Sackman: Report shows importance of liberal legal services market
The legal sector of the future “may look very different to the one we know today”, with further regulatory reform needed to take advantage of the lawtech revolution, a report for the Ministry of Justice has said.
After 40 years during which the sector has boomed, the report said innovation “has been key” to its growth and suggested that the reserved legal activities may need to be rethought for the digital world.
The report, The benefits of an open and competitive legal economy, was commissioned from leading legal consultancy Hook Tangaza and highlighted how the sector, boosted by liberalising legal services reform, has grown, with openness and competition supporting both inward investment and international trade as well.
“The growth of UK legal services over the last industrial cycle, from roughly the mid-1980s to around 2020, was based largely on the liberalisation of the financial services and telecommunications sectors,” it said.
“When these poles for economic expansion combined with a more open global economy, the perfect demand conditions were created for the growth of business legal services.
“Today the world is entering a new technological cycle based on highly sophisticated products and processes, often using artificial intelligence and advanced forms of intellectual property. At the same time the global institutional order which provides a rules-based framework for business is increasingly uncertain.
“In this environment, the demand for legal services as a mechanism for managing complexity and risk is only likely to grow. The type and form of these services and how they are traded will, however, need to adapt.”
The sector, valued at £45bn in 2022 – a figure the report noted excluded the contribution of in-house legal departments and alternative legal service providers – has grown by 200% in real terms since the late 1990s, outstripping the performance of the economy as a whole (157%). Imports and exports have grown by even more.
The alternative business structure model was part of the story, increasing competition and making the use of technology at scale “a more realistic prospect”, the report said.
“It has done so by providing the regulatory platform through which legal experts and entrepreneurs can meet to form new businesses. But it has also provided investors and clients/consumers with the confidence they need to engage with such new businesses.”
The existence of the unregulated legal sector too “has provided enough room for some important providers to grow and has created competition for the regulated sector”.
But Hook Tangaza said more could be done to support the sector in responding to growing demands from both consumers and SMEs – two areas where there remains significant unmet legal need – whilst continuing to develop cutting-edge services for larger businesses.
Help was also needed to expand lawtech, especially into consumer law.
Policy makers would need to “reassess the boundaries of the regulated sector and whether the reserved activities currently regulated make sense in a digital world”.
The report explained: “Applying the objectives of the Legal Services Act 2007 to the broader, more diffuse legal market of the future will require some re-engineering of legal regulation and our understanding of reserved activities.”
Hook Tangaza also called for a framework to facilitate the recognition of lawtech businesses crossing borders in the same way that the World Trade Organisation gave countries a framework for enabling the entry of foreign legal service providers into their territories.
“Lawtech has been able to grow in the UK because of the narrow limitations of the regulated lawyer monopoly. The same is not always true of other jurisdictions but UK lawtech will need additional markets to grow into in future, to maintain its attractiveness to investors.
“Rather than wait for an international approach to be agreed, the UK could also work with like-minded jurisdictions to open up markets that allow for the growth of consumer lawtech solutions that work across borders.”
The report said: “These are ambitious lessons to follow but the prize of unlocking the potential in the consumer lawtech sector and dealing with the market failures that exist worldwide in the consumer legal services sector are priceless.
“Improved access to justice also contributes to stronger rule of law and the role of lawtech in supporting such developments should not be overlooked.”
It concluded: “The legal sector of the future may look very different to the one we know today.”
In her introduction to the report, Sarah Sackman, the minister of state for the courts and legal services at the Ministry of Justice, said: “This report clearly demonstrates the importance of a liberal legal services market.
“It outlines how openness has underpinned the sector’s long-term economic success – creating jobs, driving growth, and embedding legal services as a core component of the professional services sector…
“We remain firmly committed to working with partners to promote the UK’s legal services offering at home and abroad, and to ensure the sector continues to thrive as a driver of economic growth and global influence.”
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