One more time: we are NOT deregulating

Time and again I hear (or read) that the Legal Services Act is deregulating the legal services market.  It is not.  Everything that is currently regulated remains so.

It is true that people who are not authorised persons (shorthand = legally qualified) are able to offer legal services that are not reserved activities.  This was true before the Act, which makes no difference to this situation.  So no deregulation there.

It is true that the Act now gives the power for the reserved activities to be changed.  It would therefore be possible for something that is currently regulated through reservation to authorised persons to become deregulated if the activity ceases to be reserved.  But I have heard not a whisper that this is likely to happen.  So no deregulation there, either.

Now, an activity that is presently not reserved could become so (the Legal Services Board is just starting to look at will writing and estate administration).  But that would bring what is presently unregulated – if not done by authorised persons – within the regulatory framework.  So still no deregulation.

Existing regulators – or even new ones looking for approval – can apply to regulate more reserved activities, but that will bring their members within (or more firmly within) regulation.  Still no deregulation.

And finally, people who are not authorised persons can apply to become members of legal disciplinary practices (until the ABS licensing framework comes into play), or members of ABSs, or to be approved as Heads of Finance & Administration (or the SRA-equivalent of Compliance Officers for Finance & Administration), and ABSs as entities will need licences.  In other words, more people who are not currently regulated will have to become regulated in order to operate.  No deregulation.

For the life of me, I can’t find any deregulation.  Perhaps what the ‘deregulators’ are really griping about is the increase in regulated competition.  But that’s a gripe about competition, not deregulation.

I’m left with the feeling that the complaint is really about new regulated competitors who will do things differently.  For the detractors, the issue seems to be the supposed hordes of ‘pile-it-high, sell-it-cheap’ merchants who are going to swamp the market and who will ‘inevitably’ ignore professional standards and produce low-quality services.  To them, ‘different’ couldn’t possibly mean better, more client-friendly, or cost-effective (yes, alright, cheaper).  This difference could be described as ‘liberalisation’, but it’s not deregulation.

The fact is, it’s time to face up to three uncomfortable truths.  First, there is a risk that the future will see more unregulated providers offering non-reserved legal services.  However, that could always have happened, and is not a result of provisions of the Act or a form of deregulation.

Second, there is indeed a risk that the new regulated competitors might rip off their clients, provide poor service or behave unethically.  However, they will be regulated, so the response does not lie in barring their entry or shouting ‘foul’ about their scale or methods, but in the regulators doing their job and taking robust action against the transgressors.

Third, and perhaps most difficult, is accepting that the present regulated community has authorised persons who are not doing a good job.  Sadly, some of them are incompetent, unethical, engaging in criminal activity, misleading clients, overcharging, providing poor service, or running their businesses in ways which would, frankly, be laughable if they weren’t so serious in their consequences.

I know it’s not the majority of practitioners who behave in these reprehensible ways; but for professionals to adopt a ‘holier than thou’ stance, and assert that all new entrants are ‘bound’ to cut corners, behave unethically and sell cheap, low-quality services, hardly does them any favours.  It can only be interpreted as self-serving objection dressed up as concern for clients.  Unfortunately, those same professionals have for years defiantly ignored a mountain of evidence – and still mounting evidence – that they are not delivering what the market or clients really want.  This focus on concern for clients I’m afraid has a hollow ring to it.

Until the professions accept that they are not universally made up of competent, ethical, high-quality, individuals and firms who are of undoubted integrity AND that the new regulated competitors are not inevitably all unruly shysters and charlatans, they are not likely to gain much of a serious hearing about the effects of liberalisation.  After all, the Parliamentary intent is to liberalise.

So, please, no more talk of deregulation.  And because none of us knows how many unethical and poor quality providers there are in the currently regulated community, let’s stop taking cheap shots at new regulated entrants who are collectively likely to have no different a profile to the professions’.  It’s time to get on with the new world rather than seek to deny, defer or avoid it.

If there comes a time when there’s incontrovertible evidence that regulated practitioners and firms have failed in their obligations (rather than just assertions and assumptions that they surely will), and when there’s incontrovertible evidence that the regulators have failed in their duties of identifying and dealing with transgressors (rather than just assertions and assumptions that they surely will), then that will be the time to create a fuss – and, believe me, someone will.

Until then, let’s get on with it, instead of wasting time and energy misdescribing the inevitable.

Postscript: There is also an excellent post by Richard Moorhead on this topic: The Deregulation Debate – My Twopennyworth.

