On being ambitious in regulatory change

‘On being ambitious in regulatory change’ was a talk that I was asked to do for the online conference on ‘The Scottish Legal Services Regulation Reform Bill: what’s needed and what’s next?’ (Organised by Mackay Hannah) on 27 April 2023.

I am reproducing that talk here with one added point, in square brackets, noted by me from Alison Hook’s talk that came after mine.

I am going to consider, today “being ambitious in regulatory change”.

I think that the Scottish Government has been far from ambitious with their Regulation of Legal Services (Scotland) Bill. Diane McGiffen said that it “falls short”. I agree but for different reasons than the ones seen by her.

Frank Tyger said:

Ambition is enthusiasm with a purpose.

There appears to me to be sadly very little enthusiasm or real purpose behind the Bill.

However, there may be some very small glimmers of enthusiasm with a purpose.

The much-needed reduction (but unfortunately not the removal) of the 51% rule on lawyer ownership of licensed legal services providers (commonly referred to as alternative business providers) is to be welcomed.

In addition, to be welcomed is the regulation of the term lawyer, a term that has been misused by some.

Moreover, the provision of an updated complaints regime is welcome albeit a bit hazy on what that will actually look like. I will come back to that point later

A Glaring Omission on Being Ambitious in Regulatory Change

However, those small glimmers of ambition are overshadowed by the glaring omission on the part of the Scottish Government to create one independent regulator for legal services in Scotland.

When the Scottish Government published their response to the findings of the legal services regulation reform consultation analysis report, I referred to them leaving the Legal Services Regulation Elephant in the room.

At that time, their press release made much of the fact that the term “lawyer” was to be protected. However, the real story is that there will not be one independent single regulator as recommended by Esther Roberton. That was, after all, the primary recommendation in her Report of the Independent Review of Legal Services Regulation in Scotland.

Isn’t it ironic that the Law Society of Scotland’s main concern about the Bill is that, in their view, it “seriously risks” undermining the independence of the legal profession from the state.

However, a regulator that has no real independence from the representative body of the members it regulates is perfectly fine!

The key principle of good regulation according to the Competition and Markets Authority is that regulation should be independent of those it regulates.

The best legal minds at the Law Society of Scotland and at the Faculty of Advocates failed to come up with any real argument for why we should not have one independent regulator.

Turkeys

About the best that the Dean of the Faculty of Advocates, Roddy Dunlop, could come up with was that “Turkeys don’t usually vote for Christmas”!

That was at a debate on the Roberton Review that took place in 2019 at the Royal Faculty of Procurators in Glasgow. A debate known as ‘The Roberton Rammy’!

After that debate it was commented on Twitter, by @greig_cyber, that there was:

no real rebuttal around the point that good regulation should be independent of those it regulates, which seems to be the elephant in the room.

Independence of the Legal System / Rule of Law

When the Consultation Analysis on Legal Services Regulation Reform in Scotland was published I blogged about the responses on the question of a single independent regulator.

In response to my blog post Roddy Dunlop asked:

What is the rebuttal to the intervention of the judiciary, warning that the plans threaten the independence of the legal system and thus the rule of law itself?

Crispin Passmore (a former director at the Solicitors Regulation Authority, before that at the Legal Services Board, and prior to that at the Legal Services Commission) responded to Roddy by asking:

Are Scottish or English and Welsh judges in the UK Supreme Court lacking independence because they are part of system of regulation (in England and Wales) that has independent regulation at its core?

and then stating:

It is Parliament that has given certain lawyers a monopoly on certain legal activities. Parliament can amend, add, reduce that. It is Parliament that puts in place legislative (i.e. regulatory) framework for that monopoly and no reason why that cannot include independent regulation. Parliament sits atop all of this regardless of regulation being done by lawyers or experts.

Roddy, who is well known for his Twitter spats, remained unusually silent. He apparently had no retort to this.

