OFT Response 2003
Consultation on the future
regulatory framework for legal
services in England and Wales
Response from the Office of Fair Trading
© Crown copyright 2004
This publication (excluding the OFT logo) may be reproduced free of charge in any
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misleading context. The material must be acknowledged as crown copyright and the
title of the publication specified.
1 Introduction 1
2 Implications of proposed regulatory models for competition
3 Alternative business structure
4 Consultation document questions
A Competition scrutiny of legal professional rules by the OFT under
the Courts and Legal Services Act 1990 (CLSA)
B The OFT's role in competition scrutiny in financial services 34
Office of Fair Trading1
1.1 The Independent Review of the Regulatory Framework for Legal Services in
England and Wales provides a major opportunity for radical consideration of
how current arrangements for the regulation and provision of legal services
can be improved. The Consultation Paper, issued on 9 March 2004, asked for
responses to fundamental questions both about the future regulatory structure
of the profession and about new business structures that would allow greater
choice, for both consumers and professionals, in the provision of services. We
welcome the opportunity to contribute to this review. The legal professions
need reform to improve competition and choice for their customers.
1.2 The terms of reference for the review underline that the promotion of
competition and innovation is central to the identification of a regulatory
framework and business structures that will best serve the public and
consumer interest. This has also been a key theme in recent work by the
Office of Fair Trading (OFT) in the area of professional services. Since January
2000 the OFT has been conducting an ongoing review of competition in
professions. A significant part of our work in this area has involved a focus
upon restrictions on competition in the provision of legal services in England
and Wales. The OFT is also involved in work in Scotland to address restrictions
on competition in the provision of legal services in Scotland.
1.3 In March 2001, the OFT published a reportCompetition in professions1. The
central purpose of that report was to highlight restrictions on competition in
professions whatever their origin: professional rules; statute or custom and
practice. Where restrictions had their origin in professional rules, we brought
these to the attention of the profession concerned and called on the profession
to either justify continued restriction or remove it. Where restrictions were
identified which could not readily be addressed by the professions or by the
OFT through the application of competition powers, we called on government
to address these. In a subsequent progress statement published in April 20022,
we noted that while a number of the restrictions identified in the earlier report
had been removed or justified, others remained to be addressed. It is a
welcome feature of the present independent review that it takes forward a
number of the important outstanding issues identified in the OFT's work on
1OFT 328 Competition in professions, published March 2001, at paragraph 50, reproduced
here for convenience at Annexe A. The report is available on the OFT website at
2The OFT 385 Competition in professions Progress Statement, published April 2002, available
2Response on review of regulatory
structure of legal services
competition in the legal professions. In particular, the review addresses
regulatory barriers to change.
1.4 An important theme in the OFT's work on competition in professions relates to
competition scrutiny of professional rules. Current arrangements for
competition scrutiny of rules of the legal professional bodies involve the OFT in
both an enforcement capacity under the Competition Act 1998 (and, as from
May 1 2004, under similar provisions in EC law3) and in an advisory capacity
under the Courts and Legal Services Act 19904.
1.5 At Chapter B, the consultation document sets out possible regulatory models
and at Chapter D it considers governance and accountability issues in relation
to these models. The choice of regulatory model will clearly have a significant
impact on the key objective of ensuring that future regulation promotes
competition and innovation. One important aspect of this will be to ensure that
whatever model is selected guarantees proper competitionscrutiny of future
rules. Any change in the regulatory model will have implications for the
respective scope of competition enforcement and advice in relation to rules
governing the supply of legal services. A related and even more important
aspect of the choice of regulatory model is the implications of the model for
competition. One main area of focus in this response, therefore, is the
implications of the proposed regulatory models for competition scrutiny and for
competition. These issues are considered in Chapter 2 of this response.
1.6 Among the most significant restrictions on the provision of legal services that
remain to be addressed are restrictions on choice of business structure. In
most cases the origin of the restriction was a rule or rules of the legal
professional bodies. It remains a key theme of our work on these issues that it
was not for the OFT (or for any other regulator) to seek to specify how
professionals should supply services. In our view, the manner in which goods
and service are supplied is generally best determined by producers competing
freely for the custom of consumers. Where others - especially suppliers acting
collectively - restrict the way in which services are supplied they should be
3These changes are introduced by EC Council Regulation 1/2003, the 'Modernisation'
Regulation. Modernisation provides a new framework for the enforcement of European
competition law by decentralising the application of European law: national competition
authorities and the courts of the Member States will apply Articles 81 and 82 of the EC Treaty
alongside the European Commission. A European Competition Network has been established to
co-ordinate enforcement by the various national authorities. Further, Modernisation abolishes
the system of notifying agreements for exemption under Article 81(3) and the exclusive
competence of the European Commission to apply Article 81(3).
4See below Chapter 2, paragraphs 2.3 to 2.5.
Office of Fair Trading3
called on to justify the restriction or remove it. The current consultation, and in
particular Chapter F, marks a significant step in the review of such restrictions.
Issues relating to alternative business structure are therefore a major area of
focus in this response. These issues are addressed below at Chapter 3 of this
1.7 In Chapter 4 we respond to those questions set out in the consultation
document that are relevant to the work of the OFT. In the main, and to avoid
repetition, answers refer to the relevant paragraphs of Chapters 3 and 4.
4Response on review of regulatory
structure of legal services
2 IMPLICATIONS OF PROPOSED REGULATORY MODELS FOR
2.1 The choice of regulatory model will clearly have a significant impact on the key
objective of ensuring that future regulation facilitates and promotes
competition, innovation and the public and consumer interest. One important
aspect of this will be to ensure that whatever model is selected guarantees
proper competition scrutiny of future rules. This is important in order to ensure
that rules do not unnecessarily restrict competition, for example where they
may serve the interests of suppliers rather than those of users of legal
services. Any change in the regulatory model will have implications for the
way in which competition scrutiny is achieved. A related and even more
important aspect of the choice of regulatory model is the implications of the
model for competition itself. There are a number of aspects to this. One of
these is the question of who regulates; whether the model should rely primarily
on professional bodies or should look to an independent regulator, and what
role if any should be reserved to government. Another important question
recurring throughout the chapters that relate to regulatory models is whether
and to what extent one should seek to regulate by activity rather than by
profession; how one addresses this issue may have important implications for
Current arrangements for competition scrutiny
2.2 Current arrangements for competition scrutiny in the context of the
professions involve the OFT in both an advisory and an enforcement capacity.
In relation to advisory responsibilities, general powers are now contained in the
Enterprise Act 2002. These replaced and expanded on the powers contained in
the Fair Trading Act 1973 which have now been repealed5. They apply to legal
professional services as to other sectors of the economy. In addition to these
general powers, advisory powers specific to certain important rules relating to
the provision of legal services are contained in the Courts and Legal Services
Act 1990 (CLSA). With regard to enforcement powers, the principal domestic
competition statute is the Competition Act 1998 (CA98). Since May 1, the
date at which the relevant provisions of the Modernisation Regulation6 came
5The OFT's report Competition in professions was conducted using the general powers of
review contained in Section 2 of the Fair Trading Act 1973.
6EC Council Regulation 1/2003.
Office of Fair Trading5
into force, the OFT also has the power to enforce the competition provisions
of the European Community Treaty, Articles 81 and 82 EC. Specific advisory
and enforcement provisions are set out in more detail below.
