1 EXECUTIVE SUMMARY
1.1 The Legal Services (Scotland) Bill is aimed at removing restrictions on the types of business models through which a solicitor can offer legal services and providing the regulatory framework under which the new business models will be regulated. The Scottish Government wished to consult on the regulation of legal services in Scotland to inform the Bill and launched the consultation paper, "Wider Choice and Better Protection" on 7 January 2009 to seek the views of organisations and individuals with an interest in legal services on key topics relating to alternative business structures ( ABS) and regulation of the legal services profession. By the close of the written consultation on 3 April 2009, 42 responses to the consultation had been received, with a further 5 responses arriving since the deadline. 68% of responses were submitted by organisations and 32% by individuals. The largest organisational respondent groups were law firms and legal representative bodies, with each of these groups submitting 19% of responses.
1.2 Not all questions were addressed by every respondent. Of the 38 questions tabled for debate, the proposal that ABS should be permitted for the provision of legal services by solicitors in Scotland attracted the most attention. Annex 1 documents the volume of response to each question which ranged from 10 responses to 38 responses. On account of the small number of responses involved, the numbers and percentages quoted below should be treated as indicative and illustrative rather than absolute 1, and cannot be extrapolated to a wider population outwith the consultation population.
Summary of Views
Alternative Business Structures ( ABS) ( Chapter 2)
1.3 Twenty-two respondents (58% of those who provided a view on this topic) considered that ABS should be permitted for the provision of legal services by solicitors in Scotland. ABS were seen as enabling better access to justice, giving consumers more choice at reduced prices, and providing them with the convenience of a one-stop shop. ABS were also envisaged as giving consumers a better quality of service which would result in increased consumer confidence in the legal profession.
1.4 A minority view was that there was no need for ABS. ABS were seen by a few respondents as potentially threatening to the independence of the legal system, with little evidence to support their introduction. Some respondents considered that this is not the right time to introduce ABS in the light of recent problems in regulating the financial sector. ABS were seen by the minority as offering little benefit to the public, with some holding the view that legal services are best provided by smaller rather than larger firms.
1.5 Eighteen respondents (56% of those providing a view) considered that any of the 3 proposed ABS business structures ( ABS involving non-lawyer ownership, ABS involving external ownership, multi-disciplinary practices ( MDPs)) should be permitted. 12 respondents (55% of those who commented) did not consider that any of the 3 business structures, if permitted, would require any additional safeguards.
1.6 Thirteen respondents (54% of those providing a view) thought that the current arrangements for regulating licensed conveyancers and executry practitioners or those with rights of audience as described in the consultation document, did not need changing at present. However, a sizeable minority of 8 respondents (33% of those commenting) argued for change, largely on the basis that qualified legal advice may be needed if complications arose in these practices, or that more competition should be encouraged in this area, and their current regulation by the Law Society of Scotland should be reviewed.
Who will be affected by the Bill? ( Chapter 3)
1.7 Twenty-five respondents (83% of those providing a view) agreed that the current areas of business reserved to legal professionals should remain. 23 respondents (85% of those providing a view) supported the proposals that the Bill should focus on the regulation of legal professionals and businesses where legal professionals are involved in the provision of legal services to third parties. The majority view (21 respondents or 70% of those commenting) was that the arrangements for regulation of solicitors and advocates in traditional forms of practice should remain as they are now.
1.8 Half of the 30 respondents who provided a view agreed that the provisions to allow applications for confirmation rights from non-solicitor professionals or other bodies, as described in the consultation paper, should be included in the Bill. Respondents envisaged that this would result in benefits such as providing more consumer choice, increasing competition and providing parity with the situation in England and Wales. However, 11 respondents (37% of those who commented) disagreed, with some respondents arguing that these functions should be carried out by lawyers only.
Principles of regulation ( Chapter 4)
1.9 Overall, there was much support from respondents to the proposals regarding the principles of regulation set out in the consultation document.
1.10 Twenty-five respondents (89% of those who commented) agreed that there should be a statement of regulatory objectives for providing legal services in ABS as proposed. Several suggestions for amendments to the wording of the regulatory objectives were outlined in responses. 22 respondents (92% of those providing a view) agreed that regulatory objectives should be supplemented by considerations which should guide the actions of regulators.
1.11 There was much agreement (26 respondents or 93% of those who commented) that there should be a statement of professional principles for those providing legal services in ABS. 18 respondents (67% of those who expressed a view) agreed that it should be possible for regulators to grant conditions of licence or to refuse a licence to operate an ABS where there is demonstrable evidence of a risk to access to justice.
1.12 There were, however, mixed views on whether the regulatory objective of promoting access to justice could be achieved in the context of ABS, and suggestions were made on how this objective could be supported by other routes such as increased funding of legal aid and Citizens Advice Bureaux, and increasing the role of community law centres.
The regulatory approach ( Chapter 5)
1.13 Overall, it was seen as important to keep regulation simple and proportionate, and to ensure that all solicitors are treated equally, whether working in ABS or traditional firms. 21 respondents (84% of those providing a view) agreed that ABS should be regulated at the entity level, with individual professionals regulated by their own professional bodies.
