Changes, trends and ABS in England and Wales Chris Kenny, Chief Executive Regulatory Reform for a 21 st -century Legal

1. Changes, trends and ABS in England and Wales Chris Kenny, Chief Executive Regulatory Reform for a 21st-century Legal Profession, Dublin 6 July 2012

2. Agenda • The history of the reforms in England and Wales • The regulatory architecture • Progress to date • Alternative business structures (ABS) • General observations

3. The history of the reforms • March 2001: “Competition in Professions”: Office of Fair Trading: open competition • July2002:“In the Public Interest?”: Lord Chancellor's Dept: competition to give best consumer service • July2003: Conclusions on “In the Public Interest?” • December2004: “Clementi”(Report of the Review of the Regulatory Framework for Legal Services in England and Wales) • October2005: “Putting Consumers First” (Dept for Constitutional Affairs) • May2006: Draft Legal Services Bill • July2006: Joint Report (both Houses of Parliament) on the draft Bill – chaired by Lord Hunt • October2006: Full Bill published • October2007: Royal Assent • January2009: Legal Services Board formally created • January2010: start of full powers for the Legal Services Board

4. The history of the reforms • Drivers of change • Collapse of confidence in self-regulation • Perceived anti competitive restrictions • The ‘regulatory maze’ • Regulatory failure in complaints-handling

5. The new regulatory landscape • RegulatoryObjectives • Protecting and promoting the public interest • Supporting the constitutional principle of the rule of law • Improving access to justice • Protecting and promoting the interests of consumers • Promoting competition in the provision of services • Encouraging an independent, strong, diverse and effective legal profession • Increasing public understanding of the citizen’s legal rights and duties • Promoting and maintaining adherence to the professional principles

6. The new regulatory architecture • Legal Services Board • Oversight regulator for the sector • Independent of both the profession and government • Sponsored by the Ministry of Justice - Memorandum of Understanding • Paid for by levy on lawyers • Duties and enforcement powers • Small – staff of fewer than 30, budget of less than £5m

8. Vision • Greater competition - development of new and innovative ways of meeting demand • A market that allows access to justice for all consumers, helping those whose incomes exceed legal aid thresholds but who need support • Better empowered consumers, receiving the right quality of service at the right price • An improved customer experience with effective redress if things go wrong • Greater innovation and partnership between lawyers and other professionals • Clear, proportionate and targeted regulation

9. Early priorities and progress • Certifying independence in regulation • Liberalising the market to increase competition • Ensuring redress for consumers when things go wrong • Results • Second round of certifying governance standards against Internal Governance Rules • Solicitor and Conveyancer-led Alternative Business Structures opening for trading • Successful full year of operation for the Ombudsman, plus progress on first-tier complaint handling

10. The development of ABS • The Legal Services Act 2007 set out a framework • Approved regulators applied to be “Licensing Authorities” (LAs) of ABS • Detailed requirements – structure and ownership • Clearly set out the roles for regulation of entities • Strong uniform powers for all LAs • Financial penalties (£50m for individuals, £250m for entities) • Enforcement powers • Exception to the Rehabilitation of Offenders Act • Two LAs operating – CLC and SRA. Others working towards applications • Regime started with first licence on 6 October 2011

11. The approval process • The ownership and management • Material interest holders need to be approved • Those who hold 10% of shares or voting rights • Those who exercise significant influence over the management • Three tests. The holding: • Does not compromise the regulatory objectives • Does not compromise the duties on regulated people • Is “fit and proper” • Approval and ongoing monitoring – sanctions on owners including forced divestiture

12. The approval process part 2 • Organisationalevaluation • LAs looking more at funding and business models • Are the right people involved? • Are the systems right? • What else is the business doing? • Conditions on licences covering non-reserved activities

13. The HoLP and HoFA • Two new statutory roles required by ever ABS • Head of Legal Practice (HoLP) • All reasonable steps to ensure compliance with rules, duties of managers and professional principles • Duty to report failure to LA • Head of Finance and Administration (HoFA) • All reasonable steps to ensure compliance with accounts rules • Duty to report failure • Can be the same person • SRA using the roles in all firms – CoLP and CoFA

14. Impact of ABS on the rest of the sector • Market reacting to ABS – even before ABS started • Level playing field between ABS and non-ABS • New Code of Conduct for Solicitors • Taking opportunities that have been open for some time • New business models more aligned to modern business management

15. Emerging models • New models already coming to light • Franchise models – Quality Solicitors • Fixed fee law-as-a-service (LaaS?) – Riverview Law • Alternative remuneration strategies – Scott-Moncrieff & Associates • Retail providers – Cooperative Legal Services • New intermediaries – Eddie Stobart • Small firm models – partnerships, succession planning • Accountants are on the way

16. Numbers and expected uptake • Small numbers of ABS to date but many more interested • 8 licences issued • 30 completed stage 2 of application process • circa130 in stage 2 • circa180 at stage 1 • LDPs – stepping stone to ABS about 320 will need to transfer to ABS by mid 2013

17. General observations • Outcomes-focused regulation • Regulation is better focused on risk – by subject and firm • Better data flows will enable more targeted interventions • Lower-risk businesses will be treated with a lighter-touch • LSB has help change the dialogue in the market – evidenced based. • Exciting research into consumers and providers showing the way • Real independence from the MoJ – no powers of Ministerial direction

18. Questions? • Questions now • Panel discussion later