Source

Lord Falconer of Thoroton
Constitutional Affairs Secretary and Lord Chancellor
Legal Services Reform Conference
London
21 March 2005

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Check against delivery - This is the prepared text of the speech, and may differ from the delivered version

It’s a great pleasure to address you today, at this important conference on legal services reform.

I am especially pleased that today’s conference is being hosted by the DCA in association with Citizens Advice, the National Consumer Council and Which. I thank them all for their help and support.

Just looking at the video, the range of people and organisations that use legal services, is almost as wide as the law itself.

And their experiences are pretty varied too - some get a good, timely, effective, fairly-priced service. And, put bluntly, some don’t.

And you heard in the video the sorts of things people say about legal services - they don’t understand the language and the terminology. They are not sure about how much they will be charged. They feel that they don’t get the attention they want. They feel the profession is old-fashioned and, in some cases, can’t be trusted.

That’s the aim of today’s conference - to respond to these issue, improve legal services in this country and to really put the consumer first.

What I want to do today is look at:

Firstly, the reasons why we urgently need to reform legal services;
Secondly, I want to set out my vision for what legal services should look like - what the consumer needs, and deserves;
And, finally, I want to set out the Government’s proposed reforms and the steps we will be taking.

So - firstly, why do we need these reforms? Before we fix something, let’s be clear about what’s broken.

What is not in dispute is that the calibre of many of our lawyers is undoubtedly among the best in the world - many of the best legal minds of our generation are to be found here in this country.

But, despite the undoubted excellence of our best lawyers, the consumer wasn’t always getting a good deal.

In 2001, the Office of Fair Trading said that many of the rules of the legal professions were unduly restrictive. The result of this, according to the OFT, was that consumers were receiving poorer value for money than they would have done under more competitive conditions.

To follow this up, my Department carried out a wide-ranging public consultation exercise. We asked the public and a range of stakeholders for their views - we asked them about the complaints system, about competition and about regulation.
The views we got back were clear that the framework we had in place was failing to meet the demands of the market place and the needs of consumers.
Too many people felt legal services were letting them down. Being charged far more than they expected. Not fully understanding the processes in which they are involved. Having to continually chase up responses to queries and letters. Feeling that they are powerless - obliged to turn to a lawyer to help them with often-difficult problems, stressful problems - yet feeling that they are unable to control what’s happening.

Through the consultation, consumers told us loud and clear that their needs were not being met.

The system for complaints handling was ineffective. In many cases people didn’t know who to complain too. And when they did, people told us it was too slow and too complex. It was clear people lacked confidence in a complaints regime was too closley tied to the providers. There was a lack of transparency and accountability.

People told us they weren’t confident in a system that was self-regulated, and they felt that enforcement of rules was poor. Respondents felt that the primary accountability for the regulator was to the members of the trade association and not, necessarily, to the public - the views of consumers were not in-built as part of the system. The standards being set lacked any real measure or target for consumer-orientated services.
There was a strong view that existing structures were inflexible, and didn’t allow existing, or new providers to respond to the markets demands.
And the view from respondents was that consumers in some areas were receiving a low quality service - the ‘customer service’ that modern consumers expect was absent all too often.

These are strong arguments for reform - it’s important we respond to people’s views.
Let me give you examples of how the system is structured in a way that hindered, rather than helped, the consumer.
Barristers and solicitors cannot go into partnership with each other. So the requirement, which applies in most cases, preventing direct access to barristers means people are often required to pay 2 sets of professional fees.
Lawyers cannot provide their services through an entity that is not wholly owned by lawyers - therefore outside organisations such as Tesco or the RAC, cannot employ lawyers to provide advice to their external customers.
Imagine a lone parent, recently separated, raising a young child. The sort of support they need could range from legal advice to handle the separation quickly and fairly, financial or debt advice, housing advice, information on employment or training opportunities or childcare, even counselling or other such services. Again, wouldn’t it suit the consumer in this case to be able access these services more easily - if the market demands such a service, I don’t see why we should not allow it.
Consumers want a diversity of providers - providing the sector is properly regulated, choice is a good thing.
So we have a system that, at it’s best, is the finest in the world. A system based on a long and proud history.
But we also have a system that is unsuited for the 21st century.

In all service industries, legal services included, the consumer’s needs are paramount.

But what is it that consumers want?

They want to be able to trust their lawyer - and be sure about their integrity. They want good value for money. And they want a quality service that helps them with the problem they’ve got. This means an efficient service, an effective service and an economic service.

They want to be confident that the service will be delivered in a way that meets their expectations, and at a reasonable cost. Confident that, if there is a problem, it will be dealt with properly. Confident that the trade bodies have their interests in mind, not just those of their members.

