Written statement to Parliament

Legal services regulation

Written Ministerial Statement made by the Minister of State for Civil Justice, Lord Faulks QC.

The Government is committed to encouraging open and competitive markets. Well-functioning markets are key to the health of the economy and promote growth, innovation and efficiency. Competitive markets are also in the best interest of consumers, enabling consumer choice resulting in better and more affordable products and services.

The legal services market is not only an important contributor to the UK economy, but also to access to justice. The Government is committed to a strong, independent and competitive legal services market, which will promote consumer choice and quality services at lower prices, ensuring greater access to justice for all.

On 30 November the Government published, ‘A Better Deal: boosting competition to bring down bills for families and firms’ which set out the Government’s approach to encouraging open and competitive markets, for the benefit of the UK economy and UK consumers. A key part of the Government’s approach is to ensure that the statutory frameworks underpinning regulatory regimes allow regulators to regulate in a way that is proportionate and promotes competition and innovation.

The Better Deal document included a pledge to consult on making changes to the regulatory framework for legal services to remove barriers to market entry, and regulatory burdens on, Alternative Business Structures in legal services, and on making legal services regulators independent from professional representative bodies.

Today, I am publishing a consultation that seeks views on the first of these proposals. The Government intends to consider the detail and timing of a further consultation on regulatory independence, in the context of the preliminary findings of the Competition and Markets Authority study into the legal services market, which are due to be published shortly.

Since 2010, when Alternative Business Structures were first licensed to provide legal services, over 600 ABS firms have entered the market. The introduction of ABS businesses, particularly those that have access to external investment and business and commercial expertise, has benefited the market more widely. Recent research has indicated that ABS firms are more likely to be innovative than other regulated legal services firms. These new, innovative providers have increased competition in the market, which we believe encourages a wider variety of legal services in the market that are more accessible and affordable to consumers.

As a result of concerns raised at the time about the potential risks of these new and unknown business models, the legislative framework for the regulation of ABS businesses, set out in the Legal Services Act 2007, is more onerous and prescriptive than that for traditional law firms.

In practice, ABS businesses have not been shown to attract any greater regulatory risk than traditional law firms and the Legal Services Board and front-line regulators suggest that the current statutory requirements act as a deterrent and an unnecessary barrier to firms wanting to change their current business model to a more innovative one, as well as to new businesses considering entering the market.

The proposals set out in this consultation aim to enable legal services regulators to reduce regulatory burdens on ABS, while taking a more effective risk-based approach to regulation.