Legal services regulation reform: consultation analysis

Executive Summary

Introduction

In 2017, the Scottish Government commissioned an independent Review of the regulation of legal services in Scotland (known as the Roberton Review). The primary recommendation from this was:

"There should be a single regulator for all providers of legal services in Scotland. It should be independent of both government and those it regulates. It should be responsible for the whole system of regulation including entry, standards and monitoring, complaints and redress. Regulation should cover individuals, entities and activities, and the single regulator should be a body accountable to the Scottish Parliament and subject to scrutiny by Audit Scotland."

This represented a significant departure from the current model, and was a source of contention. The Scottish Government set out, therefore, to find some degree of consensus in order to move forward, one element of which was to run a public consultation exercise. The consultation document set out and sought views on three possible models for change - one based on the primary recommendation from the Roberton Review, and two alternatives (see Appendix A).

The consultation ran from 1 October to 24 December 2021, with written responses provided via Citizen Space (the Scottish Government's online consultation portal) as well as letters/emails sent directly to the Scottish Government. A series of eight online focus group events were also conducted to gather feedback.

In total, 158 substantive responses were received to the public consultation. This included 101 individuals and 57 organisations, and represented both legal professionals and consumers, as well as organisations representing the interests of both. In addition, 32 people attended the focus groups, again representing both the legal profession and consumers.

Key Findings

Part 1: Strategic Change, Vision and Key Aspects of the Regulatory Model

A wide range of priorities, objectives and attributes for any potential future regulatory model were explored, with all receiving high levels of support. Across all options explored, between 79% and 99% of those who gave a rating indicated that the various features set out were either very or somewhat important.

Part 2(A): The Potential Regulatory Models

Respondents were divided over their support for the Roberton Review's primary recommendation, and which of the three regulatory options they preferred. Typically, although not exclusively, consumers and those representing them tended to agree with the primary recommendation, supporting Option 1, while those representing the legal profession largely disagreed with the primary recommendation and supported Option 3. Given this division, the sample structure is important to consider when interpreting the results.

Those who supported Option 1: the Roberton Model, felt this provided a regulator who was independent of the profession, would be more consumer focused and provide greater protection for consumer rights, remove the bias and conflicts of interest which they perceived the current system as perpetuating, and ultimately improve public trust in the system.

Those who supported Option 3: the Enhanced Accountability and Transparency Model, argued that the Roberton Model would introduce parliament/government influence into the legal profession thus removing its independence and undermining the rule of law, and would introduce an additional cost to the profession which would ultimately be passed onto consumers impacting on access to justice. They also felt that the Roberton Review had failed to justify the need for such fundamental changes to the regulatory framework, instead arguing that the necessary changes could be adopted within the existing framework more quickly and cheaply. It was felt that Option 3 would be the most achievable and deliverable, while still providing the necessary regulatory updates.

While Option 2 emerged as the middle choice, it should be noted that most respondents were polarised in their preference for either Option 1 or Option 3, with respondents suggesting that any other option should be avoided. As such, proceeding with Option 2 as a perceived 'middle ground' could result in significant resistance from all sides as the perceived failings of their least preferred model would still be incorporated within Option 2.

In order to embed the consumer voice within the regulatory framework, respondents were split in their views about how to achieve this. A quarter (25%) preferred a requirement for consumer expertise within regulatory committees, 15% supported a consumer panel, 11% felt that input should be sought from Consumer Scotland, and 49% agreed that a combination of methods would be best.

Over half (56%) agreed that Consumer Scotland should be given power to make a Super-Complaint in respect of the regulation of legal services in Scotland, while just under two thirds (62%) agreed that a baseline survey of legal services consumers in Scotland should be undertaken.

Part 2(B): The Role of the Lord President and the Court of Session

Most respondents (84%) agreed that the legislative approach should make clear the role of the Lord President and the Court of Session in the regulatory framework in order to provide clarity, transparency and accountability. However, there was strong opposition to altering or removing the role of the Lord President and the Court of Session, with the majority of respondents stressing that their role in the regulatory framework was important in safeguarding the independence of the legal profession.

