The Law Society has backed government proposals to remove restrictions on alternative business structures (ABSs) so as to encourage more to enter the market, but also recommended caution before declaring that they have increased competition and are no more risky than traditional law firms.
Responding to the government consultation on changes to the Legal Services Act 2007 that remove some restrictions now seen as unnecessary and also level the playing field with traditional firms, the society said it supported the proposals.
However, it questioned the assertions in the consultation that, as innovative providers, ABSs have increased competition in the market and are no more risky than traditional firms.
“There is some evidence that argues ABS may be more innovative in the way they deliver services and handle complaints, although innovation can describe new-to-the-firm services rather than new-to-the-market services. However, we are not aware of any robust evidence demonstrating that ABS are providing cheaper legal services, and thereby increasing access,” the society said.
It added: “It is also noteworthy that the ABS created to date are mostly small, traditional law firms wishing to take advantage of the opportunity that an ABS presents to include non-lawyers as owners or investors. Uptake of ABS status by new entrants offering more innovative business models has been relatively slow and there have been some high-profile failures, for example in November 2015, the collapsed Parabis group went into administration owing almost £50m to more than 2,500 unsecured creditors.
“At this stage in the development of the market, it is therefore unsurprising that there is ‘no contrary evidence to suggest that ABS inherently pose greater risks to consumers or the public interest than traditional law firms’. Indeed, we are not aware of any analysis of the risks that ABS may present to consumers.”
The response said the society agreed with comments by Sir Michael Pitt, chairman of the Legal Services Board, that it was too soon to come to a definitive view on the long-term impact of ABS on the market.
It continued: “It is likely, however, that there will be significant change in the ABS market in the next few years. As reported in the society’s 2016 Future of Legal Services report: ‘Evidence points to this model gaining traction as entities leverage additional capital to invest in technology or processes to make the business more profitable. In England and Wales, 2020 should see ABS as a fully entrenched part of the profession and serious competition to smaller-medium B2C firms.’
“This could significantly alter the risk profile for ABS and the society believes that this should be kept under review by the Legal Services Board.”
Law Society chief executive Catherine Dixon said: “The Law Society is supportive of ABS, they provide choice for solicitors as well as their clients. However, it is critical that the regulatory framework, including client protection, is equal for ABS and solicitors’ firms as this will enable fair competition, which benefits clients and is in the public interest…
“The Law Society strongly recommends that the ABS sector is reviewed three years from the implementation of these proposals that this includes an equality impact assessment to gauge whether changes have adversely impacted on diversity in the legal services market.”