Regulators need to deliver a “step change in standards of transparency” so that lawyers’ clients can both understand the price and service they will receive, and compare providers, the Competition and Markets Authority (CMA) said today.
In its final report on the legal services market, the watchdog also called on the government to review the whole regulatory regime and recommended a move away from regulation by title to a regime based on activity, as well as full independence for legal regulators.
The CMA said: “Overall, we have found that the legal services sector is not working well for individual consumers and small businesses. These consumers generally lack the experience and information they need to find their way around the legal services sector and to engage confidently with providers.
“Consumers find it hard to make informed choices because there is very little transparency about price, service and quality… This lack of transparency weakens competition between providers and means that some consumers do not obtain legal advice when they would benefit from it.”
It said competition was particularly relevant in the legal services sector “given the concerns about access to legal advice and a lack of low-cost alternatives for the provision of advice”.
The CMA made four core recommendations. First, it said the legal regulators should revise their regulatory requirements to set a new minimum standard for disclosure on price and the service provided, and develop and disseminate best practice guidance.
“Importantly, this should include a requirement for providers to publish relevant information about the prices consumers are likely to pay for legal services.”
Second, it said the regulators should promote the use of independent feedback platforms to help consumers understand the quality of service offered by competing providers, and third they should make more data accessible to comparison tools and other intermediaries “to facilitate the development of a dynamic intermediary market”.
Finally, the CMA said the regulators need to overhaul their shared Legal Choices platform so that it can play a “major role” as a consumer education hub.
It set a clear timescale for action – by 31 January 2017, the regulators should establish a joint programme board to take forward the recommendations. By 30 June, they should publish a collective response, with each regulator also publishing an action plan of how it would take the recommendations forward. By 30 September, the regulators should have begun consultation on any regulatory changes.
The Legal Services Board should monitor this work, but the CMA said it would return in three years’ time to assess the progress made. If not satisfied, “we will consider whether there is a need for further action by the CMA, including the possibility of a market investigation reference or further action by others”.
On regulation, the watchdog said that while the existing system is “not currently a major barrier to competition”, it had concerns about its “sustainability and inflexibility” in the long term.
“Our main concern is that the current, title-based model is insufficiently flexible to apply proportionate, risk-based regulation which reflects differences across legal services areas and over time.”
It said the reliance on title meant consumers may avoid unregulated providers “even in situations where they might benefit from using them”.
So the CMA called on the government to launch a review of the regulatory framework based on four key principles:
- The regime needs to be more flexible, replacing or supplementing the current reserved legal activities with an ability for regulators to introduce or remove regulation in specific areas depending on risk;
- Regulation should be removed where there is insufficient evidence of risk;
- The scope of regulation should focus on activities and risks to consumers, with a shift away from regulation attaching solely to professional titles. This would bring some activities of unregulated providers within the regulatory net; and
- Lawyers should be “less tightly regulated” than they currently are for lower-risk activities, “reducing the costs of regulation and encouraging different approaches and business models”.
The CMA said it saw a case for reducing the number of regulators, but “structure should flow from the preferred regulatory approach”.
In the short term, the CMA added, the MoJ should carry out its planned review of the independence of legal regulators “as soon as possible”. It supported independence as a “key principle”.
Further, it called for action to reduce regulatory costs, and supported the Solicitors Regulation Authority’s proposal that solicitors should be allowed to practise in unregulated firms. This restriction “may unnecessarily reduce the availability of lower-cost options in the sector”.
One final recommendation was for the Ministry of Justice to review whether there was a case for extending redress – either access to the Legal Ombudsman or other arrangements such as ADR or self-regulation – for the customers of unregulated providers.
Rachel Merelie, acting executive director for markets and mergers at the CMA, said: “You might not need a lawyer very often but when you do it will often be at a crucial point in your life. So the transparency, affordability and accessibility shortcomings we have identified are a real concern.
“Consumers who are equipped with the information they need to assess the services on offer and choose the best deal for them, will not just benefit personally but will also help drive competition, quality and innovation across the whole market. That means a better outcome for everyone and, importantly, fewer people will be discouraged from seeking the help they need.”