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Law Society Legal Breakfast


22nd September 2010

Jonathan's speech to the Law Society.

May I first thank the Law Society for inviting me to speak at this legal breakfast.

Your invitation was originally to the Justice Secretary, who could not attend and sends his regards, but as minister with responsibility for this area I was happy to accept.

In my short time in office I have already had several opportunities to meet the former and current Law Society Presidents. I am looking forward to working with Linda and the profession on this important legal reform agenda.

THEMES

The event

I note that this breakfast is about discussing the major disruptive forces faced by law firms in the next decade’. However, I would like to think not in such pessimistic terms about disruption faced by law firms - but much more optimistically about what new opportunities and better ways of working the future could and should hold.

Working together

Today I will share with you this Government’s vision on the shape of the legal sector and how we need to work together to ensure we are ready to face the challenges that change inevitably brings. But by embracing change, rather than opposing it, we can help to make the transition smoother and ultimately the future more certain. That does not mean that views and feedback should be stifled or are not welcome. Indeed, I would expect nothing less of a profession that prides itself on it’s independence from Government – and that is a fundamental principle to be upheld.

Financial Climate

The dire state of the public finances will require that each department, including the Ministry of Justice will play its part. We did so for the Emergency Budget and expect to do so again in the Comprehensive Spending Review, details of which will be announced next month.

Whilst cuts alone are not the answer, in practice they can provide an opportunity and facilitator for reform. So in Justice we are looking to effect savings in a way that is sensible in policy terms, and delivers something that is of better quality, more constructive and valuable to the public. In effect, we are being given a rare chance to consider fundamentally how to improve and enhance the way the business of justice is conducted. Within the next months, the MoJ will be consulting on court reorganisation, on radical reform to legal aid, to civil litigation costs, to family law, to defamation law, to sentencing, and to rehabilitation policy. Petty France is fairly busy at the moment I can tell you.

The Legal Services Act 2007

But when we look at legal services,, we all need to recognise that society and the way we do business – be that legal services or other - is changing. We must all move with the times.

The way legal services are structured and delivered is certainly changing and with the Legal Services Act 2007, we shall be encouraging greater competition and innovation in the legal sector, and a better focus on the consumer.

The Act makes three fundamental changes to the way in which legal services are regulated in England and Wales. The Act provides for the establishment of:

  • The Legal Services Board, as the oversight regulator with responsibility for ensuring that the regulatory objectives of the Act are to be adhered to by members of the legal profession.
  • The Office for Legal Complaints was established as the single independent complaints-handling body to deal with all complaints relating to the services provided by legal professionals.
  • Last but not least, is to be the establishment of Alternative Business Structures, through which lawyers and non-lawyers can work together to provide legal and non-legal services. This is now one of the key priorities in the programme of work relating to the 2007 Act.

I will deal with each of these 3 areas. Firstly on the OLC...

Office of Legal Complaints

A key step in the implementation of the legal services reforms was the establishment of the Office for Legal Complaints (OLC) on 1 July 2009. The OLC will administer an ombudsman scheme (the Legal Ombudsman) to deal with all consumer complaints about legal services.

Though sponsored by the Ministry of Justice, the OLC is a complaints body independent from government and the legal profession.

Transitional arrangements have been put in place for the winding-down of the existing complaints-handling system and the abolition of the Legal Services Ombudsman (LSO). The Legal Services Complaints Commissioner (LSCC) closed last March. These arrangements are planned to provide a smooth transition to the new complaints-handling system.

The OLC will become fully operational on 6 October 2010. It will provide consumers with a quick, fair and accessible complaints system and have powers to award compensation. This should ensure that consumers with complaints will have the recourse to an effective and fair system of redress.

Legal Services Board

As an oversight regulator established by the 2007 Act, the LSB is independent of the government and funded by the profession. However, the Approved Regulators remain responsible for the regulation of their members.

Work on the ABS regime is being led by the Legal Services Board with a view that alternative business structures can be implemented in October 2011.

ALTERNATIVE BUSINESS STRUCTURES

Alternative Business Structures will allow lawyers and non-lawyers to work together and provide legal services or a mixture of legal and non-legal services.

Law Society Views of ABS

Let me say firstly that both the Secretary of State and I have been greatly encouraged by the positive way in which the Law Society has committed to meet the challenges that ABS poses.

You have agreed the principles of ABS and in readiness for ABS the Solicitor’s Regulation Authority (SRA) is developing rules and regulations to license bodies seeking to become ABS.

In this context, the SRA is working towards introducing Outcomes Focused Regulation to coincide with the introduction of ABS. The model is based on achieving the right outcomes rather than prescriptive rules – and the Law Society supports this in principle.

I also know that the Law Society wants the move to the ABS regime to happen in a step-change manner – rather than a ‘big-bang’ introduction. Here I note that the development of Legal Disciplinary Practices (LDPs) since March 2009 has assisted in this process.

