Plans to liberalise legal market as ABS hailed a success

The government has published proposals to loosen the ‘onerous and prescriptive’ rules for new legal businesses.

Announcing the consultation, Legal Services: Removing the barriers to competition, justice minister Lord Faulks said that since their introduction in the Legal Services Act 2007, contrary to the fears of many, alternative business structures (ABSs) ‘have not been shown to attract any greater regulatory risk than traditional law firms’.

Since 2010, when ABSs were first licensed, more than 600 have been formed.

Faulks said that their introduction, particularly those that have access to external investment and business and commercial expertise, has benefited the market more widely.

‘These new, innovative providers have increased competition in the market, which we believe encourages the market to provide a wider variety of legal services that are more accessible and affordable to consumers,’ he said.

As a result of concerns raised at the time about the potential risks of these ‘new and unknown business models’, Faulks said the legislative framework for ABS regulation is more ‘onerous and prescriptive’ than for traditional law firms, which acts as a ‘deterrent and an unnecessary barrier’ to firms wanting to innovate or enter the market.

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

Meanwhile, in its interim report on legal services, the Competition and Markets Authority (CMA) provisionally found that, despite some positive developments, such as the increased use of fixed fees and more commoditised services, competition in legal services for individual and small business consumers is ‘not working as well as it might’.

It suggested that competition is hampered by a lack of upfront information about price and quality.

The CMA noted the ‘complexity’ of the current regulatory framework, but said that it does not create ‘significant’ barriers to entry or distort competition.

It said that it is ‘open to more fundamental change’ of the legal regulatory regime, but doing so risked increased regulation, cost and uncertainty.

The Bar Council and Bar Standards Board welcomed the report and said they would engage with each other and the CMA to consider ways in which information about the services provided by the Bar might be improved for the benefit of consumers.

Bar Chairman, Chantal-Aimée Doerries QC said: ‘It is important that the market for legal services functions efficiently, in the interests of access to justice, and in a way which ensures that consumers’ needs are met.’