“Deeply Alarming”

Now, following publication of the Bill, and even although the status quo on regulators appears destined to remain, the Law Society have taken up the cudgels for Roddy.

They claim that the Bill “seriously risks undermining the independence of the legal profession from the state”.

The Law Society have stated that new proposed powers allowing Scottish Ministers to intervene and direct regulators are “deeply alarming”.

To me this appears another over reaction on their part. As Stephen Mayson put it earlier it has been “overstated”.

The Bill allows the Scottish Ministers to review the performance of a regulator if requested to do so by the Scottish Parliament, the Competition and Markets Authority or Consumer Scotland. A request may be made only where the requesting body is concerned that the regulator is failing to exercise its regulatory functions in a manner that is compatible with the regulatory objectives or the public interest. As Jamie Wilhelm [Scottish Government] pointed out this is a last resort with checks and balances and the Lord President would be involved in the process.

Should any regulator not have some form of oversight in case it is failing in its duties?

Law Society Inspections

From my experience (and this is something that the Bill does not tackle) the Law Society needs a good hard look at how they actually conduct inspections of legal practice units.

The process is unduly slow, cumbersome and unnecessarily adversarial. The inspection staff hallucinate in a way that would put ChatGPT to shame. They make assumptions that bear no resemblance to reality. Statements made by the practice unit are twisted and turned into something that was never said or meant. No real help or assistance is on offer.

This is an issue that I will be more than happy to discuss after today’s event with Diane McGiffen and Rachel Wood as it really is a serious problem that the Law Society needs to urgently address.

The issues surrounding inspections demonstrates the problem with a lack of a truly independent regulator. Solicitors cannot easily or readily seek help from their own representative body in challenging or dealing with inspectors who have gone off the rails and/or processes and procedures that are not fit for purpose.

Is it possible to move from consensus on concerns to consensus on solutions?

I have been asked to consider whether it is possible to move from consensus on concerns to consensus on solutions.

However, I am not sure that we ever had consensus on concerns.

The Consultation Analysis on Legal Services Regulation Reform in Scotland showed the lack of real consensus with often, as Siobhian Brown pointed out, about a 50:50 split in views. Although the analysis did point out that, there was evidence of coordination of responses. Mostly, this was respondents supporting the Law Society of Scotland’s organisational response.  I am not sure that the Scottish Government gave this factor the weight they should have when deciding to abandon the primary recommendation of Esther Roberton.

Can we have consensus on solutions? Probably not as we already have the Law Society of Scotland up in arms and claiming that the Bill undermines the independence of the legal profession from the state.

A lot of the Bill is also a bit of a fudge. Possibly trying to please everyone but unlikely to please anyone. What Siobhian Brown referred to as a “proportionate approach for stakeholders”!

From slow movement to fast change?

It is 13 years since the enactment of the Legal Services (Scotland) Act 2010.

Whilst that Act provided for the creation of licensed legal service providers in Scotland, 13 years later and not one has been seen as yet.

In 2016 the Law Society Gazette (of the Law Society of England & Wales) looked at the question of Alternative Business Structures in Scotland with the headline ‘ABSs in Scotland – rarer than Nessie‘.

The fact that an ABS or LLSP (as they are in Scotland) has yet to be spotted is not because there is no desire to create them.

It is because the Law Society of Scotland and the Scottish Government have taken forever and a day to finalise a scheme for licensed legal service providers.

That Scheme was eventually finalised and it was announced, on 22 December 2021, that the Law Society of Scotland was appointed as an approved regulator of licensed legal service providers.

16 month later and we still await, with bated breath, the ability to actually apply to become a licensed legal service provider.

However, when that eventually happens it will still be under the rule in the 2010 Act that 51% ownership must be in the hands of an investor who is a solicitor and/or an investor who is a member of another regulated profession.

Why 10%?

The Bill proposes to change that rule from 51% to 10%. That is simply daft and yet another fudge.