COMPETITION ADVICE RESPONSIBILITIES
2.3 As noted in the consultation document, rights of audience and rights to
conduct litigation are regulated in that they are reserved to those who are
considered appropriately qualified. Under the Courts and Legal Services Act
19907, the Secretary of State for Constitutional Affairs (the Secretary of
State) has powers to designate bodies who wish to grant to their members
rights of audience and rights to conduct litigation, or to revoke such
designation. Rule changes by professional bodies are also subject to the
approval of the Secretary of State where proposed changes relate to either of
these two areas. The Secretary of State also has a power to call in any such
rule where he believes it to be unduly restrictive.
2.4 In relation to each of these powers the OFT has an advisory role with respect
to the potential competition effect of the proposed designation, revocation,
rule change by professional body or by Secretary of State. In each case, CLSA
Schedule 4 provides that the OFT must consider whether the grant, revocation
or rule change would have or be likely to have, any significant effect on
competition. The OFT's advice is provided to the Secretary of State and
published. The relevant provisions of the CLSA are summarised at Annex 1. It
must be stressed that the OFT's advisory role in this connection relates only to
rulechanges, and not to existing rules.
2.5 In our view, the OFT's advisory powers under the CLSA have nevertheless
proved a useful way for ensuring that where changes are made to this very
significant area of legal service provision the potential competition implications
of such changes are fully considered prior to introduction of the change. The
OFT typically provides approximately 4 to 6 such pieces of advice in any one
year. An example of such an advice is that which was given in March 2003
regarding the competition implications of amendments to Bar Rules governing
qualification while practising in employment. The content of this advice is
summarised at paragraphs 3.18 to 3.22 below. We consider the availability of
a mechanism for competition scrutiny to be of particular importance where
rules that may restrict competition fall outside of the scope of the OFT's
competition enforcement powers.
7See Schedule 4 to the CLSA Parts I-IV (as amended by Schedule 5 to the Access to Justice
6Response on review of regulatory
structure of legal services
COMPETITION LAW PROHIBITIONS
2.6 The main competition enforcement provisions applied by the OFT are those
under the CA98. The CA98 contains two prohibitions. The Chapter I
prohibition applies to agreements between undertakings, decisions by
associations of undertakings or concerted practices which may affect trade
within the UK or any part of it and which have as their object or effect the
prevention, restriction or distortion of competition within the UK. The Chapter
II prohibition applies to conduct on the part of one or more undertakings that
amounts to the abuse of a dominant position in a market and which may affect
trade within the UK or any part of it. These two prohibitions are modelled on
European Community competition law and are applied consistently with it8.
The OFT has powers to investigate and to take enforcement action against
infringements of the prohibitions.
2.7 Since May 1 2004, the date at which the relevant provisions of the
Modernisation Regulation9 came into force, the OFT is also responsible for
applying and enforcing the competition provisions of the European Community
Treaty, Articles 81 and 82 EC. These provisions, which mirror those of the
CA98 described above, apply where the agreement or conduct under
investigation may have an effect on trade between member states.
EC CASE LAW
2.8 In principle, both Articles 81 and 82 EC, and since the repeal of CA98
Schedule 410, the provisions of the CA98, apply equally in the context of
professional services as they do in other sectors of the economy. Both sets of
provisions are interpreted and applied in the light of Community and national
case law. Developments before Community courts suggest that, in practice, it
is not always clear that rules that govern the provision of professional
services, and which may restrict competition, will always fall within the scope
of these provisions. Examples of factors that may be relevant to assessing the
scope of the provisions in the context of rules emanating from legal
professional bodies governing the provision of legal services include the
8See CA98 Section 60.
9EC Regulation 1/2003.
10See paragraph 1.5 above.
Office of Fair Trading7
•the nature and extent of oversight of the decision-making process by
government or regulators11;
•the composition of the decision-making body and the extent of its
•whether there are public interest considerations which must be taken into
account in the decision making process13.
2.9 These factors are not intended to be exhaustive14. They are presented simply
to highlight that the choice of regulatory model may significantly affect the
subsequent scope for applying competition prohibitions in the context of rules
governing the provision of legal services. Regulatory design should make clear
that competition rules do apply. Where the model chosen is such as to make
doubtful the application of the competition prohibitions, then it will be
important to put in place an alternative mechanism for ensuring effective
2.10 In the remainder of our response we consider the relative strengths of two of
the models set out in the consultation, Models A and B+. We consider the
implications of these models both for competition scrutiny and for competition
itself. We do not explicitly comment on the third model set out in the
consultation document, Model B. This is because we consider that in
proposing the separation of representation and regulation functions of legal
professional bodies, Model B+ has clear advantages over Model B. Whatever
the merits of self-regulation, they risk being seriously undermined by either the
reality or the appearance of the regulator's judgement being swayed by its
wish to represent the interests of its members when these may differ from the
interests of users of legal services.
Model A: A Legal Services Authority
2.11 Model A envisages setting up a Legal Services Authority (LSA) in which all
regulatory power in relation to legal services would be vested by statute. The
legal professional bodies would lose all their regulatory functions and would
continue as representative bodies.
11See for example, Case C-35/59 Arduino.
12See for example, Case C-35/59 Arduino, and Case C-185/9 Reiff
13See for example, Case C-35/59 Arduino, and Case C-309/99 Wouters
14For a more detailed account of the scope for enforcement action against professional bodies
under Articles 81 and 82 EC, see paragraphs 65-89 of the European Commission's Report on
Competition in Professional Services, published on 9 February 2004; Com(2004) 83 final
8Response on review of regulatory
structure of legal services
IMPLICATIONS FOR COMPETITION SCRUTINY
2.12 The implications of Model A for the application of the competition prohibitions
seem fairly clear. The removal of the professional bodies from any regulatory
function suggests that there would be no scope for such action by the OFT in
relation to anti-competitive rules. This is because if the LSA takes over the
regulatory functions of the professional bodies, the Chapter I prohibition of the
CA98 would no longer apply to the rules of those bodies. In this case there
would be a need for a vigorous advisory regime.
2.13 The consultation document draws parallels between the proposed powers of
the LSA and those currently exercised by the Financial Services Authority in
the context of financial services. In this context, powers of competition
scrutiny are given to the OFT under a special regime established by the
Financial Services and Markets Act 2000 (FSMA). The OFT's role involves
scrutiny of both the FSA's regulatory provisions and practices and of the
regulatory provisions of investment exchanges or clearing houses who apply to
the FSA for recognition or which have previously been recognised. The OFT's
powers and obligations in this context are set out in more detail at Annex 2. In
brief, the OFT has an obligation to keep such rules, practices and regulatory
provisions under review and to report to the Competition Commission where
we consider that they have a significantly adverse effect on competition. The
OFT has a discretion to issue and to publish such a report if we conclude that
there is no such adverse effect.
2.14 Our experience of applying these provisions suggests that they provide an
effective, if resource intensive, mechanism for competition scrutiny of the
relevant rules, regulations and practices, in circumstances where the
competition prohibitions do not apply. If Model A is adopted, the FSMA
provisions may therefore be a useful guide to achieving competition scrutiny in
the context of the regulation of legal services. Of particular importance is the
duty to report to the Competition Commission, noted above. Such a duty on
the OFT provides a strong incentive to the Regulator to ensure that rules,
practices and regulatory provisions do not have a significantly adverse effect
on competition. This might, of course be achieved in other ways; what is
important is a method to sanction or veto rules which significantly harm
competition or the development of competition. It will also be important to
ensure that the regulator's rule-making functions are exercised in accordance
with a clear and appropriately prioritised competition objective. This might
usefully include an assessment of the potential competition effects of the
Office of Fair Trading9
individual rule viewed in the context of the other rules and in the economic
context in which it will operate.
