Time to consider regulating lawtech firms, report says

Maxwell Scott: Risk of creating a Wild West

The time has come for the Ministry of Justice (MoJ) to consider whether lawtech companies, along with other unregulated legal services providers, should be regulated, the Association of Consumer Support Organisations (ACSO) has said.

ACSO said concerns had been raised that tech start-ups were beginning to flood the market with products provided directly to consumers “with a disregard for established legal practitioners and the constraints of regulation”.

For its Technology and Innovation report, ACSO interviewed members and other stakeholders from the civil justice system about the benefits of new technology, their concerns for consumers and barriers to innovation.

The report found that artificial intelligence (AI) “could be a misleading term for consumers, not least as a growing number of legal service providers market their systems as being powered by AI”.

Interviewees said lawyers were under a regulatory obligation to describe how their service was delivered, including “when and how” technology intervenes.

“If the client chooses a service that is entirely technology driven, they need to have clarity on what that means from the outset.

“A lack of transparency has the potential to mislead consumers and could undermine trust in the sector.

“As such, further research is required on the use of ‘AI’ as a marketing term, and the extent to which that use is justified and how its use should be communicated to consumers.”

ACSO said it was concerned by the lack of redress for consumers of unregulated providers, but “only limited data exist on the quality of services provided by unregulated providers”, which often failed to distinguish between regulated and unregulated.

“Further research is required as to whether the regulatory framework should be expanded to include providers that are currently unregulated, including technology companies, and we agree with the CMA [Competition and Markets Authority] recommendation that the MoJ reviews whether it should extend redress to consumers using unauthorised providers.”

We reported last September that the MoJ is considering whether to create a register of unregulated providers of legal services and give their clients access to redress if things go wrong.

ACSO said it was important that regulations took into consideration “the ability of unregulated providers to innovate at a quicker pace owing to the lack of regulatory barriers”, but the impact upon consumers must be “the prime consideration.”

A number of interviewees raised concerns about the growing number of lawtech start-ups.

“These concerns centre upon the perception that technology start-ups are beginning to flood the market with lawtech products designed to provide services directly to consumers, with a disregard for established legal practitioners and the constraints of regulation.

“However, these concerns appear to be unfounded as legal start-ups rarely wish to become fully-fledged law firms in their own right.”

Among its 14 recommendations, the report called on legal services regulators to “actively anticipate issues and provide guidance” on lawtech and innovation, “provide clarity on liability in regard to harm caused by a lawtech product”, consider the regulation of unregulated legal services providers and “ways of regulating the use of AI in the sector”.

The report called on ACSO members to “put consumers at the heart of innovation”, ensure technology was “ethical in its design” and “seek commercial and collaborative opportunities with reputable technology companies”.

Matthew Maxwell Scott, executive director of ACSO, said: “Without clear guidelines and standards, there is a risk of creating a Wild West where anything goes. That may not be in the public interest.”

Mr Maxwell Scott said ACSO was setting up a technology and innovation working group, open to all parties “with a stake in seeing the successful application of lawtech in the legal and claims industry.”

He added: “There are welcome signs of a new spirit of consensus emerging between defendant and claimant sides as a result of the pandemic.”

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