The Solicitors Regulation Authority (SRA) has announced that from autumn 2018, solicitors will be able to offer services within unauthorised or unregulated firms. The SRA proposes to remove the existing prohibition which precludes this type of set-up. For the first time, a consumer will be able to purchase legal services from a solicitor operating within a firm of unregulated will-writers, so long as the solicitor is not offering reserved legal services like conducting litigation.
I understand the rationale for the SRA’s move and welcome the thinking. This proposal means improved flexibility. And markets need flexibility to thrive, to be competitive, and to be agile enough to respond to consumers needs. And increasingly, consumer needs include a preference for convenience and or one stop shop models.
I must also commend the SRA for pursuing a pragmatic solution to the problem of access to justice – flexibility in delivery methods. The Panel has consistently said that there is no silver bullet which will solve the problem of access to justice and or services. Instead, answers will be multifaceted and developed by different players, the SRA included. In developing these solutions, the Panel accepts that tensions between competing objectives may arise. Most commonly, tensions arise between advancing access and consumer protection. This strain is apparent in the SRA’s proposal. Therefore, a key consideration for the Panel, before formulating our position on the SRA’s proposal, was whether it was justifiable for consumers to be exposed to greater risk of detriment in exchange for increased flexibility and wider access to services. The reality is that a reduction in consumer protection may be defensible if a decrease serves a wider and broader interest. That wider interest should however be articulated, evidenced, and the resulting consumer detriment managed effectively, with risks apportioned fairly.
Has the SRA struck the right balance?
The widening of access proposed by the SRA comes with substantial risk to consumers. Firstly, solicitors working in unregulated firms will not be required to have Professional Indemnity Insurance (PII). Secondly, solicitors working in unregulated firms will not contribute to the compensation fund. Thirdly, there are questions and uncertainties around access to the Legal Ombudsman, because work carried out under the supervision of a solicitor, by a paralegal for instance, would appear to fall outside of the Legal Ombudsman’s remit. These are substantial reductions in consumer protection. Consumers can suffer significant financial loss as a consequence of errors, omissions, negligence and fraud. The requirement for solicitors to have PII, and to contribute to a compensation fund offers crucial reassurance and peace of mind to consumers. It also fosters public confidence in the solicitor brand. The point about the solicitor brand is an important one, since consumers using solicitors in regulated firms will continue to enjoy the protections highlighted above. There is therefore a danger in weakening the brand.
You only know what you know – or what is evidenced?
The crux of the issue is whether a reduction in consumer protection can be justified. To determine this, the Panel focused on whether the benefits of improved flexibility was offset by the reduction in consumer protection. To assess this, we consulted the SRA’s impact assessment. This is where we expected the SRA to convince us with strong economic analysis and consumer research. We expected the impact assessment to detail; the market benefits, the quantifiable cost benefits, the likely winners and losers, and variability of impact on vulnerable consumers should this exist. And, not least, what do consumers themselves want. We expected the SRA to defend the significant reduction in consumer protection with quantitative and qualitative evidence, and then to mitigate against the losses and risks identified. Unfortunately the SRA’s impact assessment is thin on economic analysis and consumer research; the backbone of such a significant shift in policy.
Can information remedies plug the gap?
The SRA proposes to use information remedies to highlight the reduction in consumer protection. But this skips over whether the reduction is justifiable in the first instance. Also, information remedies have limitations as highlighted in our recent report on the topic. In a market with existing information imbalance between providers and consumers, often in relation to a distress purchase, and where behavioural biases can render consumer decisions more prone to error, this additional layer of complexity, and the proposal to mitigate it with information remedy, seems overly ambitious. The SRA needs to be realistic about the risks that consumers can reasonably be expected to both understand and manage.
That said, the Panel understands and supports the drive to devise a more proportionate regulatory regime. This can mean varying levels of contribution to the PII and/or compensation fund in response to reduced risks as solicitors operating within unregulated firms will not have access to client money. In our 2016 response to the SRA, we said there should be an option for solicitors operating within unregulated firms to contribute a lesser amount to the compensation fund, reflecting the fact that the level of risk is lowered – but not altogether removed.
In its announcement, the SRA said its proposal was widely supported by consumer groups at a focus group meeting. We can only comment on what we have seen publicly from other consumer groups like Citizens Advice who have also warned against an imbalance between flexibility and access by saying:
“We are concerned about the proposal to allow unregulated legal service providers to employ solicitors who are not covered by indemnity insurance. We feel that clients have a general expectation that where they instruct a solicitor, they will have protection if things go wrong. The routes to redress can already be complicated for a client to navigate, adding a new form of solicitor service with reduced protection could leave clients disadvantaged and could ultimately reduce confidence in the legal services sector.”1
Like us, Citizens Advice has cautioned against sever reductions in consumer protection. We hope the SRA takes heed.