IMPLICATIONS FOR COMPETITION
2.15 There may be a number of positive benefits for competition and therefore for
users of legal services that follow from the adoption of Model A. Independent
regulation is one potential advantage. The OFT's work in this area has led us
to consider that there is a significant risk that attaches to self-regulation by the
professions, which is that the resulting rules will reflect the interest of the
providers rather than the users of legal services. Similarly, OECD's report on
competition in professions, published in October 2002, underlines both the
desirability of making available a range of service at a range of prices and the
likelihood that if regulation rests with professional bodies, the level of
regulation will be such that some consumers will pay more that they need to
for services. Independence from government (subject perhaps to the possibility
of some minimal continuing government involvement15) also seems desirable.
A further potential competition advantage of Model A is that competition may
be encouraged by a framework that facilitates regulation by activity or service
rather than by profession. This might achieve greater clarity and transparency
and help to open up markets traditionally the preserve of members of one
professional body to members of others. Having a single regulator might also,
as pointed out at Chapter 3 below, facilitate the establishment of Multi-
Disciplinary Practices (MDP) both because of the potentially greater clarity and
simplicity in rules and also by providing a single partner for negotiations with
other professions involved (accountants, surveyors etc).
2.16 There are also, however, a number of potential threats to competition inherent
in Model A. Model A would necessarily suppress alternative approaches to the
regulation of legal services. Competition between regulators can be an
important way of identifying cheaper forms and encouraging innovation. If
Model A is adopted, a challenge for the new regulator will be to find
alternative mechanisms to ensure that innovation continues and that where
possible, buyers of legal services remain free to choose between a more
expensive service with a high level of regulatory protection and a cheaper
service that nonetheless meets a minimum standard in terms of consumer
protection. A further potential disadvantage is that in distancing the profession
from regulation, there may be a loss in regulatory expertise; professionals may
be best placed to identify risks to independence and probity even if they are
15See for example the restricted Government role under the FSMA set out at paragraph 28 of
the consultation document.
10Response on review of regulatory
structure of legal services
not best placed to balance these risks against, for example, the interests of
consumers when making rules that address the risks. Mechanisms for
consulting the profession about rules would clearly be essential to the success
of Model A.
Model B+: A Legal Services Board
IMPLICATIONS FOR COMPETITION SCRUTINY
2.17 Model B+ presents a more complex picture with regard to the potential for
future competition scrutiny than does Model A. Under B+, the continuing role
of the professional bodies in rule-making raises that possibility that some
scope for applying the competition prohibitions against bodies that make anticompetitive
rules might remain. Factors outlined at paragraph 2.8 above may
be critical to determining the continuing scope for such action under this
model. In particular, the extent of the oversight exercised by the Legal
Services Board will be an important factor as will the extent of the lay
involvement in the decision making by the regulatory arm of the professional
2.18 To the extent that rules fall outside the scope of the competition prohibitions,
a special regime will need to be in place to ensure that rules made comply with
competition scrutiny. One aspect of this would be to ensure that a clear and
appropriately prioritised competition objective be set out for both the Board
and the professional body when discharging any rule-making/approval function.
This might usefully include an assessment of the potential competition effects
of the individual rule viewed in the context of the other rules and in the
economic context in which it will operate. A second aspect to this could be to
ensure that the Board had an obligation to seek competition advice from the
OFT when approving professional rules or when considering applications from
professional bodies to be recognised for the purposes of qualifying and
supervising members to provide services. This would be similar to the current
arrangements under the CLSA described above. In addition, the OFT might be
given responsibilities similar to those that currently exist in relation to financial
services to keep rules and practices under review and to report to the
Competition Commission where we found a significant adverse effect on
competition. The addition of this ongoing power of scrutiny (additional to
provision of advice at the point where rules are approved or when bodies seek
designation), would strengthen the OFT's capacity to provide effective
competition scrutiny of legal professional rules.
Office of Fair Trading11
IMPLICATIONS FOR COMPETITION
2.19 Model B+ appears to us to have a number of potential advantages over Model
A. Where Model A necessarily suppresses competition between regulators,
Model B+ would allow the potential for such competition. It could also ensure
that the Board was in a position to both encourage such competition, but also
to step in if it appeared that such competition was weakening regulation to the
point where this was endangering consumer protection. A further advantage of
Model B+ would be the continued access to the expertise of the professionals
in rule-making, while at the same time providing oversight to ensure that the
self-regulatory element was operating in the interests of users of services
rather than suppliers. The continued participation of the professions might also
have cost advantages.
2.20 Model B+ does not appear well suited to deliver a transition from regulation
by profession to regulation by service although elements of this might be
achieved through the establishment by the Board of a system of guidelines for
rule-making in certain areas, or by the Board co-ordinating rule-making across
the professional bodies where it considered harmonised rules desirable. A
capacity to choose areas in which to promote harmonised rules might also be
important to the capacity of the Board to function as an effective single
representative for the legal profession in negotiation with other professions in
the context of MDPs.
2.21 The regulation of Legal Disciplinary Practices (LDP) needs particular attention
under model B+. Where, say, barristers and solicitors worked together in the
same LDP, problems could arise if they have different professional rules. For
example, solicitors are permitted to handle clients' money and have to abide
by certain rules when doing so, whereas barristers may not at present handle
clients' money. It is unlikely that an LDP could be run efficiently with this kind
of difference between its members. One solution would be for the Board to
harmonise the relevant professional rules, as envisaged in the previous
paragraph. Another solution might be for one professional body to act as the
lead regulator of LDPs and to regulate the members of other professions to the
extent that their conduct related to their role as members of LDPs. The OFT
does not have firm views about which of these solutions would be preferable,
or indeed whether there are other feasible ones, but it is clear that whatever
solution is adopted it must not restrict the ability of members of different legal
professions to join together in LDPs or the ability of LDPs to compete with
each other and with lawyers organised in other types of business structure.
12Response on review of regulatory
structure of legal services
3 ALTERNATIVE BUSINESS STRUCTURE
3.1 In Chapter F, the consultation document sets out and discusses a range of
possible business structures. Making available new business structures to
lawyers implies lifting current restrictions that have been identified as
restricting competition. In this chapter we consider the implications of each of
the models proposed for a range of restrictions that currently deny choice to
both suppliers and consumers of legal services.
How current restrictions on business structure are addressed by the proposed
RESTRICTIONS ON BUSINESS STRUCTURE
3.2 Among the most significant restrictions on the provision of legal services
identified in the OFT's reports and that remain to be addressed are restrictions
on choice of business structure in professional rules. Restrictions identified
•rules that prohibit partnerships between barristers and between barristers
and other professionals (both lawyers and non lawyers);
•rules that prohibit solicitors from entering partnerships with members of
other professions (both lawyers and non-lawyers); and
•rules that prevent solicitors in employment to non-solicitors from providing
services to third parties.
Questions raised and structures proposed in Chapter F of the current
consultation on Alternative Business Structures bear directly on each of these
restrictions. In relation to the restrictions on partnership in Bar rules (first
bullet), the Bar has sought to justify the current total ban. The Law Society
now favours lifting both the restrictions on solicitors entering partnerships with
members of other professions (second bullet) and the restriction that prevents
employed solicitors from providing services to third parties (third bullet).