In their response to the Consultation Analysis the Scottish Government said:-

We agree on the need to liberalise alternative business structures (ABS), removing restrictions which under the Legal Services (Scotland) Act 2010 currently require such firms to operate for ‘fee, reward or gain’, and which require to have a minimum ownership of 51% by regulated professionals.

This would allow greater flexibility in respect of ABS, to address concerns that Scottish legal firms are at a competitive disadvantage compared to other jurisdictions.

However, their proposal to reduce the ownership percentage to 10% does not address concerns that Scottish legal firms are at a competitive disadvantage compared to other jurisdictions when in England & Wales it is 0%!

There is no good reason why there should not be parity on this with England & Wales and I hope common sense will prevail and by the time this Bill is enacted the current 51% rule and the proposed 10% rule will both be removed entirely.

[Alison Hook later pointed out that the 10% limit was a potential barrier to seamless LawTech. She said that some ABS models would not be possible with this limit in place.]

Whilst it may appear to some, that we suddenly have fast change we do not really. We have further changes that are 13 years too late and still lack any enthusiasm with a purpose.

Grasping the opportunities presented

On grasping the opportunities presented, I am afraid that there is not an awful lot to cling onto.

One beacon of hope may be the provision of an updated complaints regime under the new Scottish Legal Services Commission (currently the Scottish Legal Complaints Commission).

The Commission will have certain powers over the Law Society of Scotland, which surprisingly the Law Society do not appear to be publicly objecting over.

But it is an updated complaints regime that interests me.

The Consultation Analysis stated :-

The Roberton Report advised that there was clear agreement in relation to the view of the legal complaints and redress process. It found a strongly held perception in the sector that the current complaints system was not fit for purpose.

The Bill appears to leave the rules as to new practice and procedure very much up to the Commission. It does, however, remove the right of appeal to the Court of Session and replaces that with a referral to a review committee but ultimately open to judicial review.

Therefore, there are opportunities for the complaints process to be improved and it is hoped those will be grasped.

SLCC Complaints Process

I have already had a dig at the Law Society over their current inspection process so it is only fair that I do the same now with the Scottish Legal Complaints Commission over their current complaints process.

They need to:

• Be firm that if a complaint is lodged late it is ineligible to be considered. It has prescribed. There should be no discretion allowed. I am unsure if that is adequately covered or not by section 53 of the Bill.
• Have time limits for responding that is equally fair to all parties. Currently the Commission dictate short time limits for responses and then sometimes take forever and a day to deal with matters at their end.
• Give full disclosure to each party of all relevant documents produced that a party may need to study and comment upon.
• Not get involved in potential professional negligence claims and treat those as service complaints. These involve full legal arguments and an analysis of the law. This is not something that complaint handlers are equipped to deal with and it should be the preserve of the court system.
• Make mediation compulsory.
• Remove the £5,000 fee if the matter goes to and is upheld by a determination committee as this is used unfairly to persuade solicitors to accept settlement recommendations that are not necessarily fair and reasonable.

These are issues that I will be more than happy to discuss after today’s event with Neil Stevenson.

Revisit the Primary Recommendation if we can and actually be Ambitious in Regulatory Change

And, lastly, if there remains any opportunity when the Bill progresses through its various stages in the Scottish Parliament to grasp the opportunity to revisit the primary recommendation that should be done.

An independent review into regulating lawyers in New Zealand (the Paterson Review) has very recently recommended the establishment of a new independent regulator to regulate lawyers.

It will be a sad indictment for Scotland if we ignore the Roberton Review but in New Zealand they accept the Paterson Review. If that happens then, unlike Scotland, the land of the filming of The Lord of the Rings will have:-

One Regulator to rule them all,
One Regulator to find them,
One Regulator to bring them all
and in the darkness bind them.

