The Legal Services (Scotland) Bill is aimed at reforming the regulatory framework for legal services and removing restrictions on the types of business models under which a solicitor can offer such services. The Scottish Government consulted on the regulation of legal services to inform the Bill. The consultation paper, "Wider Choice and Better Protection" was published and attracted 47 responses. The main findings from the analysis of these responses are summarised below.
Main Findings
- 22 respondents (58% of those who provided a view on this topic) were in favour of permitting alternative business structures ( ABS) (involving non-lawyer ownership, external ownership and multi-disciplinary practices) for the provision of legal services by solicitors in Scotland.
- 25 respondents (83% of those providing a view) recommended that the areas of business reserved exclusively to legal professionals (conveyancing, applying for confirmation in executries, and preparing writs relating to court proceedings) should remain.
- Most respondents (25 respondents or 89% of those providing a view) agreed that there should be a statement of regulatory objectives for providing legal services in ABS as proposed in the consultation document. There was also much support (26 respondents or 93% of those who commented) for a statement of professional principles for those providing legal services in ABS.
- 21 respondents (84% of those providing a view) considered that ABS should be regulated at the entity level, with individual professionals regulated by their own professional bodies.
- The majority view (22 respondents or 88% of those who commented) was to agree in principle to the proposals for dealing with regulatory conflict within ABS. However, many respondents thought that further clarity was required on aspects of these proposals.
- 23 respondents (85% of those providing a view) supported the proposal that there should be a "fit to own" test specified by the ABS regulator, which should apply to anyone owning or acting as a principal in ABS.
- Amongst the suggestions made by respondents for changes to the Law Society of Scotland's (the Society) governance arrangements were proposals to reduce the size of its governing Council, and support for changing the Council's composition to incorporate a greater lay representation.
- 14 respondents (64% of those who commented) considered that the Faculty of Advocates should not be required to allow its members to form partnerships or participate in ABS, provided that those wishing to do so can easily become solicitor advocates.
- 22 respondents (85% of those who provided a view) argued for the regulation of claims management companies operating in Scotland.
Background
Over recent years many legal firms in Scotland have expanded and diversified in order to meet the demands of their clients. However, some commentators have questioned whether the current ownership and partnership rules of solicitors' firms are still appropriate in an increasingly competitive market-place, with suggestions made that the legal market could benefit from allowing ABS.
The Legal Services (Scotland) Bill is aimed at reforming the regulatory framework for legal services, and removing restrictions on the types of business models under which a solicitor can offer such services. The Scottish Government's consultation, "Wider Choice and Better Protection" set out proposals to allow new business structures to deliver legal services across Scotland.
The written consultation was made public on 7 January 2009 and closed on 3 April 2009. 38 questions were included in the consultation. Key topics on which views were sought were:
- Reform of the regulatory framework for legal services and the removal of the restrictions on the types of business models under which a solicitor can offer such services, while allowing the traditional business model to remain an option.
- Regulation of ABS to apply to any other form of business where a legal professional is involved in the provision of legal services to third parties.
- ABS to be regulated by an approved regulator, authorised to regulate by Scottish Ministers, with the agreement of the Lord President.
- Outside ownership to be permitted where those holding an interest in a legal practice pass a "fit to own" test and comply with an appropriate code of conduct.
Overview of Respondents
A total of 47 responses to the consultation were received comprising 32 (68%) from organisations and 15 (32%) from individuals. Organisational responses were submitted largely by law firms and legal representative bodies. Each of these groups submitted 19% of all responses.
Respondents tended not to answer all 38 questions, but selected those of most interest to them. Some preferred to provide free-text responses rather than using the closed question sections of the response form.
It should be noted that the figures quoted here and in the full analysis report refer to the consultation population only and cannot be extrapolated to a wider population.
A summary of respondents' views follows.
Alternative Business Structures
The Scottish Government supports the view of the Society that restrictions on the business structures applying to solicitors should be reformed. 3 possible ABS models were proposed in the consultation document and views were invited on these:
- ABS involving non-lawyer ownership
- ABS involving external ownership
- Multi-disciplinary practices ( MDPs)
The key views of respondents were:
- The majority (22 respondents or 58% of those who provided a view) considered that ABS should be permitted for the provision of legal services by solicitors in Scotland.
- ABS were seen as enabling better access to justice, giving consumers more choice at reduced prices, and providing them with the convenience of a one-stop shop.
- ABS were also envisaged as giving consumers a better quality of service which would result in increased consumer confidence in the legal profession.
- Minority views opposed to the introduction of ABS included:
- ABS could threaten the independence of the legal system;
- there is little evidence to support their introduction;
- recent problems in regulating the financial sector suggest that the time is not right to introduce ABS; and
- ABS will offer little benefit to the public.
