CMA market study and the pressure for regulatory change

The Competition & Markets Authority (CMA) published the final report of its market study into legal services in December 2016.  At 285 pages (and a further 233 pages of appendices), it is not a light read!  Nevertheless, it is worthwhile – though for those with less time or stamina, the executive summary on pages 4-19 will give a flavour of the review’s scope, conclusions and recommendations.  It should also be emphasised that the scope of the study was intentionally limited to the experiences of individual consumers and small businesses, and that criminal legal services were excluded.  The study is not therefore a review of the whole legal services sector.

The headline conclusion from the review is that the legal services sector is not working well for individual consumers and small businesses, largely because those consumers lack the experience and information they need to understand their needs, to make informed choices, and to engage confidently with providers of legal services.  The CMA also concluded that these challenges are likely to increase over time and make the current regulatory framework unsustainable in the long run (especially since, in the CMA’s judgement, that framework also does not meet the principle of targeted regulation).

These are important conclusions, and must add some critical impetus to the need for a fundamental look at the basis on which the Legal Services Act 2007 is constructed.  They lead the CMA to divide its recommendations into two parts: first, those for regulators (to achieve improvements within the current framework of the Legal Services Act) and, second, those for government (where actions beyond the framework and current powers of the Act are thought to be needed).

The CMA therefore recommends that regulators:

  1. Set a new minimum standard for disclosures on price and the service provided, the redress available, and the regulatory status of the provider.  Although this is aimed more at solicitors and other general providers of legal services, it could also affect barristers offering public access services.
  2. Promote the use of independent feedback and comparison tools to help consumers understand the quality of service offered by competing providers.  This could also be applied to barristers.
  3. Redevelop their approach to consumer education (with help and input from consumer and business groups as well as the representative bodies): again, this might have some implications (and associated cost) for public access barristers.
  4. Take action to reduce regulatory costs (particularly those relating to professional indemnity insurance, training, and codes of conduct).
  5. Remove restrictions on solicitors delivering non-reserved services in unauthorised firms.  This is the current intention of the Solicitors Regulation Authority (albeit with opposition from The Law Society, concerned about the emergence of a ‘two-tier solicitors profession’): although an individual solicitor would remain regulated and subject to all the usual professional obligations, the firm would not be regulated.  The Bar Standards Board would presumably wish to consider the implications for barristers receiving instructions from such individual solicitors or working within unregulated firms.

The CMA expected the regulators to establish a ‘programme board’ by 31 January, to publish a response to the CMA report by 30 June, and to commence a consultation on the regulatory changes recommended by 30 September.  The LSB and frontline regulators have set up a Remedies Programme Implementation Group (RPIG), which met for the first time on 19 January, and will meet quarterly, chaired by the Council for Licensed Conveyancers.  (Terms of reference and minutes of meetings are available from the CMA website.)

The CMA also made some recommendations to the Ministry of Justice:

  1. Review the case for extending redress to those consumers who use unauthorised providers (that is, those who are not legally qualified and offer only non-reserved services).  This might be achieved by increasing the jurisdiction of the Legal Ombudsman, by encouraging self-regulation among unauthorised providers, or by other approaches to alternative dispute resolution.
  2. A short-term review (“as soon as possible”) of the independence of regulators both from the professions and from government.  Such a review was planned by the MoJ in 2016 but postponed pending the outcome of the CMA report.  The CMA has now made its position clear that such a review is needed.  The unexpected resignation of The Law Society’s chief executive at the beginning of January will presumably have added further impetus to a review, given her comments that the Society’s governance arrangements are not fit for purpose.  It is perhaps not surprising, then, that in February the Legal Services Board announced that it was launching a formal investigation into the internal governance arrangements between The Law Society and the SRA, to review whether these arrangements “impair the independence and effectiveness of the performance of regulatory functions”.  The scope of the review is still being worked on, and whether or not this investigation – necessarily within the framework and scope of the Legal Services Act – will precede or replace the implementation of the CMA’s recommendation is presently unclear.  (As a further aside: if the formal, structural, legal and financial separation of The Law Society and SRA is the outcome of such a review, it is difficult to see on what basis the Bar Council and BSB could be treated differently.)
  3. A longer-term review of the regulatory framework to ensure that it becomes more flexible, with regulation being better targeted at higher-risk activities, more proportionate and cost-effective in its approach, and with a shift away from regulation attaching solely to professional titles.  On the question of the number of regulators, the CMA says that structure should flow from approach rather than being considered in isolation, and therefore makes no recommendation other than that the matter should form part of the longer-term review.  Such a review would inevitably affect all of the legal professions, in terms of what remains a reserved activity or otherwise regulated, the approach to regulation then adopted and implications for the regulatory status of professional titles, and the institutional arrangements that follow.

The Government had previously stated that there is a presumption that it will accept all of the CMA’s recommendations ‘unless there are strong policy reasons not to do so’.  It had also committed to responding to the CMA report within 90 days, indicating what steps it will take or why it is unable to take forward any particular recommendations.  However, this period has just passed, with no indication yet from the MoJ of when a response might now be expected – or what view they are likely to take.  Watch this space!

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