THE BAR'S JUSTIFICATION FOR RESTRICTIONS ON PARTNERSHIP
3.3 As the Bar's justification for a ban on partnerships is relevant to the debate
over alternative business structures, we summarise below why we think that
the objection to partnerships is misconceived.
Office of Fair Trading13
3.4 In February 2002 in response to the OFT'sCompetition in professions report,
the Bar Council issued a report (the Bar response)16. In the Bar response, the
Bar makes clear that it does not intend to relax restrictions on partnership
either between barristers or between barristers and members of other
professions. In both cases, and broadly for the same reasons, it considers the
restrictions to be justified. The Bar's arguments are set out in Section 3 of its
report. In essence, there are three arguments by which the Bar seeks to justify
a total ban on partnership:
•it promotes competition and choice by maximising the number of competing
•it serves to minimise costs in the provision of barristers' services; and
•it enables the Bar to maintain the 'cab-rank' principle.
THE OFT CONTINUES TO CONSIDER THAT THE RESTRICTIONS GO BEYOND
WHAT IS NECESSARY
3.5 In its progress statement in April 2002, the OFT set out the reasons why,
notwithstanding the Bar's arguments, we do not consider that the restrictions
are justified. These are as follows:
3.6 The first argument relies upon an assumption that permitting partnership will
lead to an inadequate choice of barristers that would be detrimental to
competition and the public interest. We question this as a general proposition.
While it may be true that in some areas of barristers' practice, the number of
practitioners is relatively small, not all areas of practice are concentrated. In
any event, competition rules exist to prevent concentration, where this may
damage competition. The total ban fails to discriminate between partnerships
that may increase competition and choice and those that may not. On the
other hand, prohibiting partnerships restricts choice: the barrister's choice to
adapt his business structure in the way that best meets his needs and those of
his client is restricted. This choice should be open to the barrister as a
barrister, and without the need to requalify and to market oneself as a
solicitor- a solution proposed in the Bar's report. Similarly, the client's choice
to seek the benefits of an integrated service is restricted where partnerships
with non-barrister professionals are prohibited. In any event, in the context of
partnerships between barristers and other professionals, partnership may
expand the availability of barristers.
16See response of the Bar Council to the OFT's report Competition in professions at
14Response on review of regulatory
structure of legal services
3.7 The Bar's second argument relies on the observation that solicitors' overheads
in partnership are significantly higher than those of barristers in sole practice.
As the Bar response points out elsewhere however, many of the activities of
solicitors and barristers remain, for the time being, significantly different. It
would therefore be premature to draw the conclusion that the difference in
business structure is responsible for the difference in overheads. Lifting the
prohibition on partnership would allow barristers the freedom to choose
alternative structures and the efficiency benefits that these might bring.
3.8 Thirdly, the Bar argues that prohibiting partnerships enables the Bar to
maintain the cab-rank principle. While it may be the case that barristers in
partnership might not be subject to the cab-rank principle, the principle would
continue to apply to barristers in independent practice and might apply also at
the level of the partnership.
3.9 In summary, the OFT does not consider that the case has been made out for
the retention of either of the prohibitions on partnership imposed by Bar rules.
IMPLICATIONS OF PROPOSED ALTERNATIVE STRUCTURES FOR
3.10 The matrix at Chapter F, p 66, of the consultation document (the matrix) sets
out 4 models of possible alternative business structures. It is important to
consider how far each of these models is likely to address the restrictions
discussed above and to reduce, therefore, the cost to users of legal services
that result from these restrictions on freedom and choice.
OPTIONS FOR ALTERNATIVE STRUCTURES
3.11 The matrix sets out 4 possible options for alternative structures. The options
distinguish between practice that offers only legal services (Legal Disciplinary
Practice or LDP) and practice where legal services are supplied alongside other
services such as for example, accountancy or surveying (Multi-Disciplinary
Practice or MDP). The other distinction that is central to the options is that
between practice where those who manage the practice own it and practice
which is not exclusively owned by managers. The options presented may be
listed and labelled as follows:
•Option one is an LDP that brings together lawyers from different
professional bodies (barristers, solicitors, conveyancers, legal executives,
trade mark attorneys, patent agents, notaries) to work together on an equal
Office of Fair Trading15
footing to provide legal services to third parties; Non-legal professionals
might help in the management of such practices, but they would not be
able to provide services to third parties. The practice would be owned by
those who managed it.
•Option two is similar to Option one except that, this option would allow for
a practice owned not exclusively by its managers but also by third parties
such as a bank, automobile association or a supermarket.
•Option three allows the development of practices that would bring together
lawyers and other professionals such as accountants and surveyors. It could
therefore offer a one stop shop to clients who require the services of more
that one professional. Those who managed the firm would also own it.
•Option four is similar to Option three except that this option would allow for
a practice owned not exclusively by its managers but also by third parties
such as a bank, automobile association or a supermarket.
IMPLICATIONS OF ALTERNATIVE STRUCTURES FOR CURRENT
3.12LDP1, if introduced, would address current restrictions on partnerships
between barristers. It would also allow both barristers and solicitors to enter
partnership with lawyers who were members of professional bodies other than
their own. In lifting these restrictions on business structure, LDP1 would also
allow clients to buy litigation and advocacy services from one and the same
firm and may go some way therefore to address the related restriction in Bar
Rules on barristers in independent practice conducting litigation (for a fuller
discussion of this restriction see paragraphs 3.14 and 3.15 below).
Introduction of LDP1 would not however address the current restrictions that
prevent solicitors in employment to non-solicitors from providing services to
third parties, nor would it lift the restrictions on partnerships between either
solicitors and barristers and non lawyer professionals.
LDP2,if introduced, would bring all the advantages of addressing the
restrictions that LDP1 addresses but would in addition involve lifting the
restriction that prevents solicitors in employment to non-solicitors from
16Response on review of regulatory
structure of legal services
providing services to third parties. Partnerships involving provision of legal and
other services would remain prohibited, however, so further change would be
necessary if clients were to benefit from the availability of one stop shops.
MDP1, if introduced, would bring all the advantages of LDP1 but would in
addition involve lifting restrictions in Law Society and Bar Rules that prevent
solicitors and barristers from offering one stop shop services alongside nonlawyer
professionals. Capitalisation and other potential benefits from third
party ownership would remain restricted.
MDP2, if introduced, would address all restrictions on business structure
identified in the OFT's reports.
3.13 It follows from what is said above that MDP 2 is the only model the
introduction of which would ensure that all of the restrictions on business
structure identified in the OFT's work were addressed. We therefore strongly
favour this model and consider that it is the model which is likely to maximise
benefits to users of legal services in England and Wales. We recognise
however, that there are a number of issues that are specific to the MDP
models and that would need to be resolved, in some cases in partnership with
other professions; the time-frame for introduction of MDP2 might therefore be
longer that that for LDP2. We consider LDP2 to have significant advantages
over LDP1 in competition terms. Resolution of issues specific to MDP2 should
not be allowed to cause delay to an early introduction of LDP2. But LDP2
should be seen as a step towards MDP2 rather than an alternative to it.
Creating a framework in which lawyers who are members of different
regulatory bodies can offer services in partnership is likely to be a significant
step toward establishing a framework where lawyers can practice with other
professionals. Similarly, reform of the overall regulatory model and the
establishment of a single body, whether authority or board with oversight
functions (see Chapter 2 above), with regulatory responsibility for legal
services is also likely to facilitate the subsequent introduction of model MDP2.
