Legal services regulation reform: consultation

Part 3 – Legal Services providers and structures

A. Entry, Standards and Monitoring

Entry to the legal profession

The regulatory model to be taken forward in legislation following this consultation will determine where the responsibility for entry, standards and monitoring of the legal profession will lie. However the Scottish Government agrees with the Roberton report that, regardless of the model pursued, the regulatory framework should incorporate a greater emphasis on quality assurance, prevention of failure, which usually lead to consumer complaints, and continuous improvement for the benefit of the legal profession and consumers. The regulatory framework should be flexible in adapting to failure and therefore able to reduce complaints. There is also potential to link quality assurance and continuous improvement in the legal profession to interact more closely with the legal complaints system currently managed by the SLCC.

The Roberton report set out that it should be for the regulator(s), professional bodies and educational institutions to work together to set the educational requirements for entry into the various legal professions in Scotland. This is an area where Scotland has a strong reputation in terms of the level of law graduates entering the legal profession, however in doing so there should also be an emphasis on promoting diversity in the profession.

The Scottish Government recognises the work of the Joint Standing Committee for Legal Education in Scotland in acting as a facilitator to promote the interests of legal education, academic training and legal professional training up to the level of legal professional qualification and beyond.

Standards

The Law Society of Scotland currently operates for professionals:

• the code of conduct and service for individual professionals (practice rules including accounts rules which are approved by the Lord President)
• guidance which is not mandatory to follow but non-observance could be used in a disciplinary case

The Roberton report set out that other professions such as the Institute of Chartered Accountants of Scotland have significantly shortened their rules in recent years^[43]. The Solicitors Regulation Authority, the regulatory body in England and Wales, has updated the rules for solicitors' regulation to more concise principles and conduct standards for solicitors^[44].

The Roberton report's view was that the regulator should have responsibility for setting standards and in doing so should drive a preventative/quality improvement focus, including simplification and better overall cohesiveness of the rules making them more consumer friendly, comparable and proportionate framework. The reform proposed by this consultation presents an opportunity for Scottish regulators to simplify their rules with a similar aim of reducing them in length and to make rules more proportionate and consumer friendly.

Monitoring

In terms of quality assurance and continuous improvement for legal professionals, there are examples at home and abroad where the regulatory framework in Scotland may borrow. There may be merit in considering extending the system of peer review beyond legally aided work, whereby an evaluation of a professional's work is undertaken by others working in the same field on a recurrent basis. The aim behind quality assurance in this respect is to obtain objective evidence that public money is being well spent, however it has become clear that the true purpose of peer review is not solely to assure the public and the government that quality standards are being maintained, but also that quality standards are being continuously improved.

In Finland, the legal aid evaluation system consists of five evaluation areas containing a total of 36 evaluation statements. Some of the statements are assessed by the clients, some by the attorneys, some by both. The quality statements are based on the Code of Conduct for Lawyers developed by the Finnish Bar Association. This code indicates what can be expected of a good lawyer.^[45]

The Roberton report set out that in New South Wales in Australia a system of self-assessment, helped firms, especially small firms, address areas of poor performance that could have led to more serious problems if not identified and was welcomed by those firms. The senior members of a legal provider were required to consider their own customer service and complaints handling process, as a result complaints fell by two thirds.

The Roberton report made the recommendation that the regulator should hold a register of those it regulates, and any lawyer, solicitor, solicitor advocate, advocate, or commercial attorney who wishes to provide legal services must be admitted to the register. The Law Society of Scotland and Faculty of Advocates currently hold a roll of those they regulate.

Question 31

To what extent do you agree or disagree that any future regulatory model should incorporate a greater emphasis on quality assurance, prevention and continuous improvement than the current model provides?

• Strongly agree
• Mostly agree
• Mostly disagree
• Strongly disagree

Please give reasons for your answer.

Question 32

To what extent do you agree or disagree that the rules within the regulatory framework should be simplified with the aim of making them more proportionate and consumer friendly?

