Legal Tech Sandboxes

The LegalTech Sandbox - Legal Services Regulation Reform in Scotland

Legal Tech Sandboxes appears to be the only real mention in relation to Legal Tech given by the Scottish Government in their response to the findings of the legal services regulation reform in Scotland consultation analysis report.

This is the second blog post by me looking at aspects of that response. The first looked at the fact that the concept of one independent regulator for legal services in Scotland had been ignored.

Five Questions or Just Two?

The Consultation Analysis posed five questions on Legal Tech regulation. As I said when I reviewed that analysis there was a lot of overlap in those five questions. Indeed the Consultation Analysis, when looking at the later questions, states that “many respondents cross-referenced their earlier responses”.

I was of the view that 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?

Does Legal Tech need to be regulated?

The Scottish Government’s response is somewhat vague when looking at the first of these two questions. They say:

Technology and innovation can benefit consumers and the sector. It can provide easier, more intuitive access to services, as well as supporting the future of the economy. Like in other sectors it is increasingly a source of challenge and new opportunity, and as such should be given proportionate regulatory scrutiny.

I think we will have to await sight of the draft Bill to see what the Scottish Government may or may not have in mind on this front.

My view when providing a response to the consultation and when reviewing the analysis was:

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.

Do we need Legal Tech Sandboxes?

With regard to the second of the two questions, the Scottish Government in their response state:

Regulators should have flexibility in their regulatory powers to promote the use of Sandboxes to promote innovation in the provision of legal services.

As I said in my review of the Consultation Analysis:

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.

Again, it looks like we need to await the draft Bill to see what the Scottish Government may or may not have in mind when it comes to Legal Tech Sandboxes.

More Blog Posts on the Scottish Government’s Response

There are five Blog Posts on the Scottish Government’s response:-

Blog Posts on Legal Services Regulation Reform

Prior to the response by the Scottish Government I published eight posts on Legal Services Regulation Reform in Scotland:-

Reactions on Social Media to Legal Tech Sandboxes

On LinkedIn the following comments have been made:-

Michael Burne (I love helping people to start, grow and exit their law firms. Like taking photos too.):

A sandbox makes me thing of a playpit when I was a kid. Didn’t adults stick the kids in the sandpit so they wouldn’t hurt themselves and could be left to their own devices!

Maybe the profession should create a sandpit for the regulators to play in. Somewhere they can’t do any harm and can be left unattended for a bit while we get on with the grown up stuff?

😉😇😂

Me:

Now that is a good idea 😂

Graeme Johnston (Software to map work – before that a lawyer):

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Leandro Aringoli (Legal counsel – Master in Business Legal Counsel):

The same old story between technology and regulation. Since the case of UBER, when it become a mainstream subject in law, sandbox aproach is the best way to avoid antitrust law and consumer protection. Disruption and Innovation can’t be linked to a few big companies (probably the big four) and bureocracy to decide. Good article! Thanks.

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

Thanks for this article, and looking forward to the others in the series. To some extent there has always been a ‘sandbox’ capability in Scotland, as LSS can waive most rules on a one-off basis if it wishes, so had there been barriers to deploying tech (and i’m not aware of many) there was some flexibility there. Like quite a few things in this high level document, we’ll all probably need to see more detail before we can really know what is intended in practice. Clarity may be helpful in new legislation, but won’t be that different.

Me:

Thanks Neil. Maybe no need for Sandboxes to be mentioned in primary legislation and just something to be left to the regulator to utilise if and as it sees fit? We will, of course, see what the Bill says in due course!

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Graeme Johnston (Software to map work – before that a lawyer):

It’s not clear to me what problem is being addressed by the relevant para (55) of the government’s paper, or what is meant by sandbox.

