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Future of Legal Services Speech

18th April 2011

Jonathan Djanogly speaks at the Future of Legal Services Forum on 14th April.

It is a pleasure to be here today at the Future of Legal Services Forum.

I am always glad to have the opportunity to talk about the changes and improvements that the coalition Government is making to legal services. The aim is to have a system that is capable of responding effectively and efficiently to the needs of our business and changing society. To do this it is necessary to modernise.

The Legal Services Act

To be more effective and efficient – businesses will always need to look carefully at the way they operate in order to make the best use of the opportunities afforded to them. But the changes facing the marketplace now, with ABSs, will require fundamental reassessment for much of the legal market place. Having said that, I do believe that the Legal Services Act 2007 provides some revolutionary opportunities for changing not only how legal business is regulated but also to ensure that it is not over-regulated.

The aim is to allow competition, quality and choice of legal services for the consumer to flourish. That could be found through multi disciplinary practices providing one stop services in the High Street or complicated cross border financial services advisory provision or by firms raising equity to expand their operations. The scope for change provided by ABSs is huge.

But before I talk about the new structures and the work being done to prepare for their introduction, I would like to say a bit about the reforms already made by the Legal Services Act.

Through the Act, significant changes have already materialised. A new oversight regulator – the Legal Services Board – has been fully operational since January 2010. In acting as the oversight regulator of other front-line legal regulators, the LSB has a duty to promote a number of regulatory objectives set out in the Act. Amongst others, this includes:

- protecting and promoting the public interest;
- improving access to justice;
- protecting and promoting the interests of consumers;
- promoting competition in the provision of legal services
- encouraging an independent, strong, diverse and effective legal profession;

The LSB’s role is therefore a challenging one and I know that it takes this responsibility extremely. I am extremely pleased therefore that the strong leadership of the LSB is being maintained with David Edmonds remaining at the helm, following his recent successful re-appointment for a second 3 year term to April 2014.

In some ways, it is hard to believe that some 6 months have already passed since I attended the launch of the new Office for Legal Complaints – which became operational in October 2010.

Before the OLC, complaints about legal services were handled by several different organisations. This system was time-consuming, complex and confusing to consumers. Now, all complaints about legal services in England and Wales are dealt with by the Legal Ombudsman in the first instance. This new system is far more efficient.

By the end of February this year, over 30,000 people had contacted the Legal Ombudsman. Of those, 10% had their cases accepted - and 900 of those cases have already been closed. This turnaround tells me that the new system is working well and I am confident that having a single point of entry for all complaints about legal services is in the best interests of consumers.

It is a significant achievement to have made these changes and I take this opportunity to congratulate Adam Sampson and his team on so quickly bedding in the new system.

The next phase of implementation is to introduce alternative business structures. Preparations for this are well underway and while I am keen to see this happen as soon as possible, it is important to get the regulatory arrangements right and robust.

Of course the law is already big business nationally and globally. However, I believe that, once introduced, alternative business structures have the potential to revolutionise the legal services market. For the first time, law firms will have access to external investment which should help business-minded and enterprising law firms to adapt the way they run their businesses.

I also think that alternative business structures have the potential to greatly benefit practitioners as well. Legal professionals will no longer be restricted to working in specific organisations, but will be able to work in partnership with other professionals to provide a variety of legal and non-legal services under one roof.

I am aware that some concerns have been raised about the timing of ABS. Given that we are a few years down the road from when this Act was passed, I don’t think we can say that ABS is being introduced too soon. In fact, since their inception in March 2009, over 400 Legal Disciplinary Partnerships have been formed, as working barriers have increasingly been broken down within the overall legal profession. No serious problems have arisen from LDPs and indeed many of them are waiting to be amongst the first to become ABS registered.

In the current economic climate, I would expect more diverse and flexible business structures to help boost the legal industry by relaxing the historical restrictions on how law firms are owned and managed, which in turn should help law firms to benefit from economies of scale.

The legal industry already makes a huge contribution to the UK economy. Legal services generated £23.1 billion in 2009 – 1.8% of the UKs GDP. In the same year, law firm exports came to £3.2 billion.

I would hope that allowing law firms to structure themselves in more flexible and dynamic ways and seek external investment will help to attract even more new business into the UK, boosting both the economy and the UK’s reputation as a world leader in legal services.

The UK has long been recognised throughout the world as a beacon for quality legal services, and this excellent reputation attracts consumers from across the globe. Alternative business structures will enable these consumers to access a variety of services from one provider.

There should be no reason why some relaxation of overly stringent regulations that currently govern how law firms are owned and managed, should in any way have an adverse impact on the quality of services and the protection of consumer interests. Quite the opposite, the quality should improve.

I am however concerned that necessary regulatory controls are put in place to maximise the safeguards built into the new regulatory framework by the Act. This is to ensure there is effective protection of consumer interests and the reputation of our world class legal profession.

