Guest post by Crispin Passmore [1], co-founder of Passmore & Oliver Partners
Passmore: Strong case to reduce the number of reserved activities
The House of Lords industry and regulators committee has invited evidence on how regulators approach economic growth. Nowhere is this question more pressing than in the regulation of legal services, where well-intentioned consumer protections increasingly act as barriers to innovation, competition and access to justice.
The central problem in the legal market is not insufficient protection, but insufficient access. Most individuals and many small businesses simply cannot afford traditional legal services.
This is not a marginal or theoretical concern: it directly constrains economic activity by those individuals and businesses, discourages entrepreneurship, and undermines confidence in the rule of law. Further, a legal market that cannot serve the majority of its potential users is a market that cannot grow to its potential.
Yet legal regulation often treats consumer protection and growth as opposing objectives. This is a false dichotomy. In functioning service markets, competition is one of the most powerful drivers of consumer benefit.
Growth brings choice, affordability, innovation and improved quality. Suppressing growth in the name of protection frequently delivers the opposite result: higher prices, less innovation and reduced access.
Innovation is essential to access
Legal services are still largely delivered through traditional partnership models that distribute profits annually and struggle to support long-term investment.
This matters because technology – particularly AI and large language models – offers a genuine opportunity to transform legal delivery, lowering costs and widening access. But developing, testing and deploying these tools requires capital, scale and commercial risk-taking.
In England and Wales, alternative business structures (ABS) have begun to unlock investment and new delivery models. Fourteen years on, they have demonstrated that external ownership and innovation can be managed safely.
By contrast, the continued failure to implement and legislate for ABS in Scotland and Northern Ireland respectively discourages inward investment, depriving consumers of the benefits of competition and choice in those jurisdictions.
Regulators need a deeper understanding of commercial models and investor risk management, and a clearer mandate to welcome commercial imperatives and to support innovation where it advances access, affordability or choice.
Pausing innovation initiatives – such as regulatory sandboxes – in the face of rapid technological change risks leaving the legal market structurally behind comparable sectors and jurisdictions.
Removing unnecessary barriers
Alongside supporting innovation, regulators must address rules and processes that add cost without consumer benefit.
Requirements such as physical office addresses, duplicative approval processes for known individuals, and overly broad ownership tests slow growth and deter investment – particularly in digital and cross-border business models.
Approval timelines matter. Where regulatory consent is a precondition to investment or consolidation, delay can deter or disrupt deals, directly suppressing growth. Risk-averse, bureaucratic processes impose real economic costs, often with little evidence of corresponding public benefit.
Some of this is legislative overload, but a focus on supporting commercial strategies and innovation that deliver growth can help ensure that regulators don’t forget about the mass of people and small business that don’t have access to the services they need.
Targeted, not universal, protection
Legal regulation too often aspires to eliminate all consumer risk. This is neither achievable nor desirable. All markets involve trade-offs, and excessive precaution raises costs and reduces access – harming consumers overall and society more widely.
Protection should be targeted at genuine vulnerability and high-impact risks. Blanket mandatory professional indemnity insurance at levels unmatched in other professional services, impose costs that are ultimately borne by consumers.
Designed for a different era, these rules have not kept pace with changes in service delivery or risk profiles. They are certainly not compatible with digital delivery of low cost and unbundled advice.
Rethinking the regulatory architecture
Many of the activities reserved to regulated lawyers are accidents of history rather than products of modern risk analysis. Other jurisdictions take radically different approaches, from title-based regulation to far narrower reservation of activities, without worse consumer outcomes.
Crucially, there is little evidence that expanding the scope of regulation improves outcomes. Research in England and Wales has shown that unregulated providers can deliver services of comparable quality, often with greater innovation, and more predictable and competitive pricing.
In the short term, there is a strong case for reducing reserved activities to litigation and higher-court advocacy.
The current regulatory architecture is also weighed down by unnecessary complexity. The Legal Services Board was created to oversee the transition from professional self-regulation.
Fifteen years on, frontline regulators are largely independent and are populated by regulatory experts across their boards and executive leaders, yet the additional layer of oversight remains – diluting accountability, slowing reform and reinforcing risk-averse behaviour.
Direct accountability to Parliament would be clearer, more proportionate and more consistent with other regulated sectors.
A growth-focused regulatory settlement
If legal services regulation is to support economic growth, access to justice and consumer interests, it needs a reset. That means:
- accelerating regulatory reform across the UK;
- recognising growth and consumer benefit as complementary goals;
- targeting protection where it is genuinely needed; and
- modernising regulatory structures that no longer serve their original purpose.
The House of Lords inquiry presents a timely opportunity to move beyond incremental adjustment and address the structural barriers that prevent the legal market from serving the economy and society as it should.
Crispin Passmore is the co-founder of Passmore & Oliver Partners, a global regulatory and strategic consultancy focused on helping ambitious lawyers, law firms, technology businesses and investors. Passmore & Oliver’s full submission to the House of Lords inquiry is available here [2].