10 May 2012
John Wotton, president, Law Society of England and Wales
I am delighted to have the opportunity to respond to the thought provoking remarks of the Master of the Rolls and the Chair of the Legal Services Board.
I fully agree with David Edmonds about the importance of consumer interests in legal regulation. The legal profession exists to serve society – individuals, businesses, institutions and government. All are consumers of legal services and clients of lawyers. One term alludes to the economic relationship with the provider, the other to the professional relationship, with the lawyer. They do not conflict, but rather represent different facets of the same relationship.
The wider penumbra of the morality of a “consumerist” society, to which Lord Neuberger referred, is not, I think, embraced by the sense in which “consumer” is used in the Legal Services Act 2007. The regulatory objectives of that Act, taken as a whole and applied in a balanced way, ought to protect the legal profession's mission to serve its clients and society at large.
The benefits of liberalisation under the Act should accrue primarily to consumers. They are not there to serve producer interests and will be felt across the legal sector. The most efficient and flexible practices, responsive to changes in client demand, will thrive.
This will be the case, irrespective of their structure. Non-lawyer ownership is unlikely to be a magic bullet in competitive terms, though it will of course allow in new corporate entrants, with established consumer service brands, who will undoubtedly make parts of the market even more competitive than they are now.
I agree that we will see evolution, not revolution in the legal services market. We have a £23 billion market, supplied by over 10,000 law firms and sole practitioners on the solicitors' side of the market alone. It is a highly differentiated market, in terms of services, suppliers and consumers. Elements of both supply and demand may prove to be quite ‘sticky'. Lawyers may not readily shift to new entrants with no track record and clients may be slow to desert known, trusted advisers. Existing firms have in many cases extracted most of available efficiencies from the market, under the competitive pressures that already apply.
Much innovation in the market will be driven not by liberalisation as such, but by the growth in need for legal advice and representation on the part of ordinary people, which will not be publicly funded. New ways of working, new types of service and new sources of funding are all required. I hope and expect that new corporate entrants will play a part in this, though they are not obliged to do so. The more fully they have espoused the ethics and values of our profession, however, the more likely they are to make a significant contribution to access to justice.
I also want see regulatory boards reacting quickly to new areas of risk and taking effective steps to mitigate them. I therefore applaud the steps taken by SRA to deal with ABS licensing (both the rules and the processes), to review PII requirements and close down the Assigned Risks Pool and to take a closer look at international practice, to take a few examples. We do not agree with all the decisions they have taken, indeed we have recently asked LSB to reject one of them.
We do want the review of the non-lawyer elements of ABS applications to be thorough – though we wish it might be achieved to a more predictable timetable and more quickly overall. Those seeking to establish a new practice, or to change the structure of an existing practice, ABS or not, within the permitted parameters, are all entitled to a reasonable standard of service from the regulator whose activities they fund.
It is right that regulation should not be prescriptive as respects ABS structures and that the market should decide what structures work best. But seems to be that very non-prescriptive aspect of our liberalisation which our civil law colleagues find hardest to stomach. We have a genuine concern that the Bars and other authorities in some major EU and transatlantic jurisdictions will do all they can to prevent UK-regulated ABS establishing or remaining in their markets.
I turn now to the second theme of David Edmonds' address, namely what can regulation achieve. I will start by saying that, under the structure created by the Legal Services Act, I generally like to see the Approved Regulators driving change forward, rather than the LSB. I agree that entity regulation assumes ever-greater importance in our developing market. Indeed, ABS would be impossible without it, for how else would the non-lawyer element in ABS be subject to effective regulation and sanctions. An entity focus is also needed where, as is increasingly the case (irrespective of ABS) lawyers practise under different professional titles within same entity.
OFR seems at this point to be better in theory than in practice. The comparison which David Edmonds drew between the brevity of an earlier Solicitors' Code of Conduct and the current SRA Code is consistent with the proposition that OFR itself has contributed to the increasing length and complexity of professional rules.
If OFR were truly liberalising, one would expect the profession to welcome it. In fact, most firms are incurring very high one-off costs to comply, which are still being incurred as the initial COLP/COFA process not yet complete. The increase in year-on-year compliance cost for firms is, I think, likely to increase substantially.
I fully agree with David Edmonds about the importance of professional ethics. We are keen to see the subject deeply embedded in legal education and training from the outset. Sound professional ethics are best supported by a broadly-based legal education and training process, reinforced by a strong professional culture. This enables lawyers to understand ethical issues in a wider context, as they arise in practice and adapt safely to changes in market.
I am a strong advocate of the continuation of regulation by Approved Regulators, who are independent of government and quangos and accountable to those they regulate for performance and use of resources and accountable for performing their duties under the Legal Services Act.
In a response to the Legal Services Board, the Solicitors Regulation Authority has asked whether it is in the public interest to retain the Legal Services Act model of an open set of separate approved regulators, based initially on the pre-existing professional bodies, but open to new entry and exit (by merger or otherwise).
One key issue arising from that model is the risk of regulatory competition leading to a 'race to the bottom' in terms of cost and standards. But there is no sign of that yet. The SRA Code and the way it is enforced remain pretty rigorous and there is no indication of a mass flight of lawyers to other regulators.
As the financial crisis has demonstrated, neither weak regulation nor fragmented regulatory responsibilities are necessarily in the public interest, nor in the long term interest of the regulated sector itself.
I acknowledge the need to avoid inconsistency and confusion, where two or more regulators cover the same area and would suggest that common codes are the right first step to address this, notably in conveyancing, where the Council of Licensed Conveyancers' rule on conflicts is not, in my view, defensible.
Solicitors, in particular, typically do a lot of different types of work. To have a lawyer moving from one regulatory environment to another in the course of a working day, even while working for the same client, is a recipe for regulatory mayhem and consumer harm. For this reason, the siren call for one regulator for each activity would be workable only if a large part of the flexibility and scope for career development and change were to be sacrificed.
What are the advantages a single regulator? One is a single code of conduct for areas of overlap, such as advocacy, conflicts of interests and rules regarding entities. But the costs – of initial integration and of long term loss of competitive stimulus - are likely to outweigh those benefits, unless mixed practices of barristers and solicitors became so prevalent that separate regulation could no longer be justified.
I understand the SRA's wish to regulate the entire legal sector. There is, indeed, a strong public interest argument for that outcome. However, I believe that the SRA are most likely to achieve this goal by first demonstrating to all lawyers their excellence and their cost-effectiveness.
Competitive discipline requires each branch of the profession to make its combined representative and regulatory offering as attractive as possible, so that the value of the profession's reputation outweighs the cost of regulation and the profession is attractive to new entrants.
The Law Society welcomes the move by the LSB to recommend that will-writing and estate administration become a reserved activity.
The analysis the LSB used to reach this conclusion will, we believe, apply to many other areas of legal work which are not at present reserved.
In the meantime it is important that there should be a common standard for those involved in these activities. Any competent will-writing or estate administration outfit ought to be able to meet the current criteria for regulation by the SRA, as an ABS, without any change to the SRA's existing rules. This would best serve the interests of consumers and lead to a truly competitive will-writing and estate administration market.