While there was little consensus over whether the Lord President's role should be consultative or one of consent, and whether the Lord President should have a role in the process of appointment of any new 'legal members' to relevant positions, nearly three quarters (71%) agreed that the Lord President should have a role in any new regulatory framework in arbitrating any disagreements between independent Regulatory Committees and the professional regulatory bodies.

Part 2(C): Regulatory Committees

Around two thirds of respondents (67%) agreed that regulatory committees should be incorporated into any future regulatory framework, with those who disagree instead supporting Option 1, where regulatory committees would not be required. It was also generally agreed that regulators should be required by statute to ensure that Regulatory Committees are suitably resourced, although views were mixed as to whether official ring-fencing would be required or not.

Two thirds (66%) agreed that the regulatory functions of Regulatory Committees should be subject to Freedom of Information (FOI) legislation or requests. It was also widely felt that all bodies discharging statutory duties should be transparent and open in order to engender public confidence and trust.

Part 2(D): Fitness to Practice

Most respondents agreed that the 'fitness to practice' requirements or regulations were appropriate and already worked well in Scotland. The main suggestions for change were more regular reviews of fitness to practice throughout an individual's career, and continuous assessment by the regulator (especially in relation to good character).

Most respondents (94%) agreed that there should be a test to ensure that non-lawyer owners and managers of legal entities are fit and proper persons. It was suggested that this would provide fairness, transparency, and greater protections for the public.

Part 2(E): Legal Tech

Most respondents agreed that:

• Legal Tech should be included within the definition of 'legal services' (79%);
• Those who facilitate and provide Legal Tech legal services should be included within the regulatory framework if they are not so already (69%);
• It may narrow the scope of regulation and reduce consumer protection if Legal Tech was not included (67%); and
• The inclusion of Legal Tech in a regulatory framework would assist in the strength, sustainability and flexibility of regulation of legal services (82%).

It was felt that the legal profession must move with technological innovation and that Legal Tech should be treated the same as other forms of service delivery. However, the definition and regulatory framework would need to be flexible enough to keep up with the fast-paced changes in this area. Many also felt that 'Legal Tech' needed to be more clearly defined.

There was less agreement around whether the Scottish regulatory framework should allow for the use of Regulatory Sandboxes to promote innovation - 56% agreed it should. While this approach may support innovation, it was felt important that measures and safeguards be put in place to ensure it was fit for purpose. Indeed, the key concerns among those against the use of Sandboxes, were that it could leave the legal system open to abuse, that unregulated providers may be unreliable/cause public harm, and that consumers should be protected against any 'testing' on live cases.

Part 2(F): Client Protection Fund (Guarantee Fund)

Over three quarters of respondents (79%) agreed that the Client Protection Fund worked well. While many suggested that no changes were required to this, others did offer suggestions, including:

• Moving the management of the fund to an independent body;
• That greater transparency was needed and the fund should have similar considerations to those of the Master Policy professional indemnity arrangements;
• Tightening the limit of an award to remain at £1 million per claim;
• For awards to be increased;
• Speeding up the administration of rewards; and
• That the 1980 Act was too restrictive on awarding consumers monetary losses, with a need for greater flexibility in the legislation whilst moving to limit numbers of claims so as not to exhaust the fund.

Part 3(A): Entry, Standards and Monitoring

Most respondents (81%) agreed that any future regulatory model should incorporate a greater emphasis on quality assurance, prevention and continuous improvement than the current model provides. In particular, it was suggested that there was room to strengthen existing CPD requirements as well as to make the system more 'proactive'. Similarly, most respondents (81%) felt that the rules within the regulatory framework should be simplified with the aim of making them more proportionate and consumer friendly, however, many were concerned that simplification may inadvertently remove some of the nuance required to ensure there were no 'gaps' in the rules.

Views were mixed in relation to how best to provide quality assurance and continuous improvement - 12% supported incorporating peer review processes, 16% preferred a system of self-assessment for all legal professionals, and a further 45% thought that both of these methods should be incorporated into the regulatory model.