In the interests of early progress, we would therefore support the early
introduction of model LDP2 as an interim step towards MDP2. In 'Issues
specific to MDPs' (from paragraph 3.24 below) we look at issues specific to
MDPs and consider how they may be addressed.
Office of Fair Trading17
Implications of new business structures for other restrictions
THE PROHIBITION ON LITIGATION BY BARRISTERS AT THE INDEPENDENT
3.14 Questions in Chapter F related to alternative business structures have
implications also for other restrictions in professional rules, even where these
may not appear to be primarily about business structure. Some such
restrictions were identified in the OFT's 2001 report; others emerged in
subsequent work by the OFT in this area. One significant example is the
prohibition in rules of the Bar on the conduct of litigation by barristers in
independent practice. This was highlighted in the OFT’sCompetition in
professionsreport in 2001 and further commented on in the progress
statement in 2002. In our report, we stated that we considered that this
prohibition prevents potential efficiencies and limits the number of lawyers
available to conduct litigation. We underline that the OFT does not seek to
oblige any individual barrister to conduct litigation. Our concern is that
barristers should be free to choose. At present, the Bar dictates that in no
circumstances can any member of the independent Bar conduct litigation. We
consider it a significant restriction on the freedom of choice of both barristers
and their clients. Whatever the future form of this rule, however, its
significance is likely to be affected by the availability of new business
3.15 We welcome the fact that each of the models that are set out in the
consultation document would allow a barrister to offer services as a barrister
within a practice that could offer clients the full range of legal services
including litigation and advocacy. Where, following the introduction of
alternative structures, it was clear that such integrated services were available
to clients who wanted them, and that barristers who wished to practice in this
way could do so unimpeded and without change to title or practising rights,
this would clearly be a relevant consideration in assessing whether a
continuing prohibition on litigation, affecting those barristers who chose to
remain sole practitioners, constituted a significant restriction on competition. If
a substantial number of mixed solicitor/barrister LDPs were formed, the
restriction on competition entailed by a prohibition on litigation by sole
practitioner barristers would be less likely to be appreciable.
18Response on review of regulatory
structure of legal services
ENTRY RESTRICTIONS AND PRACTITIONER MOBILITY
3.16 It will be critical to the success of any new business structures to ensure that
the entry and qualification requirements do not unnecessarily hinder the
development of new structures. Similarly, the capacity of practitioners to
move from one business form of practice to another without unnecessary
restriction will be important to the success of new business structures.
3.17 We have been concerned for some time that the requirements which the Bar
places upon those who seek to qualify other than at the independent Bar go
beyond what is necessary and are disproportionate in their effect on entry to
requirements set for qualification at the independent Bar. If rules that currently
govern qualification at the employed Bar were to be applied also in the context
of new legal and multi-disciplinary partnerships, and it would appear that
failing amendment they would, then there is a real danger that such rules
would significantly impede the establishment and development of new
business structures at least as far as barrister participation is concerned.
3.18 A particular rule which we are concerned may significantly impede potential
competition from barristers choosing to practice in new business structures is
Rule 203 of the Bar's Code of Conduct. In advice to the Lord Chancellor
provided under the Courts and Legal Services Act 1990 (CLSA), we have
previously set out our concern about the anti-competitive effects of Rule 203
in the context of practice as an employed barrister17. Rule 203 requires that a
barrister who has less than three years' standing must practice from a
chambers or office which is also the principal place of practice of a practitioner
who is suitably qualified to provide guidance (Rule 203 (1)(b). A person is
considered suitably qualified if they have been qualified to practise and have
practised for six of the previous eight years, two of which must be the years
that immediately precede the period of supervision (Rule 203(3)).
3.19 There are two aspects of Rule 203(1)(b) that give rise to concern. Both
currently relate to the effects of the rule in the context of practice at the
employed Bar, but the effects are likely to be similar in the context of future
practice in MDP/LDPs. The first is the requirement that a barrister's place of
practice must, for the duration of the qualifying period, be the same as that of
a person who is qualified to supervise. The second relates to the operation by
the Bar Council of a discretionary power of waiver in relation to this
17See the OFT advice of March 2003. Since April 2001, advice given under Schedule 4 to the
CLSA is published. The advice is available on the OFT websitewww.oft.gov.uk
Office of Fair Trading19
3.20 The requirement in Rule 203(1)(b) that a barrister's principal place of practice
must, for a period of three years be the same as that of a suitably qualified
supervisor governs both independent practice and employed practice and
would also unless amended come to govern practice within future LDPs or
MDPs. Its effects in the context of employed practice or LDP/MDPs are,
however, very different from its effects in the context of independent practice.
In independent practice, the requirement will almost inevitably be met by
practice in chambers, and irrespective of whether there is, in reality, regular
contact for the purposes of supervision between the qualified person and the
person supervised. By contrast, in employment, the rule acts to severely
restrict the freedom of a newly qualified barrister to accept an employment
contract and to restrict also the freedom of potential employers to employ
newly qualified barristers. This will only be possible where the would-be
employer already employs a relatively senior lawyer who meets the exacting
terms of Rule 203(3). In our view, the restriction inherent in this rule might be
considerably relaxed, and the level of supervision maintained or even
improved, if the rule were expressed in terms of regular contact with a
supervisor rather than in terms of a principal place of practice. This would
allow a barrister in employment or practising within an LDP or MDP to be
supervised by a suitably qualified person (such as a former pupil master),
whether that person shared his place of employment, was employed elsewhere
or was at the independent Bar. This would greatly enhance the opportunities
for barristers in employment and in newly formed alternative business
3.21 The Bar Council has a general discretion to waive the requirements of Rule
203(1)(b) on application. Applications are considered by the Transitional
Arrangements Sub-Committee. Our concern here is that the operation of a
waiver system in this context creates a very high degree of uncertainty for
barristers who wish to practice at the employed Bar and to acquire standing to
meet the three year rule. Given that the numbers of barristers qualifying
greatly exceeds the number of openings at the independent Bar, it is likely that
this uncertainty affects the majority of the recently-qualified Bar. Taking into
consideration the discretionary nature of the waiver system, the absence of
clear published criteria, and that barristers seeking an exemption are unlikely to
be in a position to make an application for waiver until they have taken up a
post in a new LDP, MDP or other employment, the hurdles that face those
who wish to practice outside the independent Bar are considerable.
20Response on review of regulatory
structure of legal services
3.22 In summary, the current rules and the way they are applied operate to prevent
a barrister from knowing in advance whether a period of practice in
employment (or in an LDP or MDP) will qualify him/her to the same degree as a
period at the independent Bar. The criteria for meeting Rule 203(1)(b) should
be clarified and simplified to allow a barrister who wishes to enter employment
to know in advance whether the period in employment will meet the
requirements. In order to widen the range of business structures that will meet
the requirements, we also recommend that the Bar Council consider amending
Rule 203(1)(b) to allow appropriate supervision to be undertaken by any
suitably qualified person who is willing to undertake it.
3.23 Rule 203 is one example of a rule that may impede the establishment and
development of MDP/LDPs. Similar concerns exist in relation to the
requirements for completion of pupillage (the 12-month period of practical
training which a barrister must undertake to qualify to practice). While we are
not aware of qualification requirements of other legal professional bodies that
may have similar effects, these would need to be considered to ensure that
requirements do not unnecessarily impede the freedom of lawyers to choose to
practice within new business structures where they consider that new
structures will allow them to better meet the needs of clients.
