The Legal Services Board (LSB) is not just there to help shepherd in the forthcoming ground-breaking changes in the UK legal profession, it is also serving as a catalyst of change.

Founded in order to regulate the impact of the UK Legal Services Act, the LSB has stimulated new ideas on how legal services firms should be owned and operated, according to the organisation’s first annual report. Published on 19 July, the report takes stock of how the LSB has paved the way for new service delivery models in the legal industry and outlines challenges it will face throughout the rest of this year and into 2011.

Among the topics reviewed in the report, by far the most dominant is the emergence of alternative business structures (ABS) – an ownership revolution in which companies that have not typically worked within the legal industry will add specialist services to their offerings. In the course of working with industry to safeguard consumers’ interests, the LSB has noticed that lawyers have begun to open up to ABS and consider its potential.

‘We have started to see a change of mindset within the profession,’ says the report, ‘with more practitioners now thinking of ABS less as “alternative” and more as “an alternative”.’ In the LSB’s view, the introduction of ABS can now be used ‘as a means of reforming regulation to provide strong consumer protection’. The new regulatory framework, it says, ‘will create new and competitive pressures for the provision of legal advice’, while ABS should lead to a ‘greater customer focus among legal services providers’.

Regulation and friction

Efforts to finalise the ABS regulatory framework – the last major change to flow from the Legal Services Act – have been intensive. Comprising just nine board members, the LSB ‘has taken great strides to ensure that the regime is robust and adaptable [in order] to realise the potential of ABS in the market’, says the report, ‘and provide the appropriate level of protection for consumers’.

Much of this work has been tied up with paving the way for the Licensing Authorities (LAs) that will work on the frontline to implement the LSB’s regulatory framework. During this process, the Solicitors Regulation Authority (SRA) and the Council for Licensed Conveyancers (CLC) have both publicly announced their intentions to become LSB-approved LAs.

But one prominent legal expert has raised questions over the prospect of micromanagement. Speaking at Oxford’s Said Business School in May, Law Society president Bob Heslett wondered what kind of oversight would be required once ABS was up and running. It is, he said, ‘vital for the independence of the legal profession that the LSB should not be allowed to morph into an activist regulator in order to justify its existence’. Ultimately, he added, ‘the future of the LSB is not a long-term question for the legal profession, but the independence of the profession is’.

In an address to the Law Society Council the following month, LSB chair David Edmonds pointed out that consultations and discussions have taken place at every stage of the preparation process. ‘It is a measured, considered timetable, he said, ‘which in the private sector world would be considered generous. The ABS concept is not an invention of the LSB. It is embedded in the Act.’

Continuing his defence, Edmonds expressed his belief ‘in the value of free enterprise, entrepreneurship and innovation’, and that the interests of the consumer ‘are best met in an environment where there is freedom for the supplier to respond to market demand’. Regulation, he added, ‘should be as general as possible, focused on outcomes wherever possible rather than on excessive, detailed prescription’.

Year of change

ABS will become a live and functioning UK business model in October 2011. Tony Williams, principal at legal consultancy Jomati, hopes for a smooth countdown. ‘The LSB has been finalising its rulebooks and establishing memoranda of understanding with the other regulators,’ he told NewLegal Review, ‘so a broad canvas has been painted. But there’s still a lot of detail to fill in, which would make it easy for things to be kicked into the long grass. The Legal Services Act was passed three years ago now, and the potential for slippage in the final stretch is significant.’

The LSB admits as much in its report. ‘The legal services market is entering a period of unprecedented change that could revolutionise the way that consumers access legal services,’ it said. ‘Changes in the use and application of information technology [are] slowly turning the historic model of the provision of legal services on its head, allowing many firms to offer low cost systematised services to the mass market for the first time.’

Meanwhile, it added, twin pressures of a Government desire to constrain the cost of legal aid and the potential for increased legal services outsourcing  (LSO) to low-cost economies present a challenge to the “high-street” model of legal provision – particularly in a time of economic downturn. ‘These changes, allied with pressure on the professional indemnity insurance market, will potentially further shake up the current provision of legal services,’ the LSB said.

Williams, though, is confident that the marketplace will adapt to these new levels of scrutiny – particularly if the LSB continues in the spirit in which it has started. ‘The Act laid down a number of things that have initially been seen as innovative,’ he said. ‘For example, the regulations that the LSB will enforce will be for the benefit of consumers, which is quite a mindset-change for the legal community. On the question of regulating legal outsourcing, the LSB will have to determine the responsibilities of the primary law firm, and the standards that should be expected for use of information and confidentiality. But I am very positive about what it has done so far.’

Asked for his thoughts on how the LSB could be improved, Williams was simply keen for it to not stray far from its existing shape. ‘It wants to keep itself lean and mean,’ he said, ‘especially when one thinks of current concerns over the cost of regulation. Above all, it must always consider what is in the consumer’s interest and ensure that it provides all the necessary public information about its activities.’


Find out more: www.legalservicesboard.org.uk