Part 3(B): Definition of Legal Services and Reserved Activities

Most respondents agreed that there should be a definition of legal services (88%), and that this definition should be set out in primary legislation (82%). It was felt this would provide greater clarity, transparency, accountability, and consumer protection. However, it was also noted that developing an appropriate definition could prove challenging.

Around three quarters of respondents (76%) agreed that there should be no substantial change at this stage to bring more activities within the scope of those activities 'reserved' to solicitors or to remove activities. Similarly, just under three quarters (72%) agreed that it should be for the regulator(s) to propose to the Scottish Government which activities to reserve to legal professionals in the future and which should be regulated.

Part 3(C): Titles

Just under three quarters (72%) agreed that there should be a change to allow the title 'lawyer' to be given the same protection as 'solicitor'. This was considered important to protect the consumer, who may not understand the distinction between the two.

Similarly, over two thirds of respondents (70%) agreed that the title 'advocate' should have the same protections as 'solicitor'. However, protecting this title was seen as more challenging and risked creating unintended consequences due to the use of advocate roles in other sectors (e.g. social work, mental health, and the third sector), as well as the more general use of the term 'advocate' in the English language (e.g. to advocate/support an issue).

Just under three quarters agreed that the legislation should allow for the protection of other titles in relation to legal services as appropriate (72%), and that it should be for the regulator(s) to propose to the Scottish Government which titles to protect in future (73%). However, it was felt that such protections needed to be enabling and not restrictive or prescriptive.

Part 3(D): Business Structures

Just over half (52%) agreed that the 51% majority stake rule for Licenced Legal Services Providers should be removed. Those who agreed felt this would be of significant benefit to smaller companies, would encourage competition and innovation within the sector, provide increased flexibility in corporate structures which could save money and benefit consumers. It was also argued that similar arrangements had been successful in other jurisdictions. Some stressed, however, that they did not support removing such a restriction entirely, but rather agreed with reducing the percentage stake which must be held by regulated professionals. Others were concerned that such a change may negatively impact on service and consumer confidence.

Part 3(E): Entity Regulation

The majority of respondents (80%) agreed that entity regulation should be introduced. This was mainly for consumer protection as consumer expectations of legal services were that such services emanate from a 'firm' (or entity) rather than an individual solicitor. It was also argued that entities should be accountable for the failings of those whom they employ. However, there were concerns about how this might impact on third sector and not-for-profit organisations, and respondents also stressed that an 'entity' would need to be clearly defined.

Again, the majority of respondents (89%) agreed that all entities providing legal services to the public and corporate entities should be subject to a "fitness to be an entity" test.

Two thirds (66%) agreed that entity regulation should engage only those organisations who employ lawyers and provide legal services for profit. It was felt this was proportionate as there was no need to introduce entity regulation on large organisations who employ in-house lawyers for advice (but not to advise clients) - however, it was noted that individuals should still be regulated. There were, however, mixed views on not-for-profit organisations, with some agreeing that they should not be subject to entity regulation to ensure that free legal advice could still be provided, whereas others felt that any organisation providing legal services to consumers should be subject to entity regulation, including non-profit organisations.

Part 3(F): Economic Contribution of Legal Services

Over half (59%) agreed that a baseline study should be undertaken to identify the current quantum of the sector's contribution to the economy and to identify those niches in the global market where efforts could be targeted. It was generally felt that establishing a baseline would help with the development of plans for expansion within the global market. Others, however, questioned the need for a new study, indicating that data were already available and that any new study would be costly and result in little tangible benefit.

Part 4: Complaints and Redress

Both consumers and the legal profession agreed that the current complaints process was not working and needed to be reformed. Most respondents (87%) agreed that there should be a single gateway for all legal complaints. It was argued this would make the process more efficient, bring clarity and transparency for both the profession and consumers, and make access simpler for consumers. However, there were mixed views as to whether a single gateway (with complaints filtered to the relevant professional bodies for investigation), or a single complaints organisation (who would deal with all complaints throughout) was preferred.

