Legal Services Regulation Reform in Scotland: Consultation Analysis Reviewed

This post, on legal tech, is the third in a series of five blog posts, each one looking at different aspects of the Consultation Analysis on Legal Services Regulation Reform in Scotland.

That consultation comes on the back of the ‘Roberton Review‘, which was an independent Review commissioned by the Scottish Government in 2017 and chaired by Esther A. Roberton.

Legal Tech does not actually feature to any great extent in the Roberton Review. The phrase (including “legal technology”) appears only 4 times. Esther considers briefly in her report “Opportunities for legal technology in Scotland”. She does not appear to look in any detail at the question of regulating legal tech. Merely stating:-

Legal tech in its different forms has significant potential to provide a range of services from corporate legal services to services increasing access to justice. The danger for policy makers is to over specify activities or professionals in legislation without leaving enough flexibility for new activities and this should be guarded against. Regulation should not put up artificial barriers to new services.

Esther also pointed out that:-

Subscription services providing templates and signposting to qualified solicitors where necessary are entering the market where new forms of entities are permitted and would be able to do so under my proposals for entity regulation.

Thus it appeared she was confident that her proposals for entity regulation would cover Legal Tech when it had to.

Five Questions on Legal Tech Regulation

Despite this fact the Consultation on Legal Services Regulation Reform in Scotland included five questions about regulation of Legal Tech. These were:-

To what extent do you agree or disagree that Legal Tech should be included within the definition of ‘legal services’?

To what extent do you agree or disagree that those who facilitate and provide Legal Tech legal services should be included within the regulatory framework if they are not so already. If so, how might this operate if the source is outside our jurisdiction?

To what extent do you agree or disagree that, not including Legal Tech may narrow the scope of regulation, and reduce protection of consumers?

To what extent do you agree or disagree that the inclusion of Legal Tech in a regulatory framework assists in the strength, sustainability and flexibility of regulation of legal services?

To what extent do you agree or disagree that the Scottish regulatory framework should allow for the use of Regulatory Sandboxes to promote innovation?

There is a lot of overlap in these questions. Indeed the Consultation Analysis, when looking at the later questions, states that “many respondents cross-referenced their earlier responses”.

Narrowing that down to Two Questions

Just two questions are sufficient:-

Does Legal Tech need to be regulated?
Should the Scottish regulatory framework allow for the use of Regulatory Sandboxes to promote innovation?

So I will simplify matters by looking at those two questions and taking responses from the analysis that cover those.

Does Legal Tech need to be Regulated?

The answer to the question ‘does Legal Tech need to be regulated?’ depends on how you define “Legal Tech”.

This came out clearly in the Consultation Analysis which stated that:-

A common thread to responses (from both those who agreed and disagreed) was that Legal Tech needed to be more clearly defined before being included in the definition of ‘legal services’. In particular, it was felt that the consultation oversimplified the concept of Legal Tech without distinguishing between technology as a tool for delivery and legal services in themselves.

Thus one of the responses stated:-

The consultation attempts to oversimplify what is a complicated area. ‘Legal Tech’ is a tool for delivery of legal services and not a legal service itself. Therefore, it would be difficult to include a general provision in legislation to regulate Legal Tech. However, in relation to the services delivered, we believe that the provision of any reserved legal services delivered through the platform of Legal Tech should be included within the definition of legal services.

79% of respondents to the consultation agreed that Legal Tech should be included within the definition of ‘legal services’. However, as the Consultation Analysis points out:-

Some respondents interpreted Legal Tech to mean the removal of qualified solicitors from the process of law and people having an option of ‘DIY’ law (including artificial intelligence (AI) options).

So was there the usual ‘Tesco Law’ reaction to Legal Tech? They (whoever they might be) are going to take our jobs away? We are regulated. They must be too!

But, they would be regulated. We don’t have to include Legal Tech within the definition of legal services to achieve that.

Legal Services not Legal Tech Regulation

A legal service (that is a reserved activity) conducted using Legal Tech falls to be regulated. The service is regulated and not the actual Legal Tech involved in the process.

As one respondent to the consultation concisely put it:-

Legal Tech services which do not offer reserved legal services are, by definition, outside of the regulatory framework.

In my own response to the consultation, and which they quote in the Consultation Analysis, I said:-

Most providers of Legal Tech are not providing legal services, they are just providing technology for use by others who are providing legal services. However, if a tech company were using tech to provide legal services directly to the public themselves that would be another matter and require them to be regulated to provide the services in question. But it would be the provision of legal services that would require the regulation not necessarily the tech that lies behind that.

Regulation of legal services matters. Not what may or may not be used to provide legal services.

