In March the Competition and Markets Authority (CMA) published the outcome of their research on the legal services market in Scotland. Marzena Lipman gives us a summary.

The research was initiated in June last year in response to an independent review into the regulatory framework in Scotland, led by Esther Roberton.

The ‘Roberton Review’ made a number of recommendations, including that there should be a single independent body to regulate the legal profession, set standards, and handle complaints. Unlike in England & Wales, the Law Society of Scotland performs the dual function of acting as the regulator as well as the representative body.

The CMA concluded that that the legal services sector in Scotland ”may not be delivering good outcomes for consumers”. The CMA pointed to a few indicators including:

  • rising consumer complaints
  • challenging conditions faced by high street firms
  • consumers with a legal need not seeking help
  • concerns that regulation of the sector in Scotland does not adequately respond to market pressures.

The CMA also found limited price transparency, with only 6% of the providers surveyed publishing prices on their websites, and 72% having no plans of doing so. According to the CMA the lack of transparency makes it difficult for consumers to shop around and limits providers incentives to compete vigorously. The CMA also noted wide price disparities with ”solicitors charging significantly varied prices for essentially the same services”.

The CMA was similarly concerned with restrictions placed on Alternative Business Structures (ABSs) and advocates under the current regulatory framework, with potentially adverse implications for the sector’s overall competitiveness and future growth. For example, Scotland is yet to implement the legislative change from 2010 allowing the introduction of ABSs. When it is implemented the plan is to restrict ABSs ownership—there will be a minimum of 51% ownership required by solicitors, and the operation of ABSs will only be permitted for commercial purposes (not for the non-profit sector). In addition, advocates are prohibited from forming partnerships or accepting instructions directly from consumers.

The CMA also gave a green light to the Roberton Review’s recommendation to set up a regulator that is independent of the representative bodies. The research identified instances of conflict between the representative and regulatory roles, potentially creating the risk or perception that regulatory decision-making may be compromised. While the CMA noted concerns over whether an independent regulator would ensure independence of the legal profession from the state, it concluded that ‘maintaining this independence does not require regulation to be overseen by the existing professional bodies’ and that ‘there are many successful examples of organisations established as public bodies that effectively operate independently of government while remaining open to public scrutiny and hence accountability’.

To remedy the issues identified, the CMA set out a number of recommendations including:

  1. A review of the impact of the Law Society of Scotland’s voluntary price transparency guidance to consider mandatory rules if the guidance has not resulted in effective changes to price and service transparency.
  2. Implementation of the existing provisions for ABSs in the Legal Services (Scotland) Act 2010, with a removal of restrictions on majority ownership in an ABS and the requirement for ABSs to be operated for a fee, gain or reward.
  3. A removal of restrictions on advocates forming partnerships or accepting instructions directly from consumers should they choose to do so.
  4. Consideration for wider regulatory reform, with a regulatory framework securing independence of regulation from representative interests.

In response to the CMA research, John Mulholland, President of the Law Society of Scotland, said that the “current number one priority is to support solicitors and their clients deal with the unprecedented challenge of Coronavirus’, but he agreed that ‘pace is needed around new introducing new alternative business structures”. This may be one way to help firms access vital capital following the current crisis.

However, he disagreed on the need of a wider reform:

“On the issue of wider reform, the CMA started its work with a clear policy position in favour of creating a new regulatory body. So it is no surprise to see it reiterating that position. However, at this of all times, we must avoid creating complicated new structures which add little benefit and only serve to build in extra costs for legal firms. All this would do is increase prices for consumers and undermine the competitiveness of the Scottish legal services market.”

The CMA report is available here.