• Strongly agree
• Mostly agree
• Mostly disagree
• Strongly disagree

Please give reasons for your answer.

Question 33

Which of the following methods do you think regulatory model should incorporate to provide quality assurance and continuous improvement?

• peer review
• a system of self-assessment for all legal professionals
• both of these
• neither, or other

Please give reasons for your answer.

B. Definition of Legal Services and Reserved Activities

Recommendation 3 of the Roberton report set out that a definition of legal services should be set out in primary legislation.

The Legal Services (Scotland) Act 2010 defines legal services as legal advice or assistance in connection with legal documents such as a contract, deed, writ or will, as well as legal advice or assistance and/or legal representation in connection with applying the law or seeking a legal dispute resolution^[46]. However, this definition applies only in relation to the 2010 Act and not to the legal profession in Scotland more broadly.

Legal services can be classified as either reserved or unreserved. This has important implications for who can provide such services:

• Reserved Legal services are defined in legislation as a set of legal activities that can only be provided by authorised legal professionals working in an authorised legal firm.

• Unreserved Legal services are not specifically defined in the legislation. Rather it is a term that refers to all other areas of legal service not reserved, i.e. not restricted to authorised legal professionals.

Reserved legal services

The reserved legal services are defined in Sections 32 and 57 of the Solicitors (Scotland) Act 1980. According to Section 32 it is an offence for unqualified persons to provide the following legal services^[47] (with some exceptions, such as expectation of payment being a factor):

• Any writ relating to heritable or moveable estate (i.e. documents of property title to immovable and movable assets).

• Any writ relating to any action or proceedings in any court (i.e. documents that initiate or support court actions).

• Any papers on which to found or oppose an application for a grant of confirmation in favour of executors (i.e. documents that confirm (or not) the heir's property right to a deceased person's estate).

• Section 57 of the Act provides that notaries public must be qualified solicitors (i.e. authorised), and that notaries are responsible for the administration of oaths, and witnessing and authenticating the execution of certain types of document.

The Legal Services (Scotland) Act 2010 changed the list of reserved legal activities by making any will or other testamentary writing a reserved legal service, and removing obtaining confirmation in favour of executors as a reserved service^[48]. These changes are yet to come into force.

The Law Society of Scotland have noted that where a firm is regulated by the Law Society, they are regulated to the extent of all legal services, whether or not the service provided is reserved under section 32 of the 1980 Act^[49].

Unreserved legal services

Unreserved legal services have no formal definition in the legislation. The term is used to refer to legal services that are not reserved by legislation to authorised legal professionals. Therefore, unreserved legal services can be provided by both authorised and unauthorised professionals.

However, some unreserved legal services are regulated by a statute other than the Solicitors (Scotland) Act 1980. These are:

• Immigration advice and services, which it is a criminal offence to provide anywhere in the UK unless regulated by the Office of the Immigration Services Commissioner, covered by the Immigration and Asylum Act 1999 or registered with certain professional bodies.

• Insolvency practices, as according to the Insolvency Act 1986 certain recognised professional bodies (e.g. the Insolvency Practitioners Association) are responsible for authorising their members to act as insolvency practitioners. Aside from the above, unreserved legal services are not regulated by any statutes.

The European Economics report: The Regulated and Unregulated Legal Services Market in Scotland - A Review of the Evidence found:

"Our understanding from the evidence gathered for this study is that unreserved services account for the majority of legal services provided in Scotland. Indeed, as reserved services are largely individual 'acts', essentially all legal services will have an unreserved element, with reserved acts being performed within these. Our fieldwork suggests that key areas of unreserved legal services in Scotland include: accident and injury; employment; family; money and debt; social welfare health benefits; wills^[50]; and consumer and civil rights^[51].

It is important to recognise that some aspects of the legal services listed above are reserved. For example if, in any of the above areas, the legal issue in question proceeded to court litigation then this would be a reserved activity and would need to be undertaken by the relevant authorised professional (e.g. a solicitor or advocate).