Issues specific to MDPs
3.24 Chapter F sets out a number of issues that arise specifically in the context of
multi-disciplinary practices (MDPs). It has long been the position of the OFT
that it is desirable in principle to permit the formation of such partnerships18. In
the OFT’s reportCompetition in professions, in 2001, we noted that
restrictions on MDP may both inhibit new entry and prevent the exploitation of
possible economies of scale and scope. It was and remains our view that the
opportunities to provide combinations, in particular, of high-street professional
services under one roof should unlock potential cost efficiencies and enhance
customer choice and convenience at this level of the market. Potential benefits
might accrue also from combinations at other levels of the market19.
3.25 We recognised in the OFT’sCompetition in professions report that particular
safeguards would be necessary in particular in relation to combinations
18See the Entities Report , OFT,1986
19See OFT 328 Competition in professions at paragraphs 29-32 available at www.oft.gov.uk
Office of Fair Trading21
involving auditors20. We doubt however if the need for such safeguards in
relation to audit services can justify the current blanket prohibition on MDPs
outside of the field of auditing services; nor do we consider this to be a
necessary implication of recent European case law. Even in the field of audit,
the response of those with responsibility for regulating audit following the
Enron situation has not been blanket prohibition of the provision of non-audit
services by auditors but has been to consider the specific risks involved in the
provision of each combination of services and only to prohibit those
combinations of service where identified risks cannot be addressed by
3.26 The issue of legal professional privilege is highlighted in the consultation
document as an inhibitor to the development of MDPs. In the OFT’s report
Competition in professions22, and subsequent progress statement, we
highlighted the concern that where lawyers are in competition with nonlawyers,
legal professional privilege may distort competition in favour of the
lawyer. Government subsequently concluded that altering the scope of
privilege would not be in the public interest23. However, a recent judgment of
the Court of Appeal, which limits the scope of legal advice privilege to advice
or assistance given by a lawyer in relation to rights and obligations, may be
relevant in this context24. To the extent that the ruling restricts the scope of
legal advice privilege, it may also have the effect of reducing to some degree
the competition effect of legal professional privilege as well as its effect as an
inhibitor on MDP. Note that the Court of Appeal's judgment is currently under
appeal to the House of Lords.
3.27 The consultation draws a number of distinctions between MDP and LDP. It
clarifies that, unlike LDPs, the process of agreeing an appropriate framework
for the regulation of MDPs is one that will necessarily involve negotiation with
those with responsibility for the regulation of other non-lawyer professionals.
This was recognised also by the OECD in its 2002 report on competition in
professions in the UK25. This may argue for a different time scale for the
introduction of this business structure that takes account of the need for a
20See Competition in professions Progress Statement at paragraph 3.38, available at
21See for example the recent consultation issued 24 November 2003 by the Auditing Practices
Board on Draft Ethical Standards at ES5.
22OFT 328 at paragraph 47
23'Competition and Regulation in the Legal Services Market' DCA 2003
24Three Rivers District Council & Ors v The Governor & Company of the Bank of England
 EWCA civ 218
25See OECD Report Regulatory Reform in Gas and electricity and the Professions in the UK, 23
22Response on review of regulatory
structure of legal services
process of inter-professional negotiation. It does not in our view argue for the
abandonment of the potential advantages that MDPs may bring. Indeed, we
see one of the advantages of the reform of the regulation of the legal
framework for legal services is that this is likely to result in a single entity
(Authority or Board) capable of representing all of the legal profession in such
negotiation. To this extent it may mark a significant step towards the
facilitation of the regulatory structure for MDP. We encourage the review team
to recommend that the OECD recommendation in its 2002 report on
competition in the UK be taken forward, and that government now facilitate a
process of discussion between professions towards a regulatory environment
3.28 To conclude on the issue of alternative business structures, it seems
appropriate to recall the following point of general relevance to a consideration
of any new business structure. The question of how services are supplied is
generally best determined by unfettered competition between producers for
the custom of consumers. Regulators at whatever level should therefore avoid
prescribing how professional services should be supplied. It follows that
where, as currently, restrictions are placed on the freedom of patterns of
supply to evolve and improve, those restrictions should be removed unless
they can be justified. Removing current restrictions in professional rules and in
statute that prevent lawyers participating in LDPs and MDPs is likely to have a
positive effect on competition in the supply of legal services in England and
Office of Fair Trading23
4 CONSULTATION DOCUMENT QUESTIONS
In this chapter, we provide responses to the questions set out in the consultation
document where these are relevant to the work of the Office of Fair Trading. In the
main, this will involve reference back to the relevant paragraphs of Chapters 2 and 3.
There are a number of important possible objectives for a regulatory system covering
the provision of legal services. What objectives do you believe should form the
cornerstone of a regulatory system for legal services?
The consultation document properly identifies the relevant objectives. We
welcome the recognition both in the objectives and the terms of reference to
the review of the importance of a competition objective. It is in the interests of
users of legal services that a regulatory regime prevent unjustified restrictions
and encourage competition.
What aspects of professional ethics, or legal precepts, do you feel are essential to a
properly functioning legal services industry and in what way should they be reflected in
the regulatory system?
These aspects are properly identified in the consultation document. In our
negotiations with legal professions we have recognised that it may be
necessary to restrict the freedom of professionals, including aspects of
freedom to compete, in order to ensure that, for example, the independence of
lawyers is protected. However, lawyers are likely to best serve the interests of
their clients where such restrictions are maintained at the minimum level
necessary. With regard to confidentiality, see comments on privilege at
paragraph 3.26 above.
Do you consider that risks to the regulatory objectives should be a central
consideration in determining how regulatory powers and resources should be used?
Yes. Provided that all appropriate objectives are recognised and that competing
objectives are appropriately balanced.
24Response on review of regulatory
structure of legal services
What do you see as the broad advantages and disadvantages of Model A in
comparison with Model B? In particular, what do you see as the strengths and
weaknesses of (i) combination and (ii) separation of regulatory from representative
See Chapter 2 above.
Which model best meets the criteria of the terms of reference?
See Chapter 2 above.
If it were felt appropriate to separate regulatory and representative functions within
professional bodies as envisaged under Model B+, how might it best be achieved?
There would be distinct advantages in ensuring that the regulatory function
was carried out pursuant to clear public interest criteria provided by statute. It
would be preferable to ensure also that the composition of the Board with
oversight functions reflected the interests of users of legal services. Any
arrangement should ensure that the implications for competition scrutiny are
recognised (see Chapter 2 above at paragraphs 2.1 to 2.10, 2.17 and 2.18).
What powers would you wish to see delegated from the Government to the Regulator?
Powers currently exercised by government under the CLSA should be
delegated whether Model A or B is adopted. The aim should be an independent
What powers to instruct the Regulator would you wish to see Government retain?
The retention of minimal powers such as those retained in respect of financial
services appears unlikely to interfere with the key objective of ensuring that
the Regulator is independent.
Office of Fair Trading25
What international considerations should influence the design of appropriate regulatory
arrangement of legal services within England and Wales?
Enabling providers to continue to compete effectively in an international
market place is clearly a key objective. The consultation document points also
to the need for a new regime to be responsive to international obligations and
to be able to accommodate new market and regulatory developments. We
agree, but consider also that by pooling expertise in a single regulator, whether
Authority or Board, more dynamic participation by the new regulator within the
relevant international bodies should also be possible. Recent publications by
the European Commission (DGComp) and the Organisation for Economic
Cooperation and Development (OECD) have been important in informing
Chapters 2 and 3 of this response.