The gist of ‘sandbox’ as I understand it in its original meaning is that

– a company admitted into it is allowed to do defined things with real customers, but exempt from some of the usual regulations and with the benefit of official advice on how the remaining regulations apply

– this is on the basis of admission being restricted, involving the regulator and keeping them informed

That’s meaningful in the context of (e.g.) FCA or Ofgem, as the regulations have such wide scope in financial services or energy.

But I don’t find it meaningful in the context of English or Scottish legal services because the scope of ‘reserved legal activities’ doesn’t cover the kind of things that tech can realistically be used for (in contrast to, say, America).

In Utah, for example, there’s been a widely publicised and genuine regulatory sandbox but (1) that’s in the context of much wider regulatory restrictions than those in the UK (2) it’s not for legal tech, it’s for (in effect) ABSs. Which is clearly *not* what the Scottish government has in mind.

Lawtech UK ran a sandbox which involved the SRA, but it wasn’t clear to me what the regulatory angle was, exactly.

The gist of it seemed to be not so much about regulatory derogation, but more about providing

– mentoring, networking etc – which is great, but not a core sandbox concept in the original regulatory sense

– access to anonymised data – also an attractive concept, though I’m not sure how it turned out, as that’s a complex topic.

In short, it seemed to me that ‘sandbox’ there was being used in a different sense to the way that, say, the FCA uses it.

Hence I’m not sure what the Scottish government envisages.

Maybe Aleksandra Wawrzyszczuk can cast more light on the Lawtech UK sandbox, as I may just be ‘not getting it’ (this happens quite a lot to me 😀 )

Me:

Thanks Graeme.

I think it is the case of involvement for involvements sake and without any real purpose or knowledge as to why.

Legal Tech seems to be flavour of the month (for a few years now) as though it is something new (we know it is not).

The Law Societies on both sides of the border have got involved in Legal Tech schemes usually, as far as I can see, without knowing why or for what purpose.

They certainly don’t appear to have their members interests at heart when they throw money at schemes that will just empire build within the Societies and not benefit the members paying for it. An extreme example in E&W was Veyo, the failed conveyancing platform that cost the Law Society (well their members) £7 million (yes £7 million)!

Esther Roberton didn’t mention sandboxes in her Review. I assume someone at the Law Society of Scotland threw it from the wings to the Scottish Government and they picked it up unsure what on earth it was. I imagine not only you and I don’t know what the Scottish Government envisages. They probably have no idea themselves!

Graeme Johnston:

Yes, I have a sense of a conversation along the lines of “Hey, regulators these days do Sandboxes.* Maybe we should too.”

Shades of blockchain.

* capital S in original.

Aleksandra Wawrzyszczuk (law & tech // current head of Europe’s top legal sector transformation programme // Transformation + Change + Growth // knowledge broker // LiCAP alumna):

Graeme As you suggested, the Lawtech Sandbox had various iterations – but on the regulatory front, it offered two key items: https://lawtechuk.io/explore/regulatory-navigation-tool and Regulatory Pathfinding (helps lawtech companies solve reg challenges). It is not necessarily a typical sandbox where you test solutions in a vacuum.

Re reg sandboxes in legal: the key question (as usual) is whether the challenges to innovation in legal are actually regulatory in nature. A sandbox is never some kind of a magic wand solving universal problems. But that’s already been said so I will leave it at that 😀

Graeme Johnston:

Aleksandra Thanks so much for replying, and for that really useful link. I particularly like how the bottom half of page 3 explores how some non-reserved activities may nevertheless create some issues in different parts of the UK.

Do you happen to know if regulatory *exemptions* have ever been granted in the Lawtech sandbox (of the sort that are granted in e.g. the FCA and Ofgem sandboxes) or has it thus far always been regulatory *guidance*? Please just ignore if answer not readily known, not trying to suggest work 😀

Aleksandra Wawrzyszczuk:

Answer not readily known! But I think it unlikely, primarily because it really isn’t the same type of a sandbox as the FCA etc so the same type of a situation would probably not arise…

Graeme Johnston:

Aleksandra – that makes sense, thank you!

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