Examples of the unreserved services that could be provided within these areas are^[52]:

• Accident and injury: assisting consumers seeking compensation for personal injury at work, clinical negligence etc.

• Employment: advice and assistance in relation to matters in employment tribunals (contractual issues, dismissals etc.).

• Family: preparation of divorce documents, clean break agreements, prenuptial agreements, and cohabitation agreements.

• Money and debt: legal advice in relation to debt, including advice on insolvency proceedings.

• Wills: will writing, DIY will kits and products, and estate administration."

The main statutory definition for those legal services reserved to solicitors at Section 32 of the Solicitors (Scotland) Act 1980 provides that:

"'…any unqualified person (including a body corporate) who draws or prepares— (a) any writ relating to heritable or moveable estate; or (b) any writ relating to any [action or proceedings in any court] ; or (c) any papers on which to found or oppose an application for a grant of confirmation in favour of executors, shall be guilty of an offence..."

The Roberton report recommended that:

• The definition of legal services, the regulatory objectives and the professional principles should be set out in primary legislation.
• 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 i.e. will writing should not be reserved. Entities licensed by the regulator should be able to undertake confirmation as an activity.
• It should be for the regulator to propose to the Scottish Government which activities to reserve to legal professionals in the future and which should be regulated.

Question 34

To what extent do you agree or disagree that there should be a definition of legal services?

• Strongly agree
• Mostly agree
• Mostly disagree
• Strongly disagree

Please give reasons for your answer.

Question 35

To what extent do you agree or disagree that the definition of legal services should be set out in primary legislation?

• Strongly agree
• Mostly agree
• Mostly disagree
• Strongly disagree

Please give reasons for your answer.

Question 36

To what extent do you agree or disagree 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?

• Strongly agree
• Mostly agree
• Mostly disagree
• Strongly disagree

Please give reasons for your answer.

Question 37

To what extent do you agree or disagree 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?

• Strongly agree
• Mostly agree
• Mostly disagree
• Strongly disagree

Please give reasons for your answer.

C. Titles

The Scottish Government's Digital Transformation Service (DTS) were commissioned by the Roberton review to conduct a consumer study on Scottish users of legal services^[53].

The review set out that that the findings of that study reinforced the perception that people are confused about whether the solicitor they are using is a regulated provider as well as being confused more generally about the titles of "solicitor" and "lawyer."

The Law Society of Scotland in its Revised Case for Change^[54] stated:

"The term 'solicitor' is a protected title in Scotland and the rest of the UK. It is a criminal offence for any person to pretend, wilfully and falsely, to be a solicitor. There are, however, no such restrictions around the use of the term 'lawyer'. As a result, any person, regardless of qualification, experience or regulation, can legitimately refer to themselves as a 'lawyer'".

Only persons who hold a practicing certificate from the Law Society of Scotland, and provide services as a solicitor are covered by protections such as professional indemnity insurance, oversight of the regulatory framework, and a path to redress through the Scottish Legal Complaints Commission. The practicing certificate provides assurance around knowledge, qualifications and authorisation. Individuals may currently refer to themselves as a lawyer without a practicing certificate, therefore such services may not provide for the same protections. Consumer may not appreciate that there may be a difference between an individual referring to themselves as a lawyer, as opposed to a solicitor as all solicitors are lawyers. However all of those referring to themselves as lawyers may not be solicitors. The Law Society of Scotland and some consumer groups believe both titles should be protected and as such the Roberton report recommend this.

The title of "advocate" is not protected, however members of the Faculty of Advocates practicing as advocates are regulated by the Faculty, as delegated by the Office of the Lord President and the Court of Session. In response the Faculty of Advocates have previously suggested that the title 'advocate' should also be protected for the same reasons as lawyer might be. This is a point the Roberton report addressed and deemed as not necessary as it is already in common use in other areas such as mental health. The Roberton report also found no evidence of public confusion as it did with the title of lawyer. This may be in part due to the way in which advocates are instructed, usually through a solicitor and rarely directly by members of the public.

