The Deregulation Debate: My Twopennyworth

Stephen Mayson has written an excellent post on legal services reform tackling the deregulation myth. As he correctly points out, deregulation is not what the Legal Services Act is about. It encourages more competition and it is leading to the liberalisation of ownership and business structures but the same services that were regulated before the LSA are regulated now and are likely to remain so. Indeed, will writing and probate administration may be not far off joining the odd club that is reserved activities.

Posing the debate in terms of deregulation becomes rather easily painted as a protectionist position. It is almost entirely lawyers who talk about deregulation. There is also an assumption behind that position that regulation pre-LSA was fit for purpose which it was not. The key issues that are raised by the Legal Services Act are whether current regulatory tools adequately cope with current and growing levels of competition. They are surfacing the irrationalities which lay behind the old scheme and which have only half been tackled by the Clementi-inspired reforms. It is the quality of regulation that counts; market liberalisation and the separation of professional representation and regulation is beginning to test that quality. We can expect a much fuller and somewhat better informed debate about what works than was the case under the old structures and within the not too distant future further, probably radical, reform. The success of the Clementi reforms will be in exposing the flaws in our system, rather than solving them

That said, there is an important sense in which the reforms are deregulatory. Market liberalisation is already leading to greater competition and more radical forms of competition. By more radical competition, I mean new forms of service delivery which challenge traditional providers not just on price and quality but also in terms of the very essence of the service. There is a dramatic difference between (say) a firm selling personal injury services and the services of a private ombudsman (which is how I see the Centre for Justice).

These new services compete in two ways. They compete for business and the compete ideologically. They create completely new types of service which lie outside regulatory frameworks, Mediators say not only that they are cheaper and quicker but that they are completely different from ‘lawyers’. An attempt by lawyers to annex them to litigation has been only partially successful. Mediators are trying to develop an identity separate from lawyers and courts. They are seeking to provide a rival professional status.

Another example is the Centre for Justice. It is a lawyer led dispute resolution service, not a representative who acts as part of a bigger system. It is a reconceptualisation of representation, mediation and adjudication. It replaces three players (two sets of lawyers and a court) with one. From a client perspective, what’s not to like? Web-based dispute resolution systems will also evolve.

Sometimes these new services will throw up completely new regulatory challenges. It is, for instance, to my mind very difficult to see why litigation would be a reserved activity but dispute resolution (by mediators or private Ombudsmen) is not. In that sense, innovation in legal services has and will continue to create new spaces within the legal services market which are totally unregulated. This will stimulate innovation and opportunism; detriment and benefit – it demands a regulators, researchers and the professions scrutinise developments carefully and objectively.

At the moment, I do not see a great deal of evidence being generated about the changes underway. Arguments aplenty, but then we’ve always had that and where has it gotten us? Arguing about whether something is regulated or unregulated misses the point: we need to know whether it is good or bad, what risks it poses, whether and how to mitigate those risks. Times have moved on; but our ways of scrutinising change have not.

2 thoughts on “The Deregulation Debate: My Twopennyworth

  1. Richard, I agree with your analysis. However, I would add that there are two reasons why solicitors in particular regard the advent of ABS as deregulation. The first is that they do not trust the SRA to put in place a sufficiently robust “fit and proper person” test for the the owners and managers of ABS and thus fear that new ABS entrants will trade under a less onerous regulatory regime than they do. The recent insolvency of Bostalls, the non-lawyer owned business that provided telephone advice under the CDS Direct scheme (and thus was the first ABS) can be used as evidence in support of that suspicion. The second reason is the phenomenom of regulator shopping as legal services suppliers decide to switch regulators in the hope of finding a less restricting regulator whose requirements will reduce their operating costs. This trend has already started, as some solicitors firms that specialise in conveyancing have become licensed conveyancers in order to benefit from cheaper PII and is likely to continue.

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