And they want choice. Consumers are now familiar with making informed choices - whether that’s changing a gas or electricity supplier or booking a flight with a budget airline. The internet and broadband technology has started a revolution in the way people make decisions and purchase services. People want to look at the options and feel empowered to choose the service that’s delivered in the right way at the right time and at the right price.

So, confidence and choice - this is where we need to head towards, that’s our vision for the way legal services are delivered.

And, by any measure, we are currently falling short.

You can see it in the number of complaints - one complaint for every six solicitors.

And, even where people receive a good service for a single transaction - a house purchase for example - how can they have confidence in a system that is self-regulating, where one lawyer regulates another? Where a body is expected to represent it’s members and regulate them.

The two don’t go. It lacks transparency and gives the impression of self-interest.

Reform is long overdue.

This is why I asked Sir David Clementi to make recommendations about reform of the regulatory framework. Looking at how we can shape the sector so it remains independent, is comprehensive, accountable, consistent, flexible, transparent, and no more restrictive or burdensome than is clearly justified.

His report has been welcomed, not just by Government, but by many of the professional legal bodies too.

I want to move on now to what we are going to do in response to the report and in response to the challenges I’ve outlined.

There are four key areas:

First, the regulatory model.
Second, complaints and discipline.
Thirdly, new business structures.
Finally, I will touch on some regulatory gaps where there are concerns.
Let me take each of these areas in turn:

In terms of the regulatory model, let me start at first principles. What do we want the framework to achieve?

We want it to:

Maintain the rule of law.
Ensure people have access to justice.
Protect consumer interests.
Promote competition.
Develop a strong and effective legal profession.
And promote public understanding of legal rights.
All those things are the mark of a modern, effective regulator. And how will we get there from where we are now?

Firstly, we will create a Legal Services Board to oversee the legal services sector. Day-to-day regulation will remain the task of the professional bodies - but the Legal Services Board will set the standards and check that they are met.

The Board will have a lay chair, and a lay majority. Appointments will be made on merit, by the Secretary of State for Constitutional Affairs.

It will have powers to apply a range of sanctions where it considers that regulation has failed. People must be confident that it can act - and will - if self-regulation fails. I envisage a sliding scale of powers - for example, these could be setting targets, issuing guidance and imposing fines. It could have the power to direct a professional body. Or it could have the power to take over one or more regulatory function, for example monitoring and compliance, carrying out visits to firms itself.

De-recognising a professional body if that body fails in its duties is the nuclear option. But it will be there, to be used if needed.

There are other issues that need to be resolved.

I consider it is central to the new framework that regulatory powers be formally vested in the Board by statute, with the Board delegating powers to front-line regulatory bodies as it sees fit. I am aware that others, including the Law Society and Bar Council, feel differently and propose that powers be principally vested in the front-line bodies. But I know from my discussions that consumer groups are most concerned about this proposal.

I would also welcome views on what we need to do to ensure the Board routinely engages with both practitioner and consumer representatives - do we need to create formal groups in statute for this purpose? Or should we require the Board to make arrangements but leave it flexibility to work out the details?

Our second proposals, alongside the establishment of the Legal Services Board is to clearly separate regulation from representation.

Under the new system, all front-line regulatory bodies will be required to separate clearly their regulatory and representative functions.

It is for each body to decide what form its governance arrangements take, but they will need to demonstrate clear lines of accountability, and openness about how resources will be allocated to the two discrete functions of representation and regulation.

Ultimately, they will need to convince the Legal Services Board that they meet the standards that the Board sets. The Board will judge whether the arrangements for each body are proportionate, and whether, crucially, they meet the needs of the consumer.

I welcome the steps the existing bodies have already taken - the Law Society’s decision to press ahead now with separating clearly their representative and regulatory functions and I welcome the Bar’s consultation paper on the matter. All bodies who wish to be front-line regulators under the new system should start to prepare now the arrangements which they will put to the Legal Services Board for approval.

Turning now to the second key area - complaints and discipline.

The impact of poor legal service is considerable. The length of time to get a response. The difficulty in getting answers. The actual hardship caused when, for example, directions to pay compensation payments are contested or ignored, meaning further delays.

Mistakes do happen. The informed consumer understands this - but they expect problems to be rectified and complaints dealt with seriously and quickly. Good complaints handling is vital to building confidence in the sector.

I have already appointed Zahida Manzoor as the Legal Services Ombudsman and Complaints Commissioner. She has swiftly engaged with the Law Society, set challenging targets, identified problems and required the Society to produce a plan. The Law Society has responded constructively and I look forward to the improvements this will make for the consumer.

