Brexit and the legal services market jigsaw

The legal services market is one of the UK's great success stories. This was further emphasised by two recent parliamentary select committee reports by the House of Commons justice select committee ('Implications of Brexit for the justice system') and the House of Lords European law committee ('Brexit: trade in non-financial services').

The justice select committee observed: 'The UK's legal services sector contributes £25.7bn to the UK economy, or 1.6 per cent of gross value added. It generates £3.3bn in annual export revenue and employs some 370,000 people (of whom roughly two-thirds work outside London).'

The committee further stated: 'The legal services sector underpins many areas of UK economic activity. Its ability to continue to facilitate these in the EU will diminish without protection of existing practising rights there for UK lawyers. There is also clear evidence of reciprocal benefit. We recommend the government include achieving this protection in its Brexit negotiating strategy.'

However, given the negotiation of the UK's withdrawal from the EU is just that, a negotiation, the recommendations made in both reports are no more than wish lists that take us no further in understanding what the post-Brexit legal services world will look like.

What we do know is that the current strength of the UK legal services is built on a series of interdependent factors: (1) the strength of the judicial system; (2) the use of the English language; (3) English common law; (4) critical mass in the infrastructure to support a large legal services market in terms of lawyers and support businesses; (5) the ability to enforce UK judgments relatively easily worldwide; (6) free movement of lawyers within the EU; and (7) a large financial services industry that needs substantial legal services.

It is only the last three factors that are directly put at risk by Brexit but we do not yet know which factors are the most important and how changing each one will impact on the others.

It will take some time for the negotiations to begin to clarify the way in which the legal services market will be affected. What we did learn last week is the likely position of EU-qualified lawyers practising in the UK after Brexit. In contrast to other areas this is not subject to negotiation with the EU and can be determined by the UK government.

By way of background, the EU-wide regulation of law firms is primarily to be found in the two directives. The Lawyers' Services Directive 77/249/EC permits EU lawyers to provide temporary cross-border services within the EU, without prior notification or registration with the host member state's bar. The Establishment of Lawyers Directive 98/5/EC, enables lawyers to practise on a permanent basis in a member state other than that in which their qualifications were obtained and to obtain qualification in the host state after three years.

The Great Repeal Bill white paper provides that the existing EU directives will become part of UK law post-Brexit. It must therefore follow that the government's intention is that EU lawyers will continue to enjoy the right to practise in the UK under the directives.

This is clearly good news for EU law firms who currently have London offices or those that wish to establish offices in the future. Of course, this position may change depending upon the negotiations between the UK and the EU. If, for example, the ultimate Brexit agreement imposes restriction on UK law firms practising in the EU beyond the current directives then it may be that the then UK will impose similar regulatory restrictions.

However, even if this scenario arises, EU law firms are unlikely to face significant regulatory restrictions in operating in England and Wales (Scotland and Northern Ireland are separate legal jurisdictions) because of the current statutory framework and the proposed Solicitors Regulation Authority reforms.

The Legal Services Act 2007 generally only regulates six reserved legal activities (advocacy, litigation, probate, reserved instruments, notaries, and oaths) along with immigration advice. Legal advice including advice on commercial transactions is not regulated and this is more likely to be the area in which overseas law firms operate.

In addition, the SRA's proposed reforms to its regulatory framework will allow solicitors to work in unregulated firms and hold themselves out as solicitors provided they do not undertake any of the reserved legal activities. These reforms are likely to come into effect in late 2018. When this happens it would be perfectly possible for an EU-based firm to operate in England and Wales without any need to engage with the domestic regulatory framework, unless it wished to undertake the reserved legal activities. This would still be the case if the EU firm employed domestically qualified solicitors who held themselves out as such. Of course, immigration issues may still affect this.

So, one small part of the jigsaw puzzle has fallen into place but the uncertainty in the other areas is likely to persist for some time to come.

Iain Miller is a partner at Kingsley Napley @kingsleynapley