Esther Roberton warned against policy makers over specifying activities or professionals in legislation without leaving enough flexibility for new activities. I hope that the Scottish Government take more heed of that than to the responses to the consultation on Legal Tech Regulation. Many respondents probably did not really understand the rationale of the questions asked. At least “a small number… indicated that they were not sufficiently knowledgeable to give a reliable response”.

The Scottish Government should also be content that the position is adequately covered by the concept of entity regulation.

Legal Tech Sandboxes

Do you know what a regulatory sandbox is?

Esther Roberton does not appear to mention this concept in her Report. Yet the Scottish Government included it within their consultation stating within the Consultation Analysis that:-

The consultation also outlined the regulatory sandbox concept, indicating that these typically involve temporary relaxations or adjustments of regulatory requirements to provide a “safe space” for start-ups or established companies to test new technology-based services in a live environment for a limited time, without having to undergo a full authorisation and licensing process. It was noted that this had been helpful in maintaining certain services during the COVID-19 pandemic.

If Legal Tech is not regulated but legal services is, then this would only apply to legal service providers. And only to those who need regulations relaxed/adjusted to experiment with the provision of legal services. However, I am really struggling to think of examples of this.

During COVID-19, for example, legislation allowed for digital registration of title in property transactions and notarising of documents via online video platforms such as Zoom. Court hearings were also facilitated via Webex.

Were these not legislatorial matters rather than regulatory ones? The legal services regulators could not relax/adjust the rules around these matters? Or could they? Did Government not have to? Maybe the Court Service were able to in respect of their own services given that virtual hearings were already possible?

What regulatory relaxations might a legal service provider who wants to play in the sandbox need and why?

Law Tech UK

LawtechUK, is a Westminster government-backed initiative within Tech Nation, established to support the transformation of the UK legal sector through technology, for the benefit of society and the economy. They run a LawTech Sandbox which supposedly:-

Fast-tracks transformative ideas, products and services that address the legal needs of businesses and society.

We work with pioneers with a readiness to test, build and push the boundaries of lawtech. The Lawtech Sandbox tackles opportunities and challenges, and demonstrates what transformation looks like in the legal sector in practical ways. This isn’t about the easy steps but the hard ones. That’s where we help lawtech pioneers make a difference.

This includes a regulatory response unit (RRU) as:-

Navigating regulations and governance can be time consuming and complicated. That is why we have convened the RRU, for advice, support and assurance at pace.

This Sandbox is more of a leg-up and connector. Linking Legal Tech companies to legal service providers and public bodies. Is that not all that a Legal Tech Sandbox is and needs to be?

There are many other similar Legal Tech accelerator programmes often within large law firms. Although, sometimes described by naysayers as amounting to nothing more than “innovation theatre“.

Of those who provided a rating, over half (56%) of the respondents to the consultation agreed that the Scottish regulatory framework should allow for the use of Regulatory Sandboxes to promote innovation. However, a significant minority (44%) disagreed.

A minority commented that the notion of a Regulatory Sandbox:

was jargonistic and that its creation was unnecessary in the current climate.

In answering the consultations question on sandboxes:-

Many also caveated their response by indicating that they had little experience or evidence on which to provide an informed view.

Many who supported the initiative probably also had little experience or evidence on which to provide an informed view.

Lawscot Tech

I have long been a vocal critic of the Law Society of Scotland’s involvement in Legal Tech initiatives. Especially where these just appear to be pay-to-play initiatives to bring money into their coffers and extend the height of their ivory tower. For example:-

The same behaviour appears true south of the border. Although, the Law Society of England & Wales went one step further by wasting £600,000 of members funds on a failed conveyancing portal.

The Regulator’s role in Innovation

In my response to the consultation (not quoted in the consultation Analysis) I stated that:-

The regulator does not have to promote innovation and should concentrate on regulation. The market place will take care of innovation as long as not unduly constrained by legislation to do so. Proper implementation and enhancement of the 2010 Act should ensure innovation within legal services without any input from the regulator.

The Scottish Government simply need to make sure that regulation is not so restrictive that innovation cannot flourish. Again heed the words of Esther Roberton:-

Regulation should not put up artificial barriers to new services.

If a Regulatory Sandbox is really needed to assist this, then by all means put it in the innovation play park.

Reactions on Social Media

On LinkedIn the following comments have been made:-

Jonathan Maas (Discovery/disclosure veteran with four decades of high level experience in both hard copy and electronic evidence:

Regulation of players or products? No. A safe area to play would be good to encourage firms to try before they buy without commitment.

Me:

I don’t think that they were sure what they were asking in the Consultation which perhaps caused some confusion!

“A common thread to responses (from both those who agreed and disagreed) was that Legal Tech needed to be more clearly defined before being included in the definition of ‘legal services’. In particular, it was felt that the consultation oversimplified the concept of Legal Tech without distinguishing between technology as a tool for delivery and legal services in themselves.”