Should service complaints (which are consumer centred) be operationally split from
professional conduct and disciplinary issues (which are centred on the practitioners and
their professional bodies)?
The OFT's experience in this area is drawn from our work on voluntary,
business to consumer, codes of practice. The Consumer Codes Approval
Scheme (CCAS) is our current approach to the promotion of self regulation
through codes of practice. Codes are assessed by the OFT for approval against
a set of challenging core criteria which cover organisation, preparation of the
code, code content, complaints handling, monitoring, enforcement and
publicity. Under the CCAS code members must have in place speedy,
responsive, accessible and user-friendly procedures for dealing with consumer
complaints. If a code member and complainant cannot reach agreement on
how to solve a complaint, the complainant must be allowed access to
conciliation services. The role of the conciliation service is to try to facilitate
an agreement between the code member and the complainant. This service
must be subject to reasonable time limits and could be provided by the code
sponsor (the administering body of a code eg a trade association). If a
complaint has still not been resolved following this stage, the complainant
must be allowed unrestricted access to an independent redress scheme. For
the OFT's purposes, an independent redress scheme must be completely
independent of the code sponsor. If a code sponsor uses a board or panel, the
entire membership of the board or panel must be independent of the code
sponsor and its subscribing members. If a code sponsor appoints an individual
26Response on review of regulatory
structure of legal services
as an arbitrator, that person must be independent of the sponsor and its
subscribing members. In order to ensure impartiality, any arbitrators,
adjudicators or ombudsmen adjudicating under the redress scheme cannot also
sit on the code sponsor's disciplinary panel. An independent redress scheme
should resolve complaints speedily, be free for the consumer if possible and
must be easily accessible to the consumer without the assistance of a legal
In connection with complaints, what are the advantages and disadvantages of (a)
having a uniform complaints organisation, independent of the bodies, similar to the
FOS, or (b) each body remaining responsible for its own complaints? Is the New South
Wales example a useful model?
If you believe that each body should remain responsible for its own complaints, what
form of regulatory oversight would you wish to see?
How do you think that disciplinary arrangements should relate to the underlying
practitioner bodies? Is there a case for one single uniform disciplinary body for all
Under the CCAS disciplinary procedures must be independent of code
sponsors and their members and also independent of the industry. This means
that the procedures must have no present or past association, either directly or
indirectly, with the code sponsor's sector. A code sponsor could use a board
or committee to deal with disciplinary procedures. If it does, then there must
be at least 50% independent representation, as well as an independent chair.
What should be the mechanism for funding the handling of complaints?
Office of Fair Trading27
What should be the mechanism for funding the handling of disciplinary processes?
Should the Regulator be a board or an individual?
We agree with the recommendation of the Better Regulation Task Force in its
Report,Independent Regulators, October 2003, that a Board is preferable to
an individual. We see no justification for departing from this in this instance.
What sort of Board should the Regulator have and how should it be constituted? What
would be an appropriate split between practitioner involvement and lay content in the
Board? As regards the practitioner content, would you favour the inclusion of
individuals on their merits, or formal representatives from different parts of the
See Chapter 2 paragraph 2.16 above. Practitioners should not dominate the
Board but there should be sufficient of them to ensure its expertise. All
practitioner members should be appointed as individuals on their merits.
Who should appoint the leadership of a Regulator? With whom should that person
consult? How should the appointments of the other directors of the Board be made?
The Secretary of State should make the final decision on appointments.
What period should the appointments be for? In what circumstances and by whom
could directors be removed?
28Response on review of regulatory
structure of legal services
Having regards to the need for independence both from Government and providers of
legal services, what qualities and background would you wish the leadership of the
Regulator to possess? Is there anything you believe it would be important for the
leadership of the Regulator not to be?
The regulator should be impartial, fair and independent minded, and committed
to the principles of the regulatory framework (including the promotion of
competition). If he or she has these qualities, his or her background will not be
of great importance. However, in order to promote public confidence in the
new regulatory arrangements, it might be better if the first regulator were not
a practising lawyer.
What mechanisms would you propose to ensure the accountability of the Regulator: (1)
to Parliament; (2) to Ministers; (3) to public interest groups? Is there anyone else to
whom a Regulator for legal services should be accountable and how?
What consultation arrangements would you wish to see the Regulator follow before
exercising its powers?
See Chapter 2 above, in particular paragraphs 2.3 to 2.5, 2.12 to 2.14, 2.17
To where should the right of appeal against decisions made by the Regulator lie? On
what matters should appeal be permitted?
This section refers to the funding issues arising from different models. What would be
your suggested mechanism for dealing with these issues?
Office of Fair Trading29
What relationship should there be between the Law Officers, the Regulator and
professional bodies with advocacy rights?
The Law Officers should not have a special relationship with the Regulator or
with the professional bodies to whom decision making powers may be
delegated under Models B and B+.
Should the Government have power to determine which legal services should be
included in, or removed from, the regulatory framework? What consultation with the
Regulator, with the providers of legal services, and with public interest groups, should
there be in reaching these decisions?
We agree that decisions as to the need for regulation of particular legal
services should be left to the Government. While consultation with the
regulator and providers seems appropriate, it will be particularly important to
get the views of users of services and interest groups that represent them.
What are the main factors one should consider in determining whether a service
The primary factor is market failure. In the context of professional services,
the chief source of such failure is inadequate or asymmetric information and
more particularly, asymmetric information about product quality. The buyer of
a legal service is frequently an occasional buyer who is not in a position to
assess the value of what is offered. Where customers are well informed, the
availability of providers regulated to different degrees or unregulated expands
customer choice. However, where information is inadequate, there is a risk
that services that do not incur the cost of regulation may drive out those that
do and that this will reduce consumer choice. One solution to this is to find
ways of improving information in order to improve the correlation between
price and quality. Only where it is not possible to do this should regulation be
contemplated. Such regulation should only go so far as is necessary to remove
from the market those services which it is clearly not in the interests of the
consumer to have available. This will improve the correlation between price
and quality and assist consumers in choosing services. Regulation should aim
to leave available a range of service quality at a range of prices.
30Response on review of regulatory
structure of legal services
What characteristics of the regulatory framework would facilitate the inclusion of new
services within the regulatory net, or the exclusion of a service presently included?
A flexible framework that allows for the regulation (or the deregulation) of new
areas of service provision, without the need to create new bodies and
structures, appears desirable. Model A would appear best suited to this, but
expansion of the responsibilities of a Model A regulator may bring with it
disadvantages of increased complexity and bureaucracy.
Is there potential demand, from users and providers, for Legal Disciplinary Practices
As current restrictions prevent those who would provide and buy such
services from doing so, the strength of demand cannot be accurately
assessed. In order to encourage innovation, restrictions on permitted business
structure should be no greater than is absolutely necessary. The removal of
current restrictions would allow demand to be tested and allow users of
service to decide which structure best corresponds to their needs.
How do you see the advantages and disadvantages of LDPs?
See paragraph1.6 and Chapter 3 paragraphs 3.10 to 3.11.
What restrictions, if any, would you wish to see imposed on LDPs in the area of
management? What restrictions, if any, would you wish to see imposed on LDPs in the
area of ownership (i.e. moving from the top left hand box of the matrix in paragraph 9
to the top right)?
