New Zealand urged to embrace ABSs and independent regulation

Wellington, New Zealand: Regulation not working for consumers

A review of legal services in New Zealand has recommended the introduction of alternative business structures and an independent regulator.

The independent review was commissioned by the Law Society of New Zealand (LSNZ) in 2021 after reports of sexual harassment within the profession highlighted the shortcomings of the current legislative framework for lawyer regulation.

Similar to the 2004 findings of Sir David Clementi in England and Wales, the review found that the current regulatory model, with the LSNZ exercising both regulatory and representative functions, “does not adequately protect and promote the interests of consumers”.

It said: “The Law Society’s responsibility to promote the interests of the profession conflicts squarely with its duty to regulate in the interests of the public.”

The review said both the public and profession would benefit from an independent regulator. “This conclusion is supported by best-practice regulatory principles, backed by consumer groups and a significant part of the profession, and informed by a clear international trend away from lawyers regulating their own profession.”

It said the restrictions on Kiwi lawyers going into partnership with non-lawyers and accepting non-lawyer investment should be removed.

“The current business restrictions negatively impact the ability of law firms that wish to innovate, seek external investors, or partner with other professionals (eg, accountants) to deliver broader services to consumers.

“An analysis of comparable jurisdictions where lawyers are now permitted to operate under alternative corporate structures does not indicate any consumer harm from the new forms of business.”

The review said the restrictions were creating “material barriers for those firms looking to access the outside capital typically used to make large-scale investments, such as in technology and new staff, and to set up in new regions around the country”.

They also impacted consumers “by curtailing the ability of professionals to come together to offer a ‘one stop shop’ that meets clients’ needs across a range of services”.

There was “no compelling public policy grounds” to retain these restrictions, it went on.

“The lessons from overseas provide assurance to those with concerns about the impact the change might have on the professional ethics of those working within these new corporate structures.”

Other changes included regulating firms as well as individuals, adopting the ‘freelance lawyer’ model operating in England and Wales, and permitting employed lawyers to provide pro bono services.

Currently, a complaint against a New Zealand lawyer is investigated by one of 22 standards committees, which comprise a majority of volunteer lawyers and operate independently from the LSNZ.

The review said this was not working: “It is slow [it can take a year to address the most minor complaints], adversarial, produces inconsistent outcomes, is perceived as biased towards lawyers, and is not consumer-centred or restorative.”

Complaints handling should be moved instead to the new regulator to handle.

LSNZ president Frazer Barton said: “The review panel’s report is very substantial and has given us all a lot to consider. The recommended actions have got significant and complex implications, and any legislative change wouldn’t happen quickly.

“We will work with government to understand the likelihood of legislative change as we strive towards our commitment to being a best practice, modern regulator and peak national representative body for the legal profession.”

The NZLS board will make recommendations to the minister for justice by the end of July.

The review said the primary objective of the regulatory regime should be to protect and promote the public interest, with subsidiary objectives of:

  • Upholding the rule of law and facilitating the administration of justice;
  • Improving access to justice and legal services;
  • Promoting and protecting the interests of consumers;
  • Promoting ethical conduct and the maintenance of professional competence, including cultural competence, in the practice of law; and
  • Encouraging an independent, strong, diverse and effective legal profession.

It explained: “The first three objectives are shared by many legal professional regulators. The latter two objectives reflect areas in need of regulatory focus in Aotearoa New Zealand: prevention of sexual harassment, bullying and discrimination in the workplace; maintenance of competence, including cultural competence – being sensitive to the needs, values and beliefs of Māori, and of clients from other cultures, including Pacific peoples and Asian consumers; and responding to concerns that the legal profession has for too long not been inclusive or diverse.”

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