Over two thirds of respondents (70%) agreed that the professional regulatory bodies should maintain a role in conduct complaint handling, where a complaint is generated by an external complainer. It was felt this was important to maintain the independence, reputation and standards of the profession. It was also argued that they would be best placed to assess such issues. Those who disagreed preferred such issues to be handled by an independent complaints body to maintain independence from the profession, and to remove the need to attribute a complaint as either 'service' or 'conduct'. Further, it was argued that, maintaining a system with different bodies involved in the complaints process was complex, confusing, slow, led to duplication in process, and potentially increased costs.

Around three quarters of respondents (76%) agreed that the professional regulatory bodies should maintain a role in conduct complaint handling, with regard to the investigation and prosecution of regulatory compliance issues. Again, it was argued that professional bodies were best placed/had the most experience to investigate conduct complaints; that professional bodies risked becoming irrelevant if removed from the process; and that the process needed to change not the organisations involved. Those who disagreed preferred to have a fully independent regulator investigating such complaints, noting that this would remove the confusion and complexity that exists in the current system. There were reasonably mixed views in relation to who respondents thought should investigate different types of complaints (i.e. unsatisfactory conduct, professional misconduct and service issues).

For those who preferred an independent body for each of the three issues, the reasons were that this would provide more independent and impartial investigation more suited to upholding consumer rights, that it would simplify and streamline the system and allow for hybrid-complaints. Meanwhile, those who preferred professional bodies to investigate all issues felt they were best placed to do so, with the need for independence from Government reiterated. For some, the type of body preferred to deal with each type of complaint varied by the nature of the issue, how serious they considered the matter, and who would be best placed to deal with it.

Most respondents (86%) agreed that there should be a level of redress for all legal complaints, regardless of regulatory activity. It was felt that all complaints should be investigated and redress available whatever the issue might be, and that this would ensure greater confidence and perceptions of fairness in the system.

A lower proportion (57%), however, agreed that there should be a single Discipline Tribunal for legal professionals, incorporated into the Scottish Courts and Tribunals Service (SCTS). Those who agreed argued this would avoid conflicts of interest and/or bias; provide consistency in decision making; be more cost efficient; provide transparency/clarity; make the process more streamlined; and remove duplication in roles/efforts. Those who disagreed felt that professional bodies should be responsible for addressing such issues; that it was not a proportionate reaction to the issues or number of cases involved; it would not be practical to have one tribunal dealing with both solicitors and advocates and this would result in losing specialist expertise; and it would increase court workloads and public costs.

Around half (51%) agreed that any future legal complaints model should incorporate the requirement for the complaints budget to require the approval of the Scottish Parliament. For those who agreed, this was felt to be a positive and sensible step which would provide public scrutiny, transparency and accountability, and would offer reassurance that the complaints system was being funded properly, fairly and efficiently. There was, however, resistance to the Scottish Parliament performing this role as it was felt this would, again, undermine the independence of the legal profession. Rather, some felt that another independent body should provide such scrutiny.

Finally, another list of principles and objectives were presented, with respondents asked to rate how important they felt each was for any future regulatory model. As at the outset, all most respondents indicated that all of the options listed were either very or somewhat important, although 42% indicated that 'Model 1: The levy for entities should be on a financial turnover basis' was either not important or should be removed.

Conclusion

The majority of respondents tended to agree with most of the elements explored or proposed within the consultation, and most agreed that issues with the complaints process needed to be addressed, however, views remained polarised about the best way to achieve the necessary changes. Indeed, no clear consensus was reached with regards to which regulatory model would be preferred and welcomed by both consumers and the profession alike.

Throughout the consultation some respondents (typically, but not exclusively, those representing consumers) argued for radical changes to the regulatory framework in order to provide independence from the profession, instil greater consumer focus and consumer protection, remove the current perceptions of bias and conflicts of interest, provide greater transparency and accountability, and increase consumer trust/confidence. Conversely, others (this time typically, but not exclusively, those representing the legal profession) argued that the case for radical change had not been made, with respondents being concerned that the proposed changes would undermine the independence of the profession and introduce oversight and influence from Government/Parliament, undermine the rule of law, and result in increased costs which would ultimately push up costs for consumers and negatively impact on access to justice. Many in this group argued that the framework did not need to change, but rather legislative changes could be managed within the existing structures to achieve the necessary reform and modernisation.