Regulation and disruptive market innovation in legal services

Does innovation in the provision of legal services need new forms of regulation? That is the question behind a lot thinking in the arcane world of legal regulators, particularly in Europe. The OSCE (the Organisation for Security and Co-operation in Europe whose brief runs from physical security to market competition) produced a discussion paper on the topic for a conference last June. In England and Wales, the Competition and Markets Authority (CMA) published a report in December. The issue underlay the conference held last week by the Westminster Legal Policy Forum in London. It is question that probably has most traction in jurisdictions where regulation has already been wrested from the hands of the legal profession.

The CMA found that ‘the legal services sector is not working well for individual consumers and small businesses … [who] find it hard to make informed choice because there is very little transparency about price, service and quality … This … weakens competition’. The CMA wants a full government review of the regulatory regime. In the meantime, in the dog’s dinner that is the current English system, the CMA wants the legal services overall regulator, the Legal Services Board, to monitor the work of the grassroots regulator, the Solicitors Regulation Authority, in making progress on more transparency and competition.  This is a bit of nightmare for the Law Society which was rather hoping that they could dispose of as much external regulation as possible and go back as closely as possible to the old position when it ran the show both as to regulation and representation – a situation that still occurs in jurisdictions like Canada and the United States. The Society also rather hoped that Brexit would give them a bit of cover for a bonfire of the regulators.

In furtherance of its campaign, the CMA has published a market study of the provision of legal services ‘such as conveyancing, wills, probate, immigration, family and employment law’. These are the staple of many a small legal practice and the CMA reckons the national market in the UK is work £11-12bn ($US14bn). There is too much information asymmetry, says the CMA. Consumers do not know enough. Prices may range from £110 to £200 for a simple will and for a complex divorce with tricky assets between £1260 and £3000. The CMA wants ‘a step change in transparency’; more ‘independent feedback platforms’ and more data accessible through comparison tools. More widely, the CMA wants to know if there is a case for regulation of those providers currently unauthorised.

The proposals are general and not specifically related to greater use of the internet. However, the use of the web is an important element of the market. Among will writers unauthorised organisations (ie non lawyers) did better on transparency than lawyers: ‘ Overall, ten of the 35 solicitor firms in the sample displayed some fees online; while eight of the 11 unauthorised self-regulated firms and six of the seven unauthorised and unregulated firms did this.’ Solicitors were similarly reticent about commercial law services: ‘a web sweep carried out for our commercial law services case study found that 11 of the 12 unauthorised firms in the sample published their price structure for at least one commercial law service and also displayed some information on prices. However, only 12 of the 79 solicitor firms in the sample published any prices on their websites.’ Many prospective clients found getting a price from a prospective lawyer much like drawing teeth e.g. ‘I couldn’t get a proper cost information without a consultation which was charged for’.

All this lack of openness was, said the CMA, hindering innovation. ‘While the overall level of innovation has not been particularly high, we have found a number of examples of different types of innovation, including online service delivery, the unbundling of services and greater use of technology. [A recent] report also found different levels of innovation among different types of legal services providers. For example, unauthorised providers were more likely to report introducing a new or improved service in the previous three years (36% versus an average of 28.4%) and had the highest share of their revenue from innovative services (10.3% versus an average of 6.3%). They also found that, all other things being equal, ABSs [alternative business structures] regulated by the SRA are 13 to 15% more likely to introduce new legal services.’

The general message was, however, that ‘consumers may be losing out from a lack of innovation’.  One limited exception was, however, the conveyancing market where competition had led to more uptake of It systems to improve internal management and greater quality control. This was an area where there had been consolidation and ‘the emergence of national conveyancers’.

In addition, the CMA was not, in the main, impressed by comparison sites of the ‘compare the market dotcom’ type They are ‘not widely available … MoneySuperMarket is the only one of the UK’s large price comparison websites to operate in the legal services sector and it does so only for conveyancing.’  Nobody else seemed much interested; ‘the majority of of other [comparison sites] are simply directories or referral websites which give leads to providers who may or may not respond with a quote. The Law Society’s ‘Find a Solicitor’ tool aims to list all authorised solicitor firms and individual solicitors and is described as being popular with consumers, averaging over half a million visits per month. However, information is limited to basic details about solicitors and the different areas of law they cover. Others, such as Contact Law, email the details of a solicitor to the consumer but do not assist comparison between providers. Other listings services have comparison features such as reviews and ratings, for example and ReviewSolicitors. However, the low levels of use mean these comparison tools are less useful than they could be … a number of comparison site operators … highlighted significant challenges with operating in the legal services sector. Some of the reasons cited for not entering the legal services sector include the one-off nature of most transactions and the presence of offline intermediaries in the high volume legal services areas (for example, estate agents in conveyancing).’

The CMA was fed up that the introduction of alternative business structures had not by itself changed much: ‘to date … there is little evidence that the level of innovation has changed: however, the ABS regime may need more time …’ Well, the CMA wants to hurry this up. It is kicking the Solicitors Regulation Authority in particular to get on its way. We were told last week to expect proposals in the summer. These will not be good news for a Law Society that wants all this intrusive new regulation to go away,

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