But I want to go further. The sector and, vitally, the consumer would benefit from a single complaints body - simpler for the consumer, easier to understand and able to provide quick and fair redress.

To achieve this, I will create an Office for Legal Complaints. I reject the view that centralisation will lead to a slower service for consumers. The experience of the Financial Ombudsman Service shows that this is not necessarily so. A single complaints body means consistent, fair and professional handling of cases for all complainants.

As with the Legal Services Board, the Office for Legal Complaints will be led by a board with a lay Chair and lay majority, and appointments will be made on merit, by the Legal Services Board. The different responsibilities of the Legal Services Board, the Office for Legal Complaints and the various professional bodies will be clearly defined.

It is for debate whether the Board or the Office for Legal Complaints should publicise how well each practitioner handles complaints. This debate reflects the fact that, as the ways of providing services change, so will the way that consumers choose their service provider.

Removing complaints handling from the professional bodies will in no way reduce their responsibility to ensure that their members operate to the highest professional and ethical standards at all times. I acknowledge the serious and constant efforts the professional bodies make in this regard. The Office for Legal Complaints will help, not hinder.

We cannot let a few bad apples spoil the barrel. But where a bad apple is identified, the current disciplinary arrangements are working well. So the Legal Services Board will require an annual report from each disciplinary tribunal, but the professional bodies will remain responsible for dealing with members and disciplinary matters.
We need one complaints body so there is clarity for the consumer about how and where to complain. Often it will not be clear to the client where the fault lies. To leave in place many overlapping complaints bodies, whilst convenient for the profession, would not be helpful for the consumer.

I want to turn now to the third key area, the structure of legal services firms and the legal services market.

I support progressive moves towards new business structures. These could see non-lawyers for the first time not only as managers of legal practices but also as owners and investors in them.

These are permissive steps, not requirements. We believe that new ways of working and new capital could encourage innovations in delivery - innovations of benefit to consumers.

But there must also be robust safeguards.

We have had a number of informative discussions on new business structures with consumers and practitioners. We need to ensure we get the balance of regulation right or this will not be attractive either to consumers, the profession, or potential investors.

What is needed is a strong licensing arrangement for new business entities, to provide the assurance that all involved will rightly demand, that those who run these businesses and own them are fit to do so.

Firms operating within the new business structures will need approval from the Legal Services Board to provide their services. If these extend significantly into areas beyond the Board’s competence, approval and oversight by other regulators will be required before the services can be offered.

Increased liberalisation, supported by stringent regulation, will provide the opportunity for people to get the whole range of services they want, in the form they want and at the time that they want. Putting the consumer first. This may be 24 hours a day, 7 days a week. I do not know what form these services may take and it’s not for me to decide. Demands will continue to change and providers will need to continuously adapt to meet these demands.

The reforms which we put in place must allow further developments, not constrain them. Foster innovation, not breed stagnation.

Turning finally to omissions, gaps, in the regulatory system. It will be for the Legal Services Board to advise the Government on new areas where it identifies problems, but a couple of areas stand out.

There has been a lot of concern recently about claims management companies. My distaste for the practices of some claims management companies is well-known. Hard-sell and direct marketing, encouraging people to “have a go”. We hear stories of people being talked into signing agreements they do not understand, and taking out loans to cover the cost of premiums. I welcome the steps the Claims Standards Council has been taking to try and respond to these issues. But I will be looking carefully to see how the protection of consumers’ interests can be improved.

Some people have raised concerns with me about will-writing and estate administration. These are some of the most commonly used legal services. If there is a serious problem I will tackle it. I will not let it fester until the Legal Services Board is in place. I have therefore commissioned research on the impact of regulation on the will-writing market. What would the benefits be? What would it cost? If regulation is in the public interest, it will happen.

In addition, I can also announce today that I am considering further liberalisation in the provision of probate and conveyancing services. My intention is to allow - with appropriate consumer safeguards - new providers, such as financial institutions, to enter the market.

Also, ahead of the creation of the Legal Services Board, we will be looking closely at any rules of the legal professional bodies that we believe may not be operating fully in the consumers' interest.

Much of this package will require legislation. Today I will commit to you that we will publish a White Paper on the reforms this year and I can also commit today to bringing forward legislation to put in place the reforms we need.

As I said earlier, I welcome your views on this package of reforms. Today’s conference is about constructive dialogue and debate.

And, indeed, this package of reforms is large. It is far-reaching. It represents a wholesale change in the way consumers can interact with legal service providers.

As we take this programme forward, the voice of the consumer will continue to be heard loud and clear. I am pleased to announce that I have set up a Consumer Panel to advise