LSB issues wide-ranging list of weaknesses in legal market

CMA: LSB evidence

The Legal Services Board (LSB) has issued a damning diagnosis of weaknesses in the structure of the market, ranging from inadequate transparency by law firms to smaller regulators that may be unable to cope with the change needed.

It said legal services providers may have to be forced to publish prices across a wider range of practice areas than now to improve transparency.

The oversight regulator also said it would act if the operational separation between regulators and representative bodies was not matched by “cultural” separation.

The comments came in the LSB’s punchy submission to the Competition and Markets Authority (CMA), which is currently reviewing the progress since its 2016 report on competition in the legal market.

“Overall, our assessment is that some limited progress has been made, but there is still much more that regulators and providers can do to improve consumer engagement and competition in the sector” the LSB said.

It intends to publish a statutory statement of policy next year, which will set “clear expectations” on what the regulators should do to make improvements in consumer awareness of and engagement with the market. It is also developing a new strategy for the sector.

The LSB said the existing rules on price transparency might need to be tightened.

“Currently there is scope for providers to publish wide ranges of likely prices, but this does not necessarily meet the spirit of the rules and may not actually give helpful information to prospective customers.

“It is important to note that relatively low levels of compliance have been achieved, even where – as is the case with the Solicitors Regulation Authority and Bar Standards Board – mandatory rules have been imposed. The picture looks considerably worse, however, where regulators have only set out voluntary guidance…

“As we develop our policy statement, we are increasingly of the view that all regulators should set mandatory requirements and enforce them robustly.”

At the same time, the LSB’s recent prices research showed that transparency had improved in areas not covered by the rules, such as family work. “We believe, however, that to achieve broad and consistent transparency, it will likely be necessary to extend mandatory rules across more practice areas.”

It continued that price transparency alone was not sufficient to drive increased competition, and further information, including quality indicators, was required.

The LSB acknowledged that, given the lack of a standard definition for quality in the sector and the fragmented nature of the market, improving transparency of service quality has proved tricky, not helped by “a lack of enthusiasm from the regulators to engage with this problem”.

But it said some of regulators recently began talking about promoting the use of independent data on performance, such as complaint figures and “quantitative evidence from other independent authorities”.

They are also looking at encouraging independent consumer feedback and “general information about a provider’s background and experience”.

“Given the lack of progress in recent years, it is also worth considering initiatives that have previously been dismissed, such as publication of first-tier complaints figures by provider,” the response added.

It also hoped that increased information about service quality would see greater use of comparison websites.

The LSB said a single regulator remained its ambition. Although the government has made clear that major legislative reform is not on the agenda, the oversight regulator pointedly listed its current powers.

“We can already oversee regulator entrances to, mergers within, and withdrawals from the market under existing processes.

“Our board has powers to make a recommendation to the Lord Chancellor that an order is made cancelling a body’s designation as an approved regulator in relation to one or more reserved legal activities, in addition to designating a body as an approved regulator for the same.

“The demands on the regulatory bodies continue to grow across disparate and increasingly complex areas, from designing price transparency remedies to grappling with the implications of artificial intelligence.

“Given this, and the resources available to the smaller regulatory bodies, we are increasingly concerned about their capacity to deliver high-quality regulation that commands public confidence.”

The current system of multiple regulators “makes it difficult for the sector to move forward in a coordinated way with the right level of ambition and pace”, the LSB added.

There could also be “merit” in extending the regulatory framework to include unauthorised providers, which Ministry of Justice officials revealed last month is under consideration.

The LSB has recently stiffened the requirement for structural independence of regulators that are connected to representative bodies, such as the Law Society and Bar Council.

“We anticipate… that as in other sectors, cultural independence is likely to lag considerably behind formal operational separation,” the response said.

“There remains some way to go before we can justifiably assert that all the regulatory bodies are culturally and structurally working solely in the interests of the public rather than the professions…

“Should progress on cultural independence become a cause for concern, we would have no hesitation in supporting, and indeed leading, a broader review.”

The LSB also raised the wider question of whether “the privileged access to the market for some groups of professionals inherent in the [Legal Services] Act is genuinely operating in the interests of consumers”.

It explained: “Too many people and businesses are not getting access to the services they need, and there appears little market incentive to drive the changes in culture and service that might start to tackle this unmet legal need.”

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