Clearly the tools themselves don’t need to be regulated. But I think the confusion over what was meant resulted in responses to the Consultation that might not otherwise have been given.

If a sandbox is to try before you buy that would be fine. But again the definition of sandbox (or how it is actually used in practice) is not too clear. Existing Legal Tech ‘sandboxes’ are often described as “innovation theatre”.

Jonathan Mass:

Aha – the “Scottish play”!

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Graeme Johnston (Software for mapping work and getting things done):

Makes sense to me, Brian.

I haven’t grasped the ‘regulatory sandbox’ concept in legal either. Some thoughts:

1. Reserved activities are rather narrow, and largely clear, in the UK jurisdictions (cf. their vague/wider nature in, e.g. the US)

2. I can’t see any indication that the Lawtech UK sandbox involved relaxing any regulations. If so, a very different beast from the financial services sandboxes (https://www.fca.org.uk/firms/innovation/regulatory-sandbox)

3. The Lawtech UK sandbox was – if I’m reading it correctly – more a way to help small co.s to access reg guidance, given the fragmentation of the reg landscape – see the 12 regulators mentioned at the bottom of https://technation.io/lawtech-sandbox/ – mainly legal ones, but also the FCA and ICO

4. My guess is that the FCA and ICO were the main two of relevance:

– The participant quote on the website is from a company called Amplified Global whose website indicates having had help from the FCA

– There’s a lot of emphasis on data, so the ICO inevitably comes to mind

I see from the Lawtech website that the Scottish start-up Valla was involved so wonder if Danae Shell might be able to amend or confirm my understanding on these points.

Me:

Thanks Graeme. Good thoughts to share. Will be interested to see if Danae Shell can add anything to the mix given that she has actually held the spade and bucket in one of these sandboxes!

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Robert Finney (Non-Executive Director and Law Consultant):

“Legal Tech itself does not need to be regulated but the legal service providers who may happen to be using Legal Tech do. No change is required.” I agree. Regulators of the legal profession could learn a lot from the experience and approach of the financial services regulators over the years in relation to firms’ outsourcing/ buying in technology/tech services and other third-party services. Ultimately, legal services providers have to be responsible for the technology and services they use.

Me:

Thanks Robert. There is indeed so much to be learned from those that have been there and done it before. Unfortunately, often those that come after ignore that simple fact.

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Neil Alan Stevenson (Experienced Chief Executive, Chair and Non-executive Director):

Thanks for another great post in this series Brian Inkster. Again I don’t want to hog the debate when we have published positions, but as well as our publications on legal regulation reform we did also respond to the Scot Gov consultation on AI regulation.

While a lot of legal tech doesn’t need legal services regulation (like case management systems) AI used to deliver a legal services directly might.

We advocated an agreed statement of potential harms (like, discrimination) and encouragement to industry to build in internal audit cycles of outcomes against these possible harms, to avoid heavy external regulation, as one way forward.

Our paper is at: https://www.scottishlegalcomplaints.org.uk/media/2147/consultation-response-the-ai-of-the-possible-final.pdf

Me:

Thanks Neil. I wasn’t aware of that consultation on AI.

Even with AI systems there will surely always (unless and until we get into Terminator/Skynet territory!) be an individual/entity owner behind and selling the AI technology. And thus (if selling it directly for use by the public rather to legal service providers to deploy) they will be the legal service provider to be regulated (if that AI is delivering reserved legal services). If selling such AI technology to existing legal service providers to deploy then those legal service providers would be regulated.

However, I get that special attention might want to be focussed on AI (and in that case product regulation) if, for no other reason, to avoid a Terminator/Skynet scenario! And I fully appreciate that there could be other harms (like, as you say, discrimination) before we reach that stage that might well need to be addressed too in the first instance.

Neil Alan Stevenson:

I totally agree with that analysis Brian. There’s a really good argument nothing new is needed to regulate because the entity/owner is accountable. The flip side is sometimes legislation gets so prescriptive it accidentally inhibits these things. Which is why we thought it was useful to have on the radar.

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Katrina McWhinnie (Director of Contracts, Compliance and Commercial Services (CCC), UK):

Thanks for sharing Brian Inkster An excellent analysis of man versus machine. Wholeheartedly agree.

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On Twitter the following comment has been made:-

Peter Duffy (@PDffy):

Nice article! I think folks often get a little confused about legal services vs. legal tech regulation. This passage sums it up v well!

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Legal Services Regulation Reform in Scotland: Consultation Analysis Reviewed – Part 3: Legal Tech

Five Questions on Legal Tech Regulation

Narrowing that down to Two Questions