1.14 Sixteen respondents (69% of those who commented) agreed with the proposals for defining the ABS as set out in the consultation document.
1.15 Twenty-two respondents (88% of those providing a view) agreed in principle to the proposals for dealing with regulatory conflict. However, many emphasised that further clarity is required on several aspects of the proposals.
1.16 Of the 25 respondents who addressed the issue of how the legal professional privilege should be protected in ABS, many simply stated their support for the general approach proposed.
1.17 A recurring theme was that Scottish legislation will need to take cognisance of European legislation which has a bearing on certain cases such as those involving money laundering. One concern was that solicitors working in ABS may face conflicts of interest between preserving professional privilege whilst also working in the interests of their business entity.
1.18 Twenty-two respondents (76% of those providing a view) were in favour of the setting up of some form of advisory panel to advise Ministers on applications for authorisation (of regulatory bodies to act as regulators of ABS) and on keeping the regulatory framework under review. A common view was that any new advisory panel should include lay representatives with a consumer interest. 19 respondents (83% of those who commented) agreed that Ministers, with the agreement of the Lord President, should authorise ABS regulators as proposed.
1.19 Eighty-six per cent (19 respondents) of those who provided a view agreed that the Bill should set out the criteria for authorisation of ABS regulators, and that these should relate to organisational capacity, independence, and an appropriate regulatory scheme.
Ownership of legal services ( Chapter 6)
1.20 Twenty-three respondents (85% of those providing a view) agreed that there should be a "fit to own" test specified by the ABS regulator, with most agreeing with the proposed details of the test. The majority view (held by 15 respondents or 71% of those who commented) was that the proposals provided sufficient safeguards to ensure that professional principles are not compromised in ABS which are externally owned.
1.21 There were mixed views on the proposals for a head of legal services and head of practice or a practice committee for ensuring ethical and practice standards in ABS owned by non-legal owners. Whilst some agreed with the proposals, others raised queries and requested further clarification on the issues raised. A small minority opposed the proposals.
Law Society of Scotland ( Chapter 7)
1.22 Several suggestions were made by respondents for changes to the Law Society's governance arrangements. Key amongst these were proposals to reduce the size of the governing Council, and to change the Council's composition to incorporate a greater lay representation. 16 respondents (59% of those who commented) supported a significant non-lawyer membership on the Council. It was argued that this would promote public confidence in the Society as fulfilling its public interest role, and adding depth to its decision-making. A general view was that the greater responsibility held by the Council for regulating itself, the higher should be the proportion of non-lawyer membership.
1.23 Seventeen respondents (63% of those who commented) did not support the splitting of the representation and regulatory roles of the Society as proposed by the Office of Fair Trading ( OFT). These different functions were viewed by some as working well together, with a clearer segregation, if required, achievable through the modernisation of the Society's governance which is currently under review. However, one-third of those expressing a view considered a clearer separation of the Society's representation and regulatory roles to be essential.
1.24 Nineteen respondents (79% of those who commented) supported the proposal that the Guarantee Fund or an equivalent provision should be required for ABS. A common argument was that this would achieve parity between consumers making use of ABS and those using traditional legal services models. Views were relatively evenly balanced between respondents (largely law firms) who advocated capping the Guarantee Fund liability and those (largely individuals) who recommended that the Fund remain uncapped. 14 respondents (82% of those who commented) considered that the proposed requirements for ABS professional indemnity insurance were adequate.
The Faculty of Advocates ( Chapter 8)
1.25 The majority view (14 respondents or 64% of those who commented) was that the Faculty should not be required to allow its members to form partnerships or participate in ABS, provided that those wishing to do so can easily become solicitor advocates. Some respondents emphasised their view that there should be a system of easy transfer for advocates between the different branches of the profession. However, a minority of 6 respondents (27% of those who provided a view) favoured advocates participating in ABS, envisaging that this would reflect a modernised approach which would result in a better service to clients.
1.26 Thirteen respondents (72% of those who commented) agreed that the Faculty's regulatory framework should be organised into a code set out in law.
1.27 The 16 respondents who provided a view were evenly split on whether the regulatory framework of the Faculty described in the consultation document should be changed in any respect. Most of those advocating change wished to see a greater separation of the Faculty's regulatory and representative functions.
Regulation of claims management ( Chapter 9)
1.28 Twenty-two respondents (85% of those who commented) considered that it is necessary to regulate claims management companies operating in Scotland. Recurring views were that regulation of claims management companies would create a level playing field in this business area and that this would address the current cross-border inconsistency.
1.29 Nine of the 17 respondents who commented were in favour of regulation of claims management companies by Scottish Ministers with licensing and administration contracted out to Trading Standards or a similar body. This was seen as the most cost-effective option, and it was noted that a similar arrangement had already worked in England and Wales.
1.30 Only 1 of the 17 respondents who commented claimed to be aware of claims management companies with "no win, no fee" arrangements which had resulted in the cost to the client being greater than the award. Amongst the few respondents who reported being aware of poor practices by claims management companies in Scotland, the most common concern was over alleged misleading advertising.