17 thoughts on “One more time: we are NOT deregulating

  1. Pingback: At the crossroads of regulation

  2. What frustrates the thousands of small firms out there, and we have sympathy on this, is that for some years already, there has not been a level playing field. Unregulated businesses market themselves and make promises which are perhaps false or misleading and which can result in them taking market share with the double whammy that consumers don’t differentiate between them and solicitors, so “lawyers” generally get a bad rep. As against this, solicitors have not been good at helping themselves and the Law Society has not done enough to help solicitors differentiate themselves from the unregulated. We fear that solicitors will not be the winners here, but we shall see.

  3. Pingback: Deregulation Versus De-monopolizing — A Complex Debate Just Begining | Richard Zorza's Access to Justice Blog

  4. Hi Stephen

    The issue is little to do with regulation, reserved activities etc. Ultimately the market will decide and yes the market is pretty good at deciding between good and bad, workable and unworkable e.g. 78rpm 33/3rpm, cartridge, cassette, CD, mp3, streaming etc. And the music played on.

    To illuminate the real issue let me recite what a highly respected Managing Partner said to me recently,

    “Jon, lawyers have had it good for so long. Now that has stopped. Most lawyers are in denial. Most lawyers are wishing and hoping it goes back to the way it was. It won’t. But that is nothing to do with LSA and everything to do with the economy. The sooner we get our heads around that, the sooner we will start delivering what the market wants.”

    Truth is though we can bang our heads all day about what lawyers should and shouldn’t do to prepare for the future. When an animal is scared it does not respond well to being ‘shouted’ at or lectured to. (No reflection on this post btw)

    “I despair at some of the black-and-white opinions I see from solicitors in blog posts…”

    I know where you are coming from Tom, BUT you can’t blame just the lawyers though. You should see some of the ignorant and naive views I see from consultants in this sector…it beggars belief and they are advising law firms. Lawyers get bombarded by so called experts who know as little as them about what is actually going on but portray themselves as having some kind of inside knowledge.

    So, in my view, before any change will happen there needs to be calm, rational exchange of views. Yes I know it doesn’t hit this months target etc for some but this is big stuff.

    Lawyers need to feel that it is safe to come out and explain their worries. Solution providers need to leave their product and jargon at the door for now or at least turn down the volume and wait for the invites. Just because it is not happening now doesn’t mean it never will. And yes they are scared by competition, if I was them I would be too but sooner or later something will have to give and that is the lawyers choice, not ours.

    Best

    Jon

  5. Excellent article, clear and lucid, as others have said. Lifts the fog a little and interesting allusions to Big Bang. Thanks Stephen

  6. I agree, and excellently put. It is worth stating the possibility (restating what you say really) that competition if is likely to have some similar effects to de-regulation so in a way the label (deregulation/reregulation) is not the important thing it is the quality of regulation (which has always been suspect) and how that responds to increased competition that are the important things.

  7. Thankyou Stephen – a succinct and elegant piece – and one which makes me feel I can maybe come in from the cold a little. Back in 07 I told VCs salivating at these possibilities that they were illusory. For what it’s worth, most older heads, saw through it. I may still be a lone voice saying that it is ‘protectionism’ by any other name, but the economic implications are the same.

    Now we have the worst of all possible worlds – increased disruption and cost for advocates and lawyers at all levels. Increasingly we also have rejuvenated regulators multiplying and extending remits. All this in the name of increased competitiveness when it is fixed and alternative pricing structures which are seeing the haemorrhage of new business to competitors.

    It is important for the profession to realise that protectionist measures against a competitor such as retail insurers is not only ineffective but dangerously illusory. Don’t get mad – don’t get even – get better.

    David R Johnston
    MD RBP

  8. A most interesting read, Stephen. It seems to me that the confusion here arises over the distinction between de-regulation and re-regulation. The former is a rare occurrence these days whereas the latter is quite common. A similar misinterpretation happened over Big Bang and the regulation of financial services in the 1980s. It was expressed as deregulation but in fact was reregulation and we saw a slew of regulators come into existence eventually consolidated into the FSA. As you point out, liberalization and deregulation are not co-terminous and must be distinguished in order for people to understand what is taking place.

  9. Hello Stephen,

    Thanks for a useful article that clearly highlights some of the misinterpretations of the LSA. I’ll be pointing some people towards your article to help them understand the future.

    I’d like to pick-up on your added comment about the general view that the LSA….
    “…will let the unregulated into the market to compete in unfair ways.”
    because it highlights the next steps on from your article and another misunderstanding in the legal services market.

