Legal services regulation reform: consultation analysis

Part 2(E) Legal Tech

Introduction

The consultation document noted that the Roberton report highlighted that there were opportunities in the greater use of legal technology in the application of legal services in Scotland, and warned against the creation of barriers to new legal services founded on legal tech through over specification of regulation in legislation.

The consultation also outlined the regulatory sandbox concept, indicating that these typically involve temporary relaxations or adjustments of regulatory requirements to provide a "safe space" for start-ups or established companies to test new technology-based services in a live environment for a limited time, without having to undergo a full authorisation and licensing process. It was noted that this had been helpful in maintaining certain services during the COVID-19 pandemic.

Feedback was sought on incorporating Legal Tech within any new regulatory framework.

Question 24

Q24. To what extent do you agree or disagree that Legal Tech should be included within the definition of 'legal services'?

Base: 87

Of those who responded to the closed element of this question, most (79%, n=69) agreed that Legal Tech should be included within the definition of 'legal services'.

A common thread to responses (from both those who agreed and disagreed) was that Legal Tech needed to be more clearly defined before being included in the definition of 'legal services'. In particular, it was felt that the consultation oversimplified the concept of Legal Tech without distinguishing between technology as a tool for delivery and legal services in themselves:

"The consultation attempts to oversimplify what is a complicated area. 'Legal Tech' is a tool for delivery of legal services and not a legal service itself. Therefore, it would be difficult to include a general provision in legislation to regulate Legal Tech. However, in relation to the services delivered, we believe that the provision of any reserved legal services delivered through the platform of Legal Tech should be included within the definition of legal services." (Organisation, Legal Services Provider)

Indeed, some respondents interpreted Legal Tech to mean the removal of qualified solicitors from the process of law and people having an option of 'DIY' law (including artificial intelligence (AI) options). This was seen as problematic by some i.e. unqualified people operating independently, but others welcomed a product which would allow the public to have access to opportunities to do things for themselves. Others interpreted Legal Tech to mean online or remote services delivered by qualified solicitors using appropriate technology. A useful distinction was made by one respondent between lawtech (technologically enabled provision of legal services) and legaltech (technology which supports legal service providers, e.g. back office functions). There was a general consensus that technologies aimed at legal service providers to facilitate the practice of law were less in need of regulation than technologies aimed at consumers/businesses designed to either connect them to legal service providers, or to minimise or remove the need to use a legal service provider at all (with regulation of the users of the technology in the former being sufficient). The overriding sentiment, however, was that Legal Tech should have been more clearly set out in the consultation.

Definitions aside, a large number of respondents agreed with this proposal on the basis that the legal profession must move with technological innovation and not get 'left behind'. Legal Tech provided new opportunities, innovation and competition with increased accessibility, and this should not be stifled, it was felt. Including Legal Tech in the definition therefore seemed apt, although others cautioned that technology and IT was a fast-moving area and, therefore, continuous monitoring/ review would be needed to ensure that Legal Tech was appropriate for inclusion in the definition:

"[Organisation] strongly agrees that Legal Tech should fall within the remit of legal services regulation in order to safeguard consumer protection when engaging with these services, but equally to inspire innovation and value creation in the market… There has also been a growing narrative and wealth of evidence to suggest that regulation can play a key role in stimulating innovation when developed collaboratively." (Organisation, Professional Body for the Legal Profession)

Similarly, there was a concern that if Legal Tech was included in the definition, it must be regulated in the same way as traditional services, so that there was no discrepancy/lack of equity between the two. It was considered important to avoid a situation of an unlevel playing field with traditional legal services being more highly regulated than new or innovative services, which could be confusing for consumers:

"Legal Tech is also an example of where a single regulator, with market regulation responsibilities, is likely to be more effective. A regulator of one professional group may be able to regulate Legal Tech for that group, but not for any other provision of legal service. This risks multiple regimes for the regulation of Legal Tech developing aligned to professional groups and not public needs, with the potential to lead to gaps or duplication, or to stifle innovation." (Consumer Organisation, Public Body/Sector)

Protecting customers from risk was a main reason given by many for including Legal Tech under the legal services definition:

"Use of Legal Tech is growing, and it has the potential to benefit consumers by providing more accessible, cheaper and varied legal services. However, it also poses a different kind of consumer risk. It should therefore be included within the definition. This will also help to future proof the definition." (Organisation, Consumer Body/Panel)

"I have dealt with a number of clients that have had issues with Legal Tech and no method to hold any person accountable. As more consumers turn to online sources of information in the first instance, this area needs to be considered as a priority." (Individual)