- Of the 24 respondents who commented on the current arrangements for regulating licensed conveyancers and executry practitioners, or those with rights of audience, just over half (54% or 13 respondents) considered that these did not need to be changed at present. However, 8 respondents (33% of those providing a view) were in favour of change, arguing that these areas of practice should be reserved to the legal profession, or that the potential for independent regulation of licensed conveyancers should be considered.
Who will be Affected by the Bill?
Although solicitors and advocates may provide their services in many different areas of law, the only areas reserved exclusively to them are conveyancing, applying for confirmation in executries, and preparing writs relating to court proceedings.
The key views of respondents were:
- The majority (25 respondents or 83% of those providing a view) was in favour of the areas of business reserved currently to legal professionals remaining. The main reasons were:
- These areas of legal services require the highest standards; and
- the status quo should remain until other professionals have gone through the same level of training as those currently undertaking this work.
- Most (85%) of the 27 respondents who provided a view considered that the Bill should focus on the regulation of legal professionals and businesses where legal professionals are involved in the provision of legal services to third parties.
- A majority of 21 respondents (70% of those who commented) agreed that the arrangements for regulation of solicitors and advocates in traditional forms of practice should remain as they are now.
- Half of the 30 respondents who provided a view were in favour of the Bill providing for non-solicitor professionals or other bodies to apply for executry rights. The benefits they envisaged included giving consumers more choice, increasing competition and providing parity with the situation in England and Wales.
- 11 respondents were against this proposal. A prevailing view was that confirmation constitutes a legal function and as such should be carried out only by lawyers.
Principles of Regulation
Views were sought on the proposal that principles are in place to underpin the regulatory framework for ABS, with regulators having a duty to promote such principles which would be relevant to any provider of legal services.
The key views of respondents were:
- 25 respondents (89% of those providing a view) agreed that there should be a statement of regulatory objectives for providing legal services in ABS.
- 22 respondents (92% of those who commented) thought that regulatory objectives should be supplemented by considerations which should guide the actions of regulators.
- 93% (26 respondents) of those providing a view agreed that there should be a statement of professional principles for those providing legal services in ABS.
- There was support (from 18 respondents or 67% of those who commented) for the proposal that regulators should be able to grant conditions of licence or refuse a licence to operate ABS where there is demonstrable evidence of a risk to access to justice.
- There were mixed views on whether a regulatory objective of promoting access to justice can be achieved in the context of ABS. Suggestions were made on how this objective could be supported by other routes.
The Regulatory Approach
The model of regulating at entity level is already used in industries such as financial regulation, but represents a shift from the traditional model of professional regulation which predominantly regulates at the level of individual practitioner. The proposal that those practising in ABS are regulated both at entity level and individual level will result in regulation at 2 levels, with the possibility that the entity regulator and the professional regulator is the same body.
The key views of respondents on the regulatory approach proposed were:
- The vast majority (21 respondents or 84% of those who commented) considered that ABS should be regulated at the entity level, with individual professionals regulated by their own professional bodies.
- Respondents wished to see regulation kept simple and proportionate, with equality maintained between solicitors whether they worked in ABS or in traditional firms.
- Potential for regulatory conflict will exist in an ABS where the entity and all the professionals within it do not belong to the same regulatory body. It is proposed that the ABS entity regulator should have primacy, with its rules applying to the activities of all legal professionals and others practising in the firm, in relation to all matters pertaining to the provision of legal services. It is also proposed that every ABS will be required to identify either a "head of practice" or a practice committee with responsibility for ensuring compliance with entity regulation.
- The majority (22 respondents or 88% of those who commented) agreed in principle to the proposals for dealing with regulatory conflict within ABS. However, many thought that further clarity was required on aspects of the proposals.
- Other key views on the proposed regulatory approach set out in the consultation were:
- The proposal that clients of licensed bodies should have the same legal professional privilege rights as they would have had they instructed a traditional law firm was generally supported. However, there was concern that solicitors working in ABS may face conflicts of interest between preserving professional privilege whilst also working in the interests of their business entity.
- 22 respondents (76% of those commenting) favoured the setting up of some form of advisory panel to advise Ministers on applications for authorisation (of regulatory bodies to act a regulators of ABS) and on keeping the regulatory framework under review.
- A common view was that the advisory panel should include lay representatives with a consumer interest.
- The majority (19 respondents or 83% of those who commented) agreed with the proposal that Ministers, with the agreement of the Lord President, should authorise ABS regulators.
- It was generally agreed (by 19 respondents or 86% of those providing a view) that the Bill should set out the criteria for authorisation of ABS regulators, and that these should relate to organisational capacity, independence, and an appropriate regulator scheme.
