1. Changes, trends and ABS in England and Wales Chris Kenny, Chief Executive Regulatory Reform for a 21 st -century Legal Profession, Dublin 6 July 2012

2. Agenda –The history of the reforms in England and Wales –The regulatory architecture –Progress to date –Alternative business structures (ABS) –General observations

3. The history of the reforms –March 2001: “Competition in Professions”: Office of Fair Trading: open competitionCompetition in Professions –July 2002:“In the Public Interest?”: Lord Chancellor's Dept: competition to give best consumer service –July 2003: Conclusions on “In the Public Interest?” –December 2004: “Clementi”(Report of the Review of the Regulatory Framework for Legal Services in England and Wales)Clementi –October 2005: “Putting Consumers First” (Dept for Constitutional Affairs)Putting Consumers First –May 2006: Draft Legal Services BillDraft Legal Services Bill –July 2006: Joint Report (both Houses of Parliament) on the draft Bill – chaired by Lord HuntJoint Report –October 2006: Full Bill published –October 2007: Royal Assent –January 2009: Legal Services Board formally createdLegal Services Board formally created –January 2010: start of full powers for the Legal Services Board

4. The history of the reforms Drivers of change –Collapse of confidence in self-regulation –Perceived anti competitive restrictions –The ‘regulatory maze’ –Regulatory failure in complaints-handling

5. The new regulatory landscape Regulatory Objectives –Protecting and promoting the public interest –Supporting the constitutional principle of the rule of law –Improving access to justice –Protecting and promoting the interests of consumers –Promoting competition in the provision of services –Encouraging an independent, strong, diverse and effective legal profession –Increasing public understanding of the citizen’s legal rights and duties –Promoting and maintaining adherence to the professional principles

6. The new regulatory architecture Legal Services Board –Oversight regulator for the sector –Independent of both the profession and government –Sponsored by the Ministry of Justice - Memorandum of Understanding –Paid for by levy on lawyers –Duties and enforcement powers –Small – staff of fewer than 30, budget of less than £5m

8. Vision –Greater competition - development of new and innovative ways of meeting demand –A market that allows access to justice for all consumers, helping those whose incomes exceed legal aid thresholds but who need support – Better empowered consumers, receiving the right quality of service at the right price –An improved customer experience with effective redress if things go wrong –Greater innovation and partnership between lawyers and other professionals –Clear, proportionate and targeted regulation

9. Early priorities and progress –Certifying independence in regulation –Liberalising the market to increase competition –Ensuring redress for consumers when things go wrong Results –Second round of certifying governance standards against Internal Governance Rules –Solicitor and Conveyancer-led Alternative Business Structures opening for trading –Successful full year of operation for the Ombudsman, plus progress on first-tier complaint handling

10. The development of ABS The Legal Services Act 2007 set out a framework –Approved regulators applied to be “Licensing Authorities” (LAs) of ABS –Detailed requirements – structure and ownership –Clearly set out the roles for regulation of entities –Strong uniform powers for all LAs  Financial penalties (£50m for individuals, £250m for entities)  Enforcement powers  Exception to the Rehabilitation of Offenders Act –Two LAs operating – CLC and SRA. Others working towards applications –Regime started with first licence on 6 October 2011

11. The approval process The ownership and management –Material interest holders need to be approved  Those who hold 10% of shares or voting rights  Those who exercise significant influence over the management –Three tests. The holding:  Does not compromise the regulatory objectives  Does not compromise the duties on regulated people  Is “fit and proper” –Approval and ongoing monitoring – sanctions on owners including forced divestiture

12. The approval process part 2 Organisational evaluation –LAs looking more at funding and business models –Are the right people involved? –Are the systems right? –What else is the business doing?  Conditions on licences covering non-reserved activities

13. The HoLP and HoFA Two new statutory roles required by ever ABS –Head of Legal Practice (HoLP)  All reasonable steps to ensure compliance with rules, duties of managers and professional principles  Duty to report failure to LA –Head of Finance and Administration (HoFA)  All reasonable steps to ensure compliance with accounts rules  Duty to report failure –Can be the same person –SRA using the roles in all firms – CoLP and CoFA

14. Impact of ABS on the rest of the sector Market reacting to ABS – even before ABS started –Level playing field between ABS and non-ABS –New Code of Conduct for Solicitors –Taking opportunities that have been open for some time –New business models more aligned to modern business management

15. Emerging models New models already coming to light –Franchise models – Quality Solicitors –Fixed fee law-as-a-service (LaaS?) – Riverview Law –Alternative remuneration strategies – Scott-Moncrieff & Associates –Retail providers – Cooperative Legal Services –New intermediaries – Eddie Stobart –Small firm models – partnerships, succession planning –Accountants are on the way

16. Numbers and expected uptake Small numbers of ABS to date but many more interested –8 licences issued –30 completed stage 2 of application process –circa 130 in stage 2 –circa 180 at stage 1 –LDPs – stepping stone to ABS about 320 will need to transfer to ABS by mid 2013

17. General observations –Outcomes-focused regulation –Regulation is better focused on risk – by subject and firm  Better data flows will enable more targeted interventions  Lower-risk businesses will be treated with a lighter-touch –LSB has help change the dialogue in the market – evidenced based. –Exciting research into consumers and providers showing the way –Real independence from the MoJ – no powers of Ministerial direction

18. Questions? –Questions now –Panel discussion later