See Part B paragraphs 3.11 to 3.15.
Is there any reason why the regulatory system should distinguish between practices in
the commercial and the not-for-profit sector?
Office of Fair Trading31
What body would you expect to regulate LDPs? What, if any, additional safeguards do
you believe need to be put in place to protect the consumer?
The answer to the first question would depend on the choice of regulatory
model. The new LSA would clearly be the answer if Model A were chosen.
Under Model B a professional body might need to be appointed as the main
Regulator (see Chapter 2 paragraph 2.21). Where ownership and management
were split, it would be necessary to ensure that this did not interfere with the
independence of legal advice. Minimum fitness criteria for ownership seem
appropriate. These could be established by the Regulator.
Is there potential demand from users and providers, for MDPs?
See answer to question F1 above.
How do you see the advantages and disadvantages of MDPs? Can the current
restrictions (by professional bodies) preventing the development of these practices still
See Chapter 3 paragraphs 3.11 to 3.15 and 3.24 to 3.28.
What restrictions, if any, would you wish to see imposed on MDPs in the area of
management? What restrictions, if any, would you wish to see imposed on MDPs in
the area of ownership (i.e. moving from the bottom left hand box of the matrix in
paragraph 9 to the bottom right)?
In order to avoid unnecessary delay it might be appropriate to begin provision
of MDPs where the firm is controlled by lawyers. Ultimately, decisions on who
manages should be a matter of negotiation between a body or bodies
representing the legal profession and those representing other professions. It
seems appropriate to ensure that ownership of MDPs might be subject to
prospective owners satisfying the regulator that they met a minimum ‘fitness
to own' criteria.
32Response on review of regulatory
structure of legal services
What body would you expect to regulate MDPs? Would your answer be different if
lawyers were not in a majority? What, if any, additional safeguards do you believe
need to be put in place to protect the consumer, and to ensure respect for
independence and integrity in the exercise of professional judgment?
We do not consider that there should be any pre-judged restrictions at this
stage. It may be advantageous to begin with lawyer-regulated MDPs. As
negotiations with other professions progress these could aim to address issues
of how best to guarantee the independence of legal advice where the
lawyer/legal team was subject to management or owned by non-lawyers.
What are the international implications for the legal professions in England and Wales if
legal services were allowed to be delivered through alternative business structures?
The development of MDPs is likely to flourish where clients perceive that this
structure best serves their needs. In an increasingly international market place,
a structure that is attractive to domestic clients is likely also to enhance the
international competitiveness of professionals regulated in England and Wales.
Office of Fair Trading33
A COMPETITION SCRUTINY OF LEGAL PROFESSIONAL RULES
BY THE OFT UNDER THE COURTS AND LEGAL SERVICES
ACT 1990 (CLSA)
A.1 Under Part I of Schedule 4 to the CLSA, if the Secretary of State is
considering an application from a professional or other body for designation as
a body authorised to grant to its members rights of audience or rights to
conduct litigation, and for approval of the qualifying regulations and rules of
conduct related to such rights, the Office of Fair Trading (OFT) must be sent a
copy of the application and must consider whether granting the application
would have, or be likely to have, any significant effect on competition. The
OFT shall give such advice as it thinks fit to the Secretary of State and shall
publish any advice given.
A.2 Under Part IV of Schedule 4, a similar obligation exists where the Secretary of
State is considering recommending revocation of a designation.
A.3 Under Part II of Schedule 4 to the CLSA, if the Secretary of State considers
that it would be appropriate to seek the advice of the OFT with respect to
approving alterations made by an authorised body of its qualification
regulations or rules of conduct or of its rights of audience or rights to conduct
litigation, the OFT is sent a copy of the application and must consider whether
granting the application would have, or be likely to have, any significant effect
on competition. The OFT shall give such advice as it thinks fit to the Secretary
of State and shall publish any advice given.
A.4 Under Part III of Schedule 4 to the CLSA, if the Secretary of State proposes to
alter any of the qualification regulations or rules of conduct of an authorised
body because they unduly restrict a right of audience or a right to conduct
litigation or the exercise of such a right, the OFT must be sent a copy of the
application and must consider whether making the proposed alterationswould
have, or be likely to have, any significant effect on competition. The OFT shall
give such advice as it thinks fit to the Secretary of State and shall publish any
34Response on review of regulatory
structure of legal services
B THE OFT'S ROLE IN COMPETITION SCRUTINY IN FINANCIAL
Part X, Chapter III, of the Financial Services and Markets Act 2000 ('FSMA'):
The FSA regulatory provisions and practices
B.1 Under Part X section 160 of the FSMA, the OFT must keep the FSA's
regulatory provisions and practices under review (section 160(1)), and report
to the Competition Commission if it considers that, individually or collectively,
they have a significantly adverse effect on competition (section 160(2)).
B.2 The OFT's report under section 160(2) must include details of the adverse
effect on competition and must also be sent to the Treasury and the FSA
(section 160(5)(a)), and must be published.
B.3 The OFT may also report if it concludes that the FSA regulatory provisions or
practices do not have a significantly adverse effect on competition (section
160(3)). In this case, the OFT must send a copy of such a report to the
Competition Commission, the Treasury and the FSA (section 160(6)(a)),
although is not obliged to publish it (section 160(6)(b)).
B.4 Section 161 gives the OFT the power to request information for the purpose
of investigating any matter with a view to its consideration under section 160.
B.5 Under section 162, the Competition Commission is required to investigate the
matter and make its own report (unless, as a result of a change of
circumstances, it considers that no useful purpose would be served by a
report) if the OFT has found a significantly adverse effect on competition.
Section 162 also allows the OFT to require the Competition Commission to
investigate if the OFT has not found any significantly adverse effect on
competition and has reported to that effect.
B.6 The Chapter I and Chapter II prohibitions of the Competition Act 1998 do not
apply to agreements, practices and conduct of authorised persons and others
subject to the FSA regulatory provisions, to the extent that such agreements,
practices and conduct are encouraged by the latter (section 164).
Office of Fair Trading35
Part XVIII, Chapter II, of the FSMA: Competition scrutiny of applicant and
recognised investment exchanges and clearing houses
B.7 Under section 303 of the FSMA, the OFT must issue a report (and send it to
the Competition Commission, the FSA and the Treasury) on whether the
regulatory provisions of investment exchanges or clearing houses that have
applied for recognition have a significantly adverse effect on competition.
B.8 Section 304 places an obligation on the OFT to keep under review the
regulatory provisions and practices of recognised investment exchanges and
clearing houses and to report (and provide copies of any such report to the
Competition Commission, the Treasury and the FSA – section 304(5)(a)) if it
considers that, individually or collectively, they have a significantly adverse
effect on competition. The OFT must also publish its report (section
B.9 Under section 304, if the OFT thinks that one or more of the regulatory
provisions and practices of recognised bodies, individually or collectively, do
not have a significantly adverse effect on competition, it may make a report to
that effect. Should it decide to do so, it must send a copy of it to the
Treasury, the Competition Commission and the FSA (section 304(6)(a)) and
may publish it (section 304(6)(b)).
B.10 Section 305 gives the OFT the power to require information for the above
B.11 Pursuant to section 306, the Competition Commission must investigate the
matter which is the subject of the OFT's report if it has found a significantly
adverse effect on competition. Section 306(3) also allows the OFT to ask the
Competition Commission to consider a report, even if the OFT has not found
any significantly adverse effect on competition.