Changes, trends and ABS in England and WalesChris Kenny, Chief Executive

Regulatory Reform for a 21st-century Legal Profession, Dublin 6 July 2012

Agenda

– The history of the reforms in England and Wales

– The regulatory architecture

– Progress to date

– Alternative business structures (ABS)

– General observations

The history of the reforms

– March 2001: “Competition in Professions”: Office of Fair Trading: open competition

– July 2002:“In the Public Interest?”: Lord Chancellor's Dept: competition to give best consumer service

– July 2003: Conclusions on “In the Public Interest?”

– December 2004: “Clementi”(Report of the Review of the Regulatory Framework for Legal Services in England and Wales)

– October 2005: “

Putting Consumers First” (Dept for Constitutional Affairs)

– May 2006: Draft Legal Services Bill

– July 2006: Joint Report (both Houses of Parliament) on the draft Bill – chaired by Lord Hunt

– October 2006: Full Bill published

– October 2007: Royal Assent

– January 2009: Legal Services Board formally created

– January 2010: start of full powers for the Legal Services Board

The history of the reforms

Drivers of change– Collapse of confidence in self-regulation

– Perceived anti competitive restrictions

– The ‘regulatory maze’

– Regulatory failure in complaints-handling

The new regulatory landscape

Regulatory Objectives– Protecting and promoting the public interest

– Supporting the constitutional principle of the rule of law

– Improving access to justice

– Protecting and promoting the interests of consumers

– Promoting competition in the provision of services

– Encouraging an independent, strong, diverse and effective legal profession

– Increasing public understanding of the citizen’s legal rights and duties

– Promoting and maintaining adherence to the professional principles

The new regulatory architecture

Legal Services Board– Oversight regulator for the sector

– Independent of both the profession and government

– Sponsored by the Ministry of Justice - Memorandum of Understanding

– Paid for by levy on lawyers

– Duties and enforcement powers

– Small – staff of fewer than 30, budget of less than £5m

Vision

– Greater competition - development of new and innovative ways of meeting demand

– A market that allows access to justice for all consumers, helping those whose incomes exceed legal aid thresholds but who need support

– Better empowered consumers, receiving the right quality of service at the right price

– An improved customer experience with effective redress if things go wrong

– Greater innovation and partnership between lawyers and other professionals

– Clear, proportionate and targeted regulation

Early priorities and progress

– Certifying independence in regulation

– Liberalising the market to increase competition

– Ensuring redress for consumers when things go wrong

Results

– Second round of certifying governance standards against Internal Governance Rules

– Solicitor and Conveyancer-led Alternative Business Structures opening for trading

– Successful full year of operation for the Ombudsman, plus progress on first-tier complaint handling

The development of ABS

The Legal Services Act 2007 set out a framework

– Approved regulators applied to be “Licensing Authorities” (LAs) of ABS

– Detailed requirements – structure and ownership

– Clearly set out the roles for regulation of entities

– Strong uniform powers for all LAs

Financial penalties (£50m for individuals, £250m for entities)

Enforcement powers

Exception to the Rehabilitation of Offenders Act

– Two LAs operating – CLC and SRA. Others working towards applications

– Regime started with first licence on 6 October 2011

The approval process

The ownership and management

– Material interest holders need to be approved

Those who hold 10% of shares or voting rights

Those who exercise significant influence over the management

– Three tests. The holding:

Does not compromise the regulatory objectives

Does not compromise the duties on regulated people

Is “fit and proper”

– Approval and ongoing monitoring – sanctions on owners including forced divestiture

The approval process part 2

Organisational evaluation

– LAs looking more at funding and business models

– Are the right people involved?

– Are the systems right?

– What else is the business doing?

Conditions on licences covering non-reserved activities

The HoLP and HoFA

Two new statutory roles required by ever ABS

– Head of Legal Practice (HoLP)

All reasonable steps to ensure compliance with rules, duties of managers and professional principles

Duty to report failure to LA

– Head of Finance and Administration (HoFA)

All reasonable steps to ensure compliance with accounts rules

Duty to report failure

– Can be the same person

– SRA using the roles in all firms – CoLP and CoFA

Impact of ABS on the rest of the sector

Market reacting to ABS – even before ABS started

– Level playing field between ABS and non-ABS

– New Code of Conduct for Solicitors

– Taking opportunities that have been open for some time

– New business models more aligned to modern business management

Emerging models

New models already coming to light

– Franchise models – Quality Solicitors

– Fixed fee law-as-a-service (LaaS?) – Riverview Law

– Alternative remuneration strategies – Scott-Moncrieff & Associates

– Retail providers – Cooperative Legal Services

– New intermediaries – Eddie Stobart

– Small firm models – partnerships, succession planning

– Accountants are on the way

Numbers and expected uptake

Small numbers of ABS to date but many more interested

– 8 licences issued

– 30 completed stage 2 of application process

– circa 130 in stage 2

– circa 180 at stage 1

– LDPs – stepping stone to ABS about 320 will need to transfer to ABS by mid 2013

General observations

– Outcomes-focused regulation

– Regulation is better focused on risk – by subject and firm

Better data flows will enable more targeted interventions

Lower-risk businesses will be treated with a lighter-touch

– LSB has help change the dialogue in the market – evidenced based.

– Exciting research into consumers and providers showing the way

– Real independence from the MoJ – no powers of Ministerial direction

Questions?

– Questions now

– Panel discussion later