    That misunderstanding is still common and persistant in current coverage of the legal services sector. It repeats that competition is still to come “after the 6th of October”. “One more time….” competition is already here, well established and mostly ignored by busy solicitors. That’s because the promotion of these legal services is not aimed at target market groups that contain many solicitors. (Quality Solicitors LAPs may have changed that because it’s high profile promotion that are hard to avoid)

    Which leads to my other point, “to compete in unfair ways”. You’ve got that exactly right and if I may extend that idea. Many of the solicitors who criticise the new competitors see marketing management, promotions and selling as unfair, unprofessional and too much like ‘trade’ as David Monk has said.

    Whatever the regulations are that govern the provision of reserved (and other) legal activity businesses, whether new ABS types, city commercial firms or tradition high street multi-practice domestic and SME types, it has little impact on their clients’ needs. The firms that will make profits and succeed in the future are those that understand the LSA in not ‘de-regulation’ and will accept and use commercial marketing management techniques to deliver valuable services (reserved or not) to their chosen target markets.

    People need solicitors; solicitors need to tell people the benefits of using their services. Just like the feared ABS new-comers will.

    Alastair Moyes
    Marketlaw

  10. Agree with Paul Rogerson. I’ve always assumed when people are talking about “deregulation” in terms of the LSA that they’re talking about easing of ownership controls, to allow freer movement of capital and new entrants.

    • I agree, but my point is that this easing isn’t done in an unregulated environment (many lawyers seem to assume, mistakenly, that the new entrants will have the benefit of a free-for-all denied to them): it will only happen when those currently on the outside choose to enter the regulated arena … which isn’t strictly deregulation but an extension of regulation (hence my preference for ‘liberalisation’ rather than ‘deregulation’).

      I think, on reflection, the more serious point is that lawyers are trying to make the ‘deregulation’ argument as an assault on any process that allows non-lawyers to do anything in legal services (whether own a firm, provide finance or deliver services, and even if it is within a regulatory framework). On that basis, their argument is not so much about deregulation as about the perceived de-professionalisation of their work. Implicit in this is that there is only one acceptable view of quality (theirs, rather than clients’), and of ownership (theirs, rather than anyone who isn’t a lawyer), and that any variation must result in a decline in quality. As a universal proposition, that’s just arrogant and patronising, whatever description we might use.

  11. Spot on, Stephen, not just about deregulation but also about many solicitors’ “holier than thou” stance, as you put it. I despair at some of the black-and-white opinions I see from solicitors in blog posts, forum comments, etc.

    I’m glad to say, however, that this is not the prevailing attitude of the solicitors I’ve spoken to recently, who recognise the profession’s flaws, as well as its strengths, and recognise opportunities and threats from the LSA.

    Good comment from Chrissie too.

    All in all, a rather uplifting post!

    Tom

  12. On the narrow definition of that word perhaps; but in the context of business ‘deregulation’ is most commonly defined (and here’s one such definition) as ‘Revision, reduction, or elimination of laws and regulations that hinder free competition in supply of goods and services’, which is precisely what the LSA, for better or worse, seeks to achieve…

    Regards
    Paul Rogerson
    Editor, LSG

    • Well, we’ve certainly had revision. My argument is against those who suggest that ‘deregulation’ will let the unregulated into the market to compete in unfair ways. The LSA simply does not deregulate (or reduce, eliminate or revise) to do this.

  13. Hi Stephen

    A wonderful piece, as always. Succinct, with clarity and LIC.

    Ironically we lawyers (as a profession – and in particular those as the top of the tree) have been accused of being unruly shysters and charlatans for many years due to the bad behaviour, lack of truly caring for the client and greediness of a few. It is little wonder that lawyers may look upon the innovative new competitors harbouring similar traits, but I suspect it will be the few, rather than the many. We are, after all, dealing with human nature.

    Bottom line, I reckon those lawyers who accuse the new players (without even giving them a chance to come to the table) are simply fearful that the new players will show the present lot how it should be done – aka extraordinary client service.

    Arguably we lawyers have exploited our privileged positions for far too many years and it’s high time the profession was liberated to enable market forces to raise the bar. I wholeheartedly believe that this will happen because the new competitors will force the present practitioners and their firms to up their game. Over time this ought to result in quality standards and client standards increasing incrementally as the legal industry evolves.

    I’m excited for both the UK and the global legal market as there will be two sets of winners (for sure)as a result of all of this extraordinary change – customers and employees. Do you think?

    Tnx for sharing.

    Warmest

    Chrissie
    The Entrepreneur Lawyer
    (of the naked kind)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s