However the titles of 'lawyer' could be protected, with potential within the legislation to allow for the protection of other titles as appropriate.

Question 38

To what extent do you agree or disagree that there should be a change such that the title 'lawyer' would be given the same protections around it as the title 'solicitor'?

• Strongly agree
• Mostly agree
• Mostly disagree
• Strongly disagree

Please give reasons for your answer.

Question 39

To what extent do you agree or disagree that the title 'advocate' should have the same protections around it as the title 'solicitor'?

• Strongly agree
• Mostly agree
• Mostly disagree
• Strongly disagree

Please give reasons for your answer.

Question 40

To what extent do you agree or disagree that the legislation should allow for the protection of other titles in relation to legal services as appropriate?

• Strongly agree
• Mostly agree
• Mostly disagree
• Strongly disagree

Please give reasons for your answer.

Question 41

To what extent do you agree or disagree that it should be for the regulator(s) to propose to the Scottish Government which titles to protect?

• Strongly agree
• Mostly agree
• Mostly disagree
• Strongly disagree

Please give reasons for your answer.

D. Business Structures

The Review of the Regulatory Framework for Legal Services in England and Wales in 2004 (the "Clementi Review"), and the Legal Services Act 2007 sought to liberalise and regulate the market for legal services to encourage more competition. As a result English and Welsh solicitors and barristers are able to operate in a variety of business structures that their Scottish counterparts are not.

In response in Scotland the Legal Services (Scotland) Act 2010 aimed to allow the creation of Alternative Business Structures. One of the main aims of the 2010 Act was to remove restrictions which previously prevented solicitors entering into business relationships with non-solicitors, allowing investment by both non-solicitors and external ownership.

Consumer bodies argue that these restrictions currently on legal business structures in Scotland inhibit competition and innovation in the legal services market. Many Scottish solicitors, and the Law Society of Scotland, believe that the restrictions on Scottish solicitors' business structures will increasingly inhibit the ability of the profession to compete in the UK and international markets. English solicitors have the ability to operate in an alternative business structure environment.

The 2010 Act provides for new legal entities to be known as Licensed Legal Services Providers which can comprise solicitors and/or other regulated professionals i.e. non-solicitor professionals such as accountants. Regulated professionals will require to hold at least a 51% majority stake in the business. These Licensed Legal Services Providers will be regulated by an Approved Regulator (the 2010 Act allows for a maximum of 3 Approved Regulators).

The Scheme under the 2010 Act that would allow these alternative business structures to operate is not yet in place in Scotland. The Scottish Government is working closely with the Law Society to put the final arrangements in place that would allow the Law Society to begin regulating such legal providers as soon as practicable.

It is anticipated that the introduction of alternative business structures to the legal services market in Scotland will provide clients with wider access to legal services whilst still being able to expect similar standards of service, advice and consumer protection as if they were engaging a solicitor only firm.

A competitive business environment has a vital role in a strong economy, stimulating investment, innovation and driving up standards. Increased competition allows Scottish firms to compete more easily at a UK and international level, and offers benefits to consumers such as lower prices, more innovative services, and wider choice.

However, the nature of legal services is such that the market cannot be the only regulating mechanism, and they must be appropriately regulated in the public and consumer interest.

The current framework has evolved from a partnership model which has historically proved effective, however the last two decades have seen many changes in the legal sector, driven largely by advances in technology. With the UK having exited the EU in January 2020, there is likely to be a further divergence of UK- EU competition law which could impact legal services to an unknown extent.

Scottish commercial firms operate in a UK and international market therefore the ability to obtain external investment is key to ensuring that they can thrive against competitors.

The Law Society of Scotland seeks a new, flexible regulatory framework and view the present legal framework surrounding the Scottish legal profession as a patchwork of inconsistent and increasingly outdated legislation; it views the Legal Services (Scotland) Act 2010 as effectively unworkable.