Blog Posts on Legal Services Regulation Reform

For all blog posts on this topic see: Legal Services Regulation Reform in Scotland

Image credit: Elijah Wood in The Lord of the Rings: The Fellowship of the Ring (2001) © New Line Productions

Comments on being ambitious in regulatory change

The following comments were made by those at the Conference on hearing the talk on being ambitious in regulatory change:-

Brian’s contribution is a welcome series of bracing challenges to pretty much everyone on the pitch.

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Bravo Brian Inkster!

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I cannot tell you how much I enjoyed your contribution. So refreshing to hear a point of view expressed unflinchingly and clearly in that way.

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Reactions on Social Media on being ambitious in regulatory change

On LinkedIn the following comments have been made:-

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

Yes, not a very impressive proposal.

Liberalising ownership without making regulation independent of incumbents seems to me to involve a conflict of interest for the regulator.

Has there been an official statement of the reason for the proposed 10% rule? And what kind of 10% is it – 10% of voting rights or economic rights, or both? Is the idea that the 10% minority will provide some kind of ethical input or guidance to ABSs? That doesn’t sound to me like a benefit realistically likely to be achieved by a 10% rule.

I wonder if the the fudge arises from a wish to somehow address the contradiction of not having a level regulatory playing field.

p.s. When I used to work in China, there had been a history of incomers having to give an interest to incumbents. This led to rent-seeking and other unhappy effects. While the details are different, I can see potential for various odd results to happen here as well.

Me:

The Policy Memorandum states:

“The Bill at sections 77 and 79 will seek to liberalise licensed providers by removing restrictions which currently require such firms to operate for ‘fee, gain or reward’, and to have a minimum ownership of 51% by regulated professionals. Instead, regulated professionals would require to have at least a 10% stake in the total ownership or control of the entity. This will allow greater flexibility to address concerns that Scottish legal firms are at a competitive disadvantage compared to other jurisdictions.”

The Explanatory Notes add nothing to that.

So no real reason given for retaining any level of % stake.

“Ownership or control” so is that voting and/or economic?

The Law Society wanted to retain the 51% meantime:

“We are now at such an advanced stage of being able to introduce alternative business structures that we believe it would be sensible to delay any amendments until such a time as an evaluation can be made of how the legislation operates in practice and the extent to which this encourages – or discourages – new entrants into the legal services sector.”

Bonkers of course. But did this lead to the 10% fudge?

Graeme Johnston:

Thanks!

Just had a quick look at the Bill.

Leaving aside the 10% issue, something which I find troubling is s86 (see image) – government power to amend the 1980 Act to change the ‘reserved legal activities.’

That’s important given the narrowish scope of the RLAs at the moment. So, for example, we don’t have regulation of ‘advice’ generally – something which has been a cause of litigation, prosecutions and restrictive practices in some other countries.

A decade ago, when the LSB considered expanding the definition in E&W to cover ‘general advice’ for consumers, they went through a public consultation and concluded (correctly, IMO) that it would be a bad idea. So they dropped it and haven’t resurrected it.

Given the poor quality of the process which followed Roberton, I wouldn’t have much confidence in giving such power to the government. I would say it’s important enough to fall into the objectionable ‘Henry VIII clause’ category. It seems to me to be vulnerable to lobbying of a non-transparent nature, even with the proposed requirement (see screenshot) to consult the CMA before making changes. They’ve already shown themselves prepared to ignore the CMA on Roberton.

Me:

Interesting.

I hadn’t pondered that section and don’t think it was specifically raised by anyone at the Conference.

There are lots of checks built in at sub-section (3). Hopefully, no mischief is intended by this provision but I get your point and can’t recall any suggestion as to what might need to become a RLA.

Also with the complaints process now including the ability to complain against those who are not regulated but providing non-regulated legal services (section 62) the need for section 86 (if ever thought necessary) would appear to diminish?

