The Government is spearheading the most significant changes in the way in which legal services are set to be bought and sold.

• In March 2001, The Office of Fair Trading (OFT) published its report on competition in professions. The report led to the Law Society's proposal to amend Rule 4 of the Solicitors' Practice Rules. One of the effects of this would be to allow in-house lawyers to provide commercial services - where previously lawyers could only serve the public if they were employed in a law firm. Now, for instance, a bank or insurer would be able to provide services directly.
• In July 2003, the Government commissioned Sir David Clementi to report on and review the regulatory framework for legal services in England and Wales.
• In March 2004, Sir David Clementi's initial Government report on the regulatory framework for legal services found the legal market to be outdated, inflexible, over-complex and insufficiently accountable or transparent.
• In his December 2004 report, Clementi promoted increased innovation and competition.
  
• Since then and based on the Clementi reports, The Legal Services Bill was introduced.
• In October 2007, the Bill passed into law as the Legal Services Act.
• The Legal Services Act is the first attempt to draw the entire legal services market into one regulatory framework. It is a far reaching and radical departure from existing regulations and legal business structures and achieves this departure by allowing the creation of what has been termed "Alternative Business Structures" (ABS).
• The Act maintains the status quo in relation to "reserved activities" i.e. advocacy, conducting litigation, conveyancing and probate. However, it does not regulate unreserved legal activities e.g. Will writing, employment advice, health & safety, although the Act does give the ability to quickly apply regulations to these unreserved activities. Perhaps the least known fact about this marketplace is that under current UK regulations and proposed regulations under the Legal Services Act, non-lawyers can already deliver many legal services. The Act does not alter this and extends the opportunities further with the regulatory objective of "promoting competition in the provision of legal services".

In summary:

Timetable

• Legal Services Board (LSB) is created as single oversight regulator.
• Delay in implementation of underlying regulations until 2010/11.

The new Legal Services Board (LSB)

• LSB to be head of a new regulatory framework.
• LSB to be independent oversight regulator to regulate all "reserved activities".
• LSB to ensure compliance by approved regulators e.g. Law Society, Bar Council.
• Existing regulators e.g. Law Society/Bar Council will work under supervision of LSB.
• Power to create new regulators or withdraw regulatory powers.

Alternative Business Structures (ABS)

• Radical departure from existing legal structures i.e. partnerships, solicitors, incorporated companies and LLP's.
• ABS can be a body corporate e.g. subsidiary of a bank or insurer and may even be foreign registered.
• ABS to be a licensed body and regulated by an approved regulator e.g. Law Society.
• Distinction between "ownership" and "management".
• Every ABS to have a HOLP (Head of Legal Practice) and a HOFA (Head of Finance and Administration).
• Non-lawyer ownership now possible.
• Fitness for ownership test i.e. honesty, integrity, reputation, competence, financial soundness.
• Approval for "material" interest i.e. 10% or more of share capital.

The Act will legitimise what has been happening on the ground for some time (e.g. fee sharing on conveyancing and personal injury) and focuses on the mechanics of the new market and not the ability of law firms, especially small law firms, to manage these changes. New entrants to this market will have greater experience of operating in a public environment and appreciate the difference between "ownership" and "management" and will possess greater HR and branding and product development skills than small law firms. The Act will leave "wide open" the issue of unreserved legal activities (e.g. Will writing) and the opportunity to offer a wide range of unregulated services.

The Government, through the Act, seems to want to encourage one stop legal/financial operations with the creation of ABS's. Clearly therefore, this £19 billion legal services market, once the preserve of law firms, is now also set to be distributed through banking, insurance and retail outlets. This is an unprecedented opportunity for financial institutions and retailers to provide a range of legal products that directly complement their suit of financial services. Epoq has been pioneering change in this sector, winning awards for producing innovative and accessible legal products, delivered at fixed costs through all media.

The Legal Services Act has had the effect of opening up awareness for legal services and their profitability. Decisions are now being made and services launched in the lead up to which brands will ultimately dominate this space.

If you would like a free consultation to learn more about the UK's legal services regulatory framework and what the proposed changes could mean to your organisation, then contact our team.