The 51% majority stake rule for Licenced Legal Services Providers presents other difficulties in that there are threats to the sustainability of small firms and how, if this requirement was removed from the legislation, this could allow scope for further possibilities around employee and community ownership which are now beginning to be considered as potential solutions where high street firms may be struggling. Removing or reducing restrictions may allow for:

• employee and community ownership of legal firms,
• outside investment into legal firms,
• and which could allow charities to directly employ legal professionals to undertake what is currently reserved activity, such as court proceedings.

Question 42

To what extent do you agree or disagree that the 51% majority stake rule for Licenced Legal Services Providers should be removed?

• Strongly agree
• Mostly agree
• Mostly disagree
• Strongly disagree

Please give reasons for your answer.

E. Entity regulation

The Roberton report set out that entity regulation should be introduced, which is enabling and flexible, to support more innovative business models and assist with regulating presently unregulated individuals, and to provide more transparency and greater risk based regulatory oversight. A broad description of what may be described as an entity should be set out in legislation to allow the regulator to adapt this description over time without the need for further legislation.

The Roberton review made the following recommendations:

The regulator should license all entities providing legal services to the public and corporate entities, subject to a "fitness to be an entity" test that the regulator should determine including protections such as professional indemnity insurance. All legal professionals licensed through the regulator would also have to be licensed through an entity. This would not include Advocates and in-house professionals.

The model for entity regulation should be enabling, flexible and should apply to any organisation which employs at least one legal professional.

The regulator should introduce proportionate arrangements including fees for licensing different types of entities and including not for profit organisations.

Question 43

To what extent do you agree or disagree that entity regulation should be introduced?

• Strongly agree
• Mostly agree
• Mostly disagree
• Strongly disagree

Please give reasons for your answer.

Question 44

To what extent do you agree or disagree that all entities providing legal services to the public and corporate entities should be subject to a "fitness to be an entity" test?

• Strongly agree
• Mostly agree
• Mostly disagree
• Strongly disagree

Please give reasons for your answer.

Question 45

To what extent do you agree or disagree that, as all lawyers providing legal services will be regulated – entity regulation should engage only those organisations who employ lawyers where those organisations are providing legal services for a profit – with the exclusion that when that legal service is in the context of an organisation whose main purpose is not to provide a legal service (for example banking) then regulation would remain at the level of an individual lawyer only and no entity regulation would apply?

• Strongly agree
• Mostly agree
• Mostly disagree
• Strongly disagree

Please give reasons for your answer.

F. Economic Contribution of Legal Services

The Roberton report made two recommendations in relation to the economic contribution of legal services:

The Scottish Government should commission or facilitate a baseline study to identify the current quantum of the sector's contribution to the economy and to identify those niches in the global market where we might target our efforts.

Government should then work with the sector to bring all the key players together to develop and implement a strategy to maximise the potential for growth and the contribution that would make to our economy.

The Scottish Government recognises the value of Legal Professionals and will continue to work with and involve them closely in policy delivery. To fulfil that Scottish Ministers actively engage in constructive dialogue with the legal profession. The legal sector in Scotland is worth over £1.5 billion to the Scottish economy each year and is responsible for over 20,000 high value jobs. Not only an economic generator in its own right, but a profession who play a key role in the infrastructure supporting Scotland's growing sectors; Financial Services, Oil and Gas, Renewables and Bioscience. Scotland has a strong track record of international collaboration in these fields.

The Scottish Government was pleased to support the launch of Scottish Legal International in 2018, an initiative led by a consortium of Scottish law firms working in partnership with Scottish Development International to promote the country's legal sector worldwide. Scotland has much to offer, but the importance of collaboration with our European and international partners cannot be overstated.

We will continue to build on the existing strong links we have within Europe to demonstrate Scotland's desire to continue to work together on justice issues for the benefit of our citizens.

Question 46

To what extent do you agree or disagree that the Scottish Government should commission or facilitate a baseline study to identify the current quantum of the sector's contribution to the economy and to identify those niches in the global market where we might target our efforts?

• Strongly agree
• Mostly agree
• Mostly disagree
• Strongly disagree

Please give reasons for your answer.