For several, ensuring integrity of services was paramount, therefore making regulation essential irrespective of mode of delivery:

"It should be treated like other legal services, so long as what is being provided constitutes legal services." (Organisation, Third Sector in the Legal Profession)

"Legal Tech is provision of legal services and should be regulated as such. If the lawyers need to be regulated then so should the providers of Legal Tech, more so probably if they are non-lawyers." (Individual)

A key reservation for some (both who agreed and disagreed with the proposal overall), however, was how joint service provision would be managed:

"…our business structure and the LSS [Law Society of Scotland] Practice Rules 2011 mean we are not allowed to share fees with others who are unqualified persons. This prevents us providing services to clients where they have asked for a different type of service, such as joint legal/financial services or innovative HR services. This restricts our ability to fully explore the potential of AI and other client services. Many innovative solutions result from collaborative working with others. Any new regulatory regime should allow for modern and different approaches to providing services without requiring organisations like ours to make fundamental changes to our business structure." (Organisation, Legal Services Provider)

Other comments made by just one or two respondents each included that:

• Regulation of Legal Tech should not be excessive such that it distorts innovation and competition;
• Moves towards digitisation should be monitored to ensure that services do not become inaccessible and/or that sufficient safeguards must be in place to ensure that no-one is excluded from accessing the justice system; and
• Inclusion of Legal Tech in the definition of legal services was a matter for judicial determination.

Question 25

Q25. To what extent do you agree or disagree that those who facilitate and provide Legal Tech legal services should be included within the regulatory framework if they are not so already. If so, how might this operate if the source is outside our jurisdiction?

Base: 84

Just over two thirds (69%, n=58) of respondents agreed and 31% (n=26) disagreed that those who facilitate and provide Legal Tech legal services should be included within the regulatory framework if they are not so already.

Consistent with responses to Q24, several respondents stressed that this would depend on what was defined as Legal Tech services. This aside, there was general consensus, in principle, that those who facilitate and provide Legal Tech services should be included in the regulatory framework, especially where the Legal Tech solution is in a reserved area:

"We consider that anyone providing legal services, using Legal Tech or otherwise, should be regulated if they provide those services direct to the consumer or the services they provide are not in-house." (Organisation, Legal Services Provider)

Three focus groups also commented on regulation around legal tech, and generally agreed that this should be regulated. They noted the use of online forms and information from other jurisdictions causing difficulties for consumers, with little/no accountability for the organisations behind this. One suggested that, where information or forms are made available online, a warning should be included making it clear these are for information only, and that clear signposting was necessary for consumers to get appropriate advice, including clearly stating the bodies that regulate the service and how to complain.

Very few respondents answered the second part of this question, however, or put forward ideas for how this proposal might operate if the source was outside of Scotland. General comments included that the system should mirror the current approach to regulating other business units outside of Scotland and that any regulation would need to be able to accommodate and respond to services being offered online by providers outwith Scotland (and which would not automatically be regulated under Scots Law). There were suggestions that anyone offering a service within Scotland should be asked to commit to being regulated under Scots Law as a stipulation of being able to operate and/or have to request a licence to operate:

"As regards how it might operate if the source is outside our jurisdiction, the provider should be required to submit to our jurisdiction, otherwise they should not be permitted to operate here." (Organisation, Third Sector in the Legal Profession)

"Scots law is unique in many ways, so any automated legal services must be tailored to our legal system and not used here if designed for other jurisdictions." (Individual)

"If the source is outside the Scottish jurisdiction then there should be consideration to licensing them in some way to operate within the jurisdiction - to do anything less present a risk to the consumer." (Individual)

One suggestion was made that providers should be required to have a physical presence in the jurisdiction and/or require formal registration to operate (including payment of a fee). The framework would also need to be sufficiently agile to respond to fast changing technological developments, it was stressed:

"A regulatory model should be activity and risk-based, flexible, and proportionate and be able to respond to changes in the sector over time, such as the development in new types of services and providers. While we recognise the significant potential for Legal Tech to create innovations and transform how legal services are provided, it can also create risk, particularly when Legal Tech providers are unregulated." (Consumer Organisation, Public Body/Sector)

Linked to this was the view that, if this proposal was implemented, it again should not be used to stifle innovation:

"…the Scottish Government should not just focus on the narrow question of whether Legal Tech should be included within the definition of 'legal services' - an exercise that might be challenging in itself to accomplish as Legal Tech is evolving - but also carry out work proactively to consider how to achieve the right balance between facilitating innovation and protecting consumers through regulatory requirements… we recommend that the Scottish Government consider what different options there might be to addressing the issue of Legal Tech both within the current regulatory framework and through the reform of that framework." (Consumer Organisation, Public Body/Sector)

Overall, where supported, this proposal was seen as offering greater consumer protection and creating a level playing field, in competition terms, between legal services providers delivering directly to clients and those delivering online, i.e. all legal services should be treated equally:

"In order to facilitate consumer choice and improve access, while providing appropriate levels of consumer protection, it is appropriate that all legal services providers are brought within the regulatory framework. That will ensure they can provide services to consumers and that any consumer detriment is able to be addressed through the regulatory and complaints system." (Organisation, Consumer Body/Panel)

Those who did not agree with this proposal did so mainly on the basis that, if Legal Tech services were currently outside of the framework, it was because they were not offering reserved legal services and/or were not qualified solicitors (and so should not be subject to their regulations):

"Legal Tech services which do not offer reserved legal services are, by definition, outside of the regulatory framework." (Organisation, Legal Services Provider)

Again, for those who interpreted Legal Tech to mean technology to facilitate service delivery, rather than services in their own right, regulation of the users of the technology was again seen as sufficient. As such, the need to define Legal Tech before deciding this issue was stressed:

"Most providers of Legal Tech are not providing legal services, they are just providing technology for use by others who are providing legal services. However, if a tech company were using tech to provide legal services directly to the public themselves that would be another matter and require them to be regulated to provide the services in question. But it would be the provision of legal services that would require the regulation not necessarily the tech that lies behind that." (Organisation, Legal Services Provider)

One respondent also felt that this was a matter for judicial determination, while another suggested that it would be for the Regulator to consider how this might operate if the source was outside its jurisdiction. A small number of others indicated that they were not sufficiently knowledgeable to give a reliable response.

Question 26

Q26. To what extent do you agree or disagree that, not including Legal Tech may narrow the scope of regulation, and reduce protection of consumers?

Base: 82

Of those who provided a rating at this question, around two thirds (67%, n=55) agreed and one third (33%, n=27) disagreed that it may narrow the scope of regulation and reduce consumer protection if Legal Tech is not included.

Many respondents cross-referenced their earlier responses to Q24 and Q25 rather than providing new or different views for this question. Those who agreed did so on the basis that there was a strong likelihood that consumer protection would fail if unregulated, and that Legal Tech should be treated the same as other forms of service delivery (i.e. consumers must be protected at all levels):

"Faculty strongly agrees that not including Legal Tech firms who were purporting to provide regulated legal services would narrow the scope of regulation and reduce protection of consumers. The method of delivery of legal services should not be the touchstone of whether it ought to be regulated or not." (Organisation, Professional Body, Faculty of Advocates)

Those who disagreed mainly did so again on the basis that this was a moot point (since Legal Tech per se should not be within the scope of regulation and/or had not been sufficiently well defined in the consultation). Others again perceived that it was the responsibility of the members of the profession using the technology to ensure that it provided an acceptable service to the consumer (i.e. meeting acceptable standards of conduct and service), and that they would be accountable to the consumer and the regulator if it was not:

"Legal professionals who are currently regulated are required to ensure that any Legal Tech which they use is compliant. Entity regulation would regulate the use of Legal Tech in the delivery of legal services." (Organisation, Legal Services Provider)

Others provided slightly more nuanced views that it would depend on the service being provided and to whom it was being provided i.e. if it was being provided direct to a consumer there may be an argument that the service should be regulated if harm can be a consequence of error or inadequate service.

Overall, there was little unique feedback to this question that had not already been provided above, the exceptions being:

• A suggestion that an analysis of current providers of legal services who are not regulated should be undertaken, including advice platforms (to help inform the definition of Legal Tech and determine if it should be included in the regulatory framework or not);
• That regulators should pay close attention to what was being provided and ensure that guidance for the use and procurement of certain Legal Tech is competent, where there is an identified risk to the consumer;
• That regulation of Legal Tech may exert unnecessary and disproportionate commercial pressure on the market; and
• Introducing entity regulation would be an effective and proportionate way to regulate the use of Legal Tech in the delivery of legal services.

Question 27

Q27. To what extent do you agree or disagree that the inclusion of Legal Tech in a regulatory framework assists in the strength, sustainability and flexibility of regulation of legal services?