I am also aware of some of the reservations the Law Society has on ABS:

  • I note the concerns about the challenging timetable the LSB has set for the introduction of ABS – and that you want assurance there will be sufficient time for robust safeguards, rules and regulations to be put into place before the licensing of ABS begins.
  • I know also that you are concerned about the possible adverse impact of ABS on small firms and the need to ensure sufficient quality assurance of the changed market.
  • Then there is the potential of double regulation. For instance where an individual barrister becomes a partner in an SRA regulated firm and that barrister might do something incorrect. The firm is regulated by the SRA, but only the BSB could debar him from the Bar. I believe here that day-to-day regulation would sit with the firm's regulator, but ultimate sanctions for the practitioner, sit with an individual’s home regulator.

Concerns about ABS

Before I address further concerns that have been raised, it is important that we remind ourselves what ABS is about and the potential it offers:

The intention is for ABS to lead to improvements in service quality by stimulating competition between providers of legal services. ABS should also enable greater co-operation across the legal and other professions so that knowledge and resources can be joined together to meet the challenges of the increasingly globalised economy.

Legal practitioners should benefit by having the ability to gain from the economies of scale and the greater opportunities that larger and more diverse businesses can offer.

Consumers should benefit from the option to have all of their legal and related needs dealt with by a single entity, which we believe should make the law more not less affordable and accessible to the majority.

However, the ABS regime is NOT a compulsory measure, but a voluntary arrangement. Therefore there will be no compulsion to enter into such an arrangement – it will be a matter of choice.

Access to the justice system is an important factor and that is why the Act makes provision for each licensing authority to state how it will comply with all the regulatory objectives set out in the Act, one of which is improving access to justice. An amendment, by the way, which I moved in the Bill Committee.

The LSB is leading on the detail of the ABS work and is working with approved regulators (such as the Law Society) to assess the safeguards that need to be put in place and the potential impact of the new regime on the profession, consumers and the legal services market.

Addressing concerns

Importantly, no one should be under the illusion that I wish to delay ABS introduction, and all lawyers should be preparing for its introduction.

Risks to small or inefficient legal suppliers may be mitigated by the possibility provided by ABS that practitioners from different professions (legal and non-legal) would be able to join up to ensure that it is economically viable for them to continue to provide legal and associated services, and to gain from efficiency savings. I forsee here that those firms that take a proactive approach will benefit.

Many of these concerns can also be addressed by providing sufficient evidence that Licensing Authorities have robust rules and regulation in place to regulate and monitor bodies that they will license. Revisiting the Impact Assessment and updating it to reflect the impact of Legal Disciplinary Practices and the current legal services market will allow me to assess the impact of commencing the regime, including the impact on access to justice, sole practitioners and smaller firms before any decision to commence the regime is taken.

I would point out that there are a number of statutory processes which are required before the ABS regime is commenced. Licensing Authorities can only be designated by Order. The MoJ will draft the Orders and lay them, subject to Ministerial approval, before Parliament. A Commencement Order will also need to be laid before the ABS regime becomes operational and again this will be subject to Ministerial approval.

Governments Regulatory Agenda

I would also point out that I see ABS as part of the Government’s agenda on reducing regulation. Through eliminating the avoidable burdens of regulation and bureaucracy, this Government aims to promote growth, innovation and social action.

Freeing businesses and civil society groups from unnecessary burdensome regulation, and simplifying the complex regulatory system, can free up firms to innovate, diversify and grow. Striking the right balance - is therefore a core element of the government’s strategy for supporting economic growth.

In this context I can confirm that the Cabinet’s Reducing Regulation Committee, has considered and given clearance for continuation of the work streams relating to implementation of the 2007 Act – which includes clearance to proceed with ABS.

Political and Economic landscape

While the recession has been tough on many law firms it has also helped firms to focus on the way they organise themselves and provide services to their clients.

I do believe that the changing legal landscape should lead to a reinvigorated and more competitive legal services sector. The introduction of ABS, in particular, will allow for greater flexibility of professional services provision and businesses better equipped to respond to commercial pressures.

ABS is also expected to lead to greater innovation in the market, as providers have more scope to shape their offer, and take greater advantage of the introduction of external business expertise.

There will also be more opportunities for firms of all sizes to work, partner and merge with other professional services firms to create “multi-disciplinary practices”. These MDPs may be complex global services firms, or a local solicitor partnering with a local accountant.

Likewise, the ability to raise equity investment in legal service providers should create a real opportunity for the UK to cement its position as the place the world comes to when raising finance for professional services firms.

I am looking forward to hearing your comments on the commercial implications of the ABS reform programme.

CONCLUSION

Indeed, we, as a Government, can only implement the legal reforms I have discussed today with your support and the benefit of your expertise.

Certainly, I believe whole heartedly that we are now in an era right for such innovation. My commitment to ABS is clear – as is my duty to ensure that consumer interest remains firmly at the heart of the legal services reforms.

The legal professions have already shown that they are ready to take on the challenges of a changing legal landscape and the task of improving our legal system, so that we have in place a legal services market fit for the 21st Century – and one that we can continue to be proud of.

It is therefore imperative that we all work together to make sure that these reforms are a success for those who provide legal services, and for the members of the public who rely on them.



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