Graeme Johnston:

Thanks – yes, the jurisdictional extension under s62 is already quite significant and could be said to support deletion of s86. Incidentally, I wonder how the standard laid down in s62 (‘the quality which could reasonably be expected of a competent unregulated provider’) and its difference from the standard expected of a solicitor will be interpreted in practice!

Me:

I wonder if some of those operating in the unregulated world will cease operations when they see themselves being caught by the complaints process?!

Graeme Johnston:

Yes, that could conceivably happen, with good or bad results depending on the circumstances.

For example, I’m aware of unregulated employment advisory services which often reputedly provide a reasonably costed and pragmatic service which can improve understanding of employment practices, and rights and obligations, even though their appreciation of some legal issues may not be as accurate as a specialist law firm. I suspect that such providers will fall within the expanded complaints system. I don’t have enough information about the complaints system to know whether that will result in a net public benefit (i.e. raising advice standards while keeping it affordable and therefore increasing employment standards) or harm (i.e. reducing affordable advice, and thereby lowering employment standards).

The LSB published an interesting review of the unregulated sector in E&W last year, concluding that it’s quite large and useful (particularly for SMEs), though with significant uncertainty and some concerns (particularly for consumers) – https://legalservicesboard.org.uk/news/lsb-research-on-unregulated-legal-services-reveals-potential-consumer-benefits-and-detriments

Me:

Good points and thanks for the link. Interesting that “those using unregulated providers appear more likely to report dissatisfaction”.

Graeme Johnston:

Yes, though perhaps the most dramatic finding was how much more positive many SMEs surveyed feel about their accountants as compared with their solicitors!

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David Flint (Commercial Law Consultant at Inksters; Visiting Professor at Creighton University School of Law):

It is unfortunate that the opportunity has been lost for a rational and reasoned revision of the present position.

Even if one accepts that the LSS should be a regulator of the legal profession the proposals fail to understand that LSS cannot be the compulsory representative body for solicitors (and if LSS gets its wish of everyone who provides advice on the law) as well as the regulator. I don’t want LSS to represent me (but I don’t get that option and have to pay for the privilege).

In the real world being the regulator / prosecutor of solicitors as well as the compulsorily representative body would be considered as a conflict of interest; but LSS fails to understand that. Equally how can LSS represent the interests of solicitors and the public in relation to those solicitors which might be thought as a conflict in the real world. LSS must be the only professional body which acts against its members. If a problem or query arises, to whom should the solicitor turn? The regulator/prosecutor?

The absurd suggestion that LSS should have any say in who is allowed to used the descriptor “lawyer” has little to do with the protection of the public – the egregious cases which are trotted out as justification could be addressed by appropriate court orders against those few individuals and by an enhanced campaign showing the benefits of using a solicitor – and has more to do with LSS seeking to expand an empire which is paid for by those who have no choice but to pay.

There are many wonderful people providing legal advice who do not purport to be solicitors; those who choose to deal with them, as I have done personally, do so in the knowledge that they are not solicitors. The Scottish Parliament should reject this attempted power grab!

I doubt that there will be any real amendment of the Bill as it passes through the Scottish Parliament as that has been the experience to date; however, we can hope.

Me:

I agree that we need to be careful not to be over regulating or regulating just for the sake of it. We also must be careful not to extend the height of ivory towers.

I have personal experiences of unfortunate confusion by the public over a non-practising solicitor possibly being a ‘practising’ lawyer.

So I do believe something needs to be done about that but it does need to be proportionate and not affect “lawyers” who are not misrepresenting themselves. I think the Bill does that although there does need to be “intent to deceive” and I am unsure how that will require to be demonstrated in practice.

David Flint:

At its simplest a statement on the lawyer’s website “I am not a solicitor” would seem to be a less expensive and less intrusive solution. However that would not assist the principle purpose of the proposal which is empire building by LSS

Me:

We can maybe suggest that as a solution to the Scottish Parliament when they seek to consult on the proposals within the Bill!