By generating competition between providers, alternative business structures should attract more interest into the legal system and more competitive pricing of services, which - rather than raising alarm bells about providers exiting the system – should give rise to more self-scrutiny about how best to deliver services in this changing legal landscape.

I see no automatic reason why small firms should be priced out of the system or why anyone should have to stop providing services – but all practitioners will need to consider how best to operate. They will need to consider which services they are best equipped to provide in the market place that they choose to tackle and to reach the people who most need the variety of services that they are equipped to provide. Of course, much advancement has already been made in utilising technology with the Internet making services much more accessible. Also, greater commoditisation of products has already occurred and changes to the market place now require lawyers to think much harder as to how best to market themselves to compete professionally. To that extent I see the move to ABS to be a continuation of a process that has been happening in any event over recent years.

For alternative business structures to be a real success, we must ensure that we balance the flexibility of this new regime with robust consumer protection measures and clear regulatory safeguards.

And to this end I can confirm that the Ministry of Justice and the Legal Services Board have been working jointly on an extensive programme of work to make ABS happen swiftly and securely.

This currently entails a substantial programme of rules, regulations and orders, which need to be made. Without these - neither the external regulatory arrangements – nor the internal governance arrangements can be put into place for the new business structures.

Much dedication and time is being invested in this project and the work is being done in close consultation with the approved regulators and interested parties. It is important that everyone - practitioners and their regulatory and representative bodies – work together to ensure the new regime is set up on firm foundations and runs smoothly.

The new ways of working may not come easily at first and adjustments may be needed, but making these changes will be worthwhile as a more enterprising legal services industry will produce benefits for consumers, practitioners, the legal profession, the economy – and ultimately, society as a whole.

Those that do decide to take advantage of alternative business structures will be subject to all the regulatory safeguards that must be in place through licensing arrangements for ABS firms. This will ensure that non-lawyers will be subject to rigorous ‘fitness to own’ procedures. Anyone wishing to own or control 10% or more of an ABS, or who is able to exercise significant interest over its management, must be certified as fit and proper by the relevant regulatory body.

Currently the Council for Licensed Conveyancers and the Solicitors Regulation Authority have applied to become licensing authorities. I know that has followed an immense amount of preparation, having regard to the necessary criteria. Each application is being assessed and needs careful consideration by the Legal Services Board in the first instance, and also by the Ministry of Justice.

Although there is a desire for this work to be completed without unnecessary delay, and we are pushing hard for October implementation, I am clear that quality is paramount and I will not shortcut a complicated process involving no less than a dozen parliamentary orders.

I should also say that at this stage, we cannot say with absolute certainty what the impact of alternative business structures will be. No one can predict the exact level of take-up but there is certainly interest to indicate that many will seize the opportunity. And given the numbers here today, that certainly looks promising.

I am encouraged that so many firms have already become LDPs. We now need to move forward and bolster our national reputation for innovation and excellence in legal services. So, I hope that alternative business structures will be taken up enthusiasm by the legal profession once the relevant provisions are in force.

Transforming Justice

Of course, the changes made by the Legal Services Act are just one part of the Government’s wider programme of legal services reform. I would also like to take this opportunity to tell you about the proposed reform of the civil court system and the benefits I think that this will have.

On 29th March I published the Consultation Paper Solving disputes in the county courts: creating a simpler, quicker and more proportionate system which proposes the first major (post Woolf) overhaul of the civil court system in 15 years. The paper proposes measures to help people avoid court where possible, and cut costs where it is unavoidable. It also presents options to improve judgement enforcement, to restructure the County court system and to reserve the higher courts for higher value or complex claims.

Whilst commercial disputes are an inevitable part of business life, a key objective must be to resolve them not only as quickly and cheaply as possible but also in the forum most appropriate to their size and complexity.

Under our proposals, by raising small claims thresholds and by extending mediation, we intend that meritorious claims will be resolved at more proportionate cost, while avoidable claims will be deterred.

Taken together, our proposals aim to protect access to justice, encourage earlier and more efficient solving of civil disputes, and reduce cost and disproportionate risk. The objective is to give people and businesses (not least smaller businesses) access to quicker and cheaper justice without a reduction in the service available for more complex and high-value cases. This forms part of the MOJs contribution to the Prime Minister’s call, to move on from cutting public spending, to concentrate on reducing bureaucracy and barriers to business. This is about job creation and engaging in the agenda for growth.

So, given our direction, I welcome the timing of this conference and am pleased to see the level of interest shown here today..

I am confident that those firms who choose to become alternative business structures will be at the forefront of those who are determined to make their businesses a success. In the meantime, I can tell you that the Legal Services Board, the Ministry of Justice and the approved regulators are working hard to ensure that the new regime gets off to a flying start.

Thank you.

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