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Innovation can solve the ‘trilemma’ facing the UK legal services sector, says LSB chief

Regulators must 'encourage innovation and reduce unnecessary regulatory burdens that restrict growth'

9 July 2015

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By Manju Manglani, Editor (@ManjuManglani)

The UK legal services sector is facing a 'trilemma', the chief executive of the Legal Services Board has said.

Speaking at the Westminster Legal Policy Forum this morning, Richard Moriarty said the sector needs to rise the challenge of meeting three key objectives "without experiencing significant trade-offs among them".

Those objectives are to:

  1. maintain appropriate standards that command public confidence;

  2. tackle unmet legal need and improve access to justice, and

  3. recognise the constraints on the availability of public funding.

Regulation can help to reconcile this potential trilemma by encouraging innovations in the creation and delivery of products and services, he said.

"Regulators need to press on to encourage innovation and reduce unnecessary regulatory burdens that restrict growth," he said.

"And I don't just mean [products and services] delivered by new entrants, as important as these are. I also mean more established providers feeling able to develop new services and ideas and deliver existing services in new ways."

Continued Moriarty: "I appreciate that there may be some areas of our legal services sector where innovation is more likely to take hold than others. For example, those services that meet untapped consumer demand or lend themselves to technology, scale economies and being viewed by the consumer as more of a product than a bespoke service.

"But that's not to say that all organisations can't find some new ways of offering services, for example we are seeing solicitor firms and barrister chambers making increasing use of 'unbundled' services by focusing on specific parts of a process rather than providing an end-to-end service."

He noted that, for example, that the SME sector experiences "significant unmet legal need".

"The 'size of the prize' from innovation that can successfully exploit this is potentially enormous," he said.

Role of leadership and culture to innovation

Research commissioned by the LSB and Solicitors Regulation Authority from Warwick Business School on innovation in the UK legal sector found that 80 per cent of organisations have a culture and leadership that are open to new ideas.

"Successful innovation largely depends on the ability of the leader to recognise the need for change, to decide the right strategy and to keep the firm on that course," commented Dr Bob Murray and Dr Alicia Fortinberry, principals of global consultancy Fortinberry Murray, in their Managing Partner article 'Changing direction: Create a culture of continuous innovation'.

Noted Patrick Allen, senior partner at Hodge Jones & Allen, on his experiences of building continuous innovation into his law firm's culture: "Perhaps the hardest part of this process of constant change has been challenging myself. Do I need to change, is the way I manage still relevant, do I need to improve my skills and my knowledge, do I need to get people on the management team with better or different skills than the ones I have?"

Two fifths of respondents to the LSB/SRA survey said they had put in place practical procedures to support innovation, while a third said they regarded as important 'training staff to develop new ideas'.

"This all translates into the key finding that one quarter of legal services providers said they had introduced new or improved services in the last three years. Not bad: but room for improvement, especially from the three quarters of organisations that said they had not improved services in the last three years," said Moriarty.

The LSB/SRA research covered 1,500 legal services providers in England and Wales.

A 'ruthless' removal of regulatory burdens

For Moriarty, a "ruthless focus on removing unnecessary regulatory burdens is needed" to solve the 'trilemma' facing the legal services sector.

"Regulation and regulators need to really turn their attention to how their rules, procedures and expectations either encourage innovation or frustrate it. This means more focus on deregulation and reducing the costs of regulation."

He added that "proportionate regulation" will still be needed to safeguard public and consumers interests and public confidence in the legal system.

"We know only too well from other regulated sectors such as financial services that one person's view on innovation can be viewed by the public as unacceptable risk taking behaviour," he said.

For him, the key is for legal regulators to start thinking about regulatory change from a different perspective.

"My impression is that we have a situation where the onus is on those looking to remove regulations to make the case and to assemble the evidence for it," he said.

"But I wonder whether we would strike a better balance if we followed what is accepted practice in other sectors where it is for those wishing to introduce regulation, or retain it, to provide the evidence for why this is the right thing to do. That is: to reverse the burden of proof around regulatory change."

Moriarty noted that, over the past year, the LSB and legal services regulators have been "working closely together with the aim of lightening the regulatory burden, sharing knowledge, and discussing possibilities for legislative reform".

This work has produced four key outputs to date, each of which will be published in the next few weeks.

  1. A document setting out what each regulator has done to lighten regulatory burdens.

  2. A report on alternative optional ways of handling client money to manage the risks of misuse of client money.

  3. A handful of proposals to change the current legislative framework. "These are all relatively minor amendments to remove or reduce regulatory burdens," he said.

  4. A paper on the issues that would need to be tackled if there were an appetite to reform the current legislative framework.

He noted that the latter is "the most challenging topic".

"Our aim has been to channel the energy of all of the regulators who, day in - day out, deal with the consequences of the Legal Services Act. It explores the case for change; the case for cross sector-specific regulation; and the definition of 'legal services'.

"Different organisations will have different views on the answers to these important questions. The aim of our work has been not to reach agreement on the answers, but at least identify what are the right questions."

 

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