and claims data – things that I would want to know when choosing a solicitor.

And we want the information to be available to all data re-publishers, not just those in the legal sector, as the market is best placed to develop comparison tools that deliver real choice to consumers.

People outside the sector would be surprised at how contentious something so commonplace in business, hospitality and professional services is proving for legal service providers. Making information work for consumers is a big step for the profession, but providing this information, we believe, is fundamental to a well functioning market and making access to legal services much easier.

So in conclusion, I am sure you would agree that it is simply too early to draw conclusions on the potential consequences of the EU referendum, but I think everyone would agree that the situation is uncertain. We are planning to make a small contribution to this debate and publish one of our Risk Outlook specials on Brexit later this year, to help law firms to consider the implications.

What I am clear about it that this is not the time to put the brakes on reforms that will support a healthy, legal market, inject more competition and innovation, provide opportunities for solicitors and improve access to law.

Rather than retreat into the past as we leave the EU, let’s look forward. English law and English lawyers are second to none. Let's make sure that the opportunities they have are also best in class. Let's make sure they can compete nationally and internationally; and lets make sure that we enhance public and business access to solicitors. That's what our reform programme is about and we need to get on with it and get on with it at pace.

Thank you very much.