Sandboxes and drones

The SRA has a neat analogy for those struggling to understand how its proposed innovation waiver policy would work: think about the Civil Aviation Authority allowing Amazon to test parcel delivery by drone. Technically, this is against current airspace rules, but by agreeing not to take enforcement action, the CAA gives Amazon the opportunity to safely and legally test a project before it needs to consider any amendments to the rules.

This no-enforcement approach eloquently illustrates how a more flexible regulatory environment can encourage innovation. But this is only one aspect of the innovation conundrum. The real question is: what makes an initiative so innovative that it could benefit from the regulator’s benevolence. It’s easy to relate in general terms to the Amazon drone example, but how does this translate into the legal services sector, and what does it mean for traditional law firms?

Innovation is a significant component of the regulatory drive to facilitate the development of new delivery models for legal services. SRA research suggests, perhaps surprisingly, that law firms are more innovative than might be expected. A significant majority of firms surveyed by the regulator two years ago said innovation helped attract new clients and extend the range and speed of services.

Still, between 2012 and 2015, only 22 per cent of solicitors had introduced an innovation. Over the same period, the regulator received between 100 and 150 applications for a waiver on innovation grounds every year. About 60 per cent have been granted. These comparatively low levels of interest prompted the launch of SRA Innovate in November 2015, a specific platform to centralise guidance and case studies, with an ethics line attached.

The latest initiative under the SRA Innovate umbrella is ‘Enabling innovation’, a consultation aimed at formalising the regulator’s approach to innovation waivers. It aims to provide ‘a safe space for existing firms, as well as new entrants to the legal market, to pilot new ideas that are likely to benefit members of the public and business users of legal services in a controlled way’. The Financial Conduct Authority has taken a similar approach with its ‘regulatory sandbox’, and the Law Society’s recent legal technology report advocated that it should be deployed in the legal services sector.

When the SRA’s consultation closes on Wednesday 8 March, it will give the regulator the chance to lead by example and show that it, too, can be inventive in providing practical support for firms interested in exploring innovative solutions. Alternative business structures have brought outside expertise into the sector and fresh ideas, but their popularity has been relative among smaller organisations – although there are some convincing examples, they only account for one-third of ABSs.

So, if there is appetite for innovation among SME law firms, what is stopping more of them from taking the plunge in practice? SRA literature on innovation covers some genuinely noteworthy initiatives ranging from BMA Law to Nottingham Trent University Law School’s ‘teaching law firm’. When it comes to SME firms, however, there are few specific examples. All are anonymised and most are mere references to the kind of services law firms could consider. They include: the provision of virtual services where there could be concerns over data security; acting for clients who want to crowdfund their case; and the provision of additional services that need supporting legal advice by non-solicitors. A few more could be added to the list: unbundling and the limits of the retainer; using artificial intelligence to conduct due diligence; and sharing client information with other professionals, such as financial advisers or accountants.

None of these are explored in any detail in existing SRA documents. What law firms need is easy access to real life information about how they could develop new ideas. They need models. Publishing an extended set of actual precedents, together with analysis and explanations, would be a good start. Either way, if the regulator really wants to encourage firms to explore new solutions, it needs to do more than publish a couple of webpages praising the benefits of innovation.

Jean-Yves Gilg is editor in chief at Solicitors Journal

jean-yves.gilg@solicitorsjournal.co.uk | @jeanyvesgilg