Base: 85

Most (82%, n=69) of those who provided a response agreed that the inclusion of Legal Tech in a regulatory framework assists in the strength, sustainability and flexibility of regulation of legal services.

Again, there was very little new qualitative feedback given, with several respondents simply cross-referencing the earlier comments. Overall, those who agreed felt that inclusion of Legal Tech in a regulatory framework was necessary to ensure that it was inclusive and representative (i.e. of the increasing shift/developments being made with this mode of delivery) and to respond to the changing legal services landscape (although no respondent specifically commented on how it would improve 'strength', 'sustainability' and 'flexibility' and some questioned if/how this could be achieved by simply including it in the framework). Those who disagreed, again, mainly did so on the basis that fair competition and commercial interests may be negatively impacted by such a move.

Question 28

Q28. To what extent do you agree or disagree that the Scottish regulatory framework should allow for the use of Regulatory Sandboxes to promote innovation?

Base: 80

Of those who provided a rating, over half (56%, n=45) agreed that the Scottish regulatory framework should allow for the use of Regulatory Sandboxes to promote innovation. However, a significant minority (44%, n=35) disagreed.

While the majority of respondents supported this proposal within the qualitative comments provided, many also caveated their response by indicating that they had little experience or evidence on which to provide an informed view. Those who did have experience were complimentary, particularly with regards to Sandboxes providing a safe space for those experimenting while also having the right oversight to protect consumers. Several respondents commented more generally that they were in favour of innovation and saw Sandboxes as an example of this:

"We agree that the regulatory framework should allow for regulatory sandboxes to promote technological innovation in the delivery of legal services. Technology is increasingly being used to assist with the efficiency, quality, speed of delivery and availability of legal services and innovation is key to this. Legislative barriers to such innovation should be avoided where possible." (Organisation, Legal Services Provider)

"…we would welcome additional, permissive regulatory powers which would enable Legal Tech innovation in the delivery of legal services." (Organisation, Professional Body, Law Society of Scotland)

Views were put forward, however, that while this approach may support innovation, it was important that measures be put in place to ensure it was fit for purpose, including, for example, pilots, monitoring and evaluation (with sufficient safeguards in place):

"If the Scottish regulatory framework did propose to allow for the use of Regulatory Sandboxes to promote innovation, then we believe that measures put in place through this would need to be rigorously tested through trials, monitoring, and then further consultation before being considered for implementation permanently. However, we can see a case for allowing innovative measures to be trialed and regulators may need some additional flexibilities to accommodate this, in common with practice in other sectors." (Consumer Organisation, Public Body/Sector)

"…there needs to be an agreed framework around how this works and the right checks and balances in place. There needs to be an ability for a regulator to say no to a sandbox approach where it has concerns." (Individual)

Two respondents also highlighted that increased public awareness/understanding of Sandboxes was essential to ensure total transparency:

"It's vital that where this type of approach is used, there is clear and transparent information for consumers about the implications of using a legal service which is part of it." (Organisation, Consumer Body/Panel)

"The unregulated nature of these services would not necessarily be clear to consumers and therefore neither will the implications and consequences for them of using such a legal service. Any such measures must be thoroughly tested and publicly consulted on before being implemented with any degree of permanence." (Consumer Organisation, Third Sector)

Flexibility was also a common theme to several responses, i.e. that Regulatory Sandboxes would give regulators room to be responsive and relax the rules when it was appropriate to do so:

"Flexibility which allows for testing in a more responsive and agile way than having to review the whole regulatory framework would benefit everyone involved." (Individual)

Among those who did not agree with this proposal, the main reason was that this may leave the legal system open to abuse, that unregulated providers may be unreliable/cause public harm and that any 'testing' or 'piloting' should never be allowed with genuine, live cases (and that all providers of legal services must be accountable at all times):

"Tech companies and such like must complete testing and evaluation outwith the profession… Clients' business and family concerns should not be used as 'test beds' for companies to test new technology enriching themselves in that process." (Individual)

"I do not feel that live testing should be fostered onto the general public without proper scrutiny." (Individual)

A minority commented that the notion of a Regulatory Sandbox was jargonistic and that its creation was unnecessary in the current climate. Two respondents perceived Sandboxes to present an unfair advantage to some providers over others. One respondent suggested that Sections 25 to 29 of the Law Reform (Miscellaneous Provision) Scotland Act 1990 may offer a safer alternative for consumers than allowing temporary relaxations or adjustments of regulatory requirements. Another suggested that regulators should not be given the power to relax substantive law, which should remain the responsibility of Parliament.