Ownership of Legal Services
It was proposed that outside ownership of ABS should be permitted only where those holding an interest in a legal practice can pass a "fit to own" test and comply with an appropriate code of conduct. The details of the test would be specified by the regulator, but the criteria would include:
- honesty, integrity and reputation;
- competence and capability; and
- financial soundness.
- Key views of respondents were:
- There was majority support (23 respondents or 85% of those providing a view) for the proposed "fit to own" test to be specified by the ABS regulator.
- Most (15 respondents or 71% of those who commented) agreed that the proposals set out in the consultation document provided sufficient safeguards to ensure the professional principles are not compromised, although requests were made for a review procedure to ensure owners are still "fit to own" over the longer term, with sanctions in place for owners asserting inappropriate influence.
- There were mixed views on the proposal that ABS would require to have a head of legal services and head of practice, or, alternatively, a practice committee for ensuring ethical and practice standards in ABS owned by non-legal owners. Amongst the 17 respondents who commented, some raised queries and some requested further clarification on the proposal.
Law Society of Scotland
Suggestions were made by respondents for changes to the Society's governance arrangements. Most notable amongst these were:
- a reduction in the size of the Society's Council; and
- greater lay representation on the Society's Council.
The majority (63% or 17 respondents) of those who provided a view did not support a move towards a clearer separation of the regulatory and the representative functions of the Society. The main reasons given were:
- current arrangements work well;
- suggestions that representation and regulatory roles conflict are over-stated;
- if greater lay membership of the Council is established, the issue of separating the roles may not be so pressing; and
- a separation of roles may be complicated, expensive and overly bureaucratic.
The views of the minority of 9 respondents (33% of those who commented) who favoured splitting the functions of the Society included:
- essential to ensure public confidence in the legal system;
- urgent in the light of the ABS proposals;
- England and Wales have already gone down the route of having a new regulatory body; and
- other professions separate their regulatory arm from representational interests.
The majority view (19 respondents or 79% of those who commented) was that the Scottish Solicitors Guarantee Fund or an equivalent provision should be required for ABS. This was seen to have the advantages of:
- ensuring parity between consumers using ABS and those using traditional legal services models; and
- acting as a safety mechanism if unforeseen complications arise with the implementation of the new structure.
Views were relatively evenly balanced between those advocating capping the Guarantee Fund liability and those recommending that the Fund remain uncapped.
14 respondents (82% of those providing a view) agreed with the Government proposal that ABS should take out appropriate professional indemnity insurance as a condition of licence, at a level at least equivalent to the Master Policy.
The Faculty of Advocates
Advocates are currently bound by a rule which does not permit them to enter into partnership with another advocate or any other person in connection with their practice as an advocate. The Faculty argue that this does not prevent advocates participating in ABS, but to do so they would need to opt to become solicitor advocates.
14 respondents (64% of those who commented) supported the Faculty argument. Key benefits were seen as:
- this will provide a balance which preserves the character of the Bar but allows advocates to choose to work in a different business structure if they so wish; and
- this will allow for consumer choice between deploying solicitor-advocates in ABS or advocates at the Bar.
However, 6 respondents argued for the removal of the current restrictions on advocates. Their main arguments were:
- allowing advocates to work in partnership will reflect a modernised and less isolated approach; and
- will result in a better service to clients, more suited to their needs.
13 respondents (72% of those commenting) were in favour of the Faculty's regulatory framework being organised into a code set out in law.
Of the 16 respondents who commented, views were evenly split on whether the current regulatory framework of the Faculty should be changed in any respect. Most of those advocating change wished to see a greater separation of the Faculty's regulatory and representative functions.
Regulation of Claims Management
Despite there being little objective evidence of malpractice in Scotland, some professional and consumer bodies have expressed unease about the lack of regulation of the claims management industry.
The key views of respondents on claims management regulation were:
- 22 respondents (85% of those providing a view) considered it necessary to regulate claims management companies operating in Scotland.
- 9 of the 17 respondents who commented were in favour of regulation of claims management companies by Scottish Ministers with licensing and administration contracted out to Trading Standards or a similar body.
- There was little first-hand awareness of issues in Scotland with "no win, no fee" arrangements which had resulted in the cost to the client being greater than the award.
- The most common concern amongst the few respondents who reported being aware of poor practices by claims management companies in Scotland was over alleged misleading advertising.
- This document, along with full research report of the project, and further information about social and policy research commissioned and published on behalf of the Scottish Government, can be viewed on the Internet at: http://www.scotland.gov.uk/socialresearch. If you have any further queries about social research, please contact us at socialresearch@scotland.gsi.gov.uk or on 0131-244 7560.