Proposed regulatory reforms could mean small firms close, Law Society warns

Significant proposals for regulatory changes to legal services set out in an independent report could create a complex system, lead to uncertainty and result in small firms closing, the Law Society has warned. 

Instead, the focus should be on raising awareness in relation to access to justice for the most disadvantaged in society; and “seeking to obtain proper investment in the legal aid system”.

The independent review of legal services regulation was conducted by the Centre for Ethics and Law at University College London (UCL). 

The review, led by Professor Stephen Mayson, explored in part the longer-term and other issues raised by the Competition and Markets Authority's (CMA) legal services market study in 2016 and its recommendations.

An interim report was published in September 2019 setting out Professor Mayson’s proposals for further regulation. 

However, in his formal written response to the recommendations, Law Society president Simon Davis said the proposals “would lead to a less coherent alternative to the existing regime” and lead to greater regulatory cost – “undermining the UK’s attractiveness as a world leading jurisdiction”. 

He acknowledged that the current regulatory framework is not perfect but said the “wholesale reforms” proposed would lead to “a massively uncertain and costly system, with firms needing multiple layers of different regulation for individual”.

The proposals include that individuals should only be able to practice in the areas for which they have specific regulation; and that the list of reserved activities should be reviewed and replaced with “before-the-event authorisation”. 

But Davis responded that the current regulatory system already allows more stringent regulatory intervention for high-risk activities.

The proposals also include replacing the existing eight regulatory objectives with one broad definition of public interest, but the Society said this risks different organisations taking different views of what the ‘public interest’ means.
     
A broad definition of legal services is also proposed, but Davis said that “the test of what presents a risk justifying a particular level of regulation [is] unclear” – with implications for law tech.

The risk would be overregulation for law tech providers falling within that definition and under
regulation for those falling outside of it. 

This would lead to confusion and a lack of transparency over regulation “and at what minimum mandatory standard”.

He warned: “Before any regulatory interventions are considered, we strongly recommend a far greater understanding of the emerging technologies, trends and products, to ensure a suitable regulatory approach.”

The Law Society is concerned that “such a complex system [as proposed] would lead to increased cost for legal providers and the public, with key suppliers such as high street generalist practices negatively affected.”

It warned that as a result many small firms could leave the market, and lead to the legal sector contracting and the cost of legal services increasing, leading to further unmet demand. 

It also said there would be “serious implications for diversity” and for vulnerable clients in smaller firms. 

Before any firm proposals can be considered, the Society said a detailed impact assessment of proposed reforms on the public, the profession and the legal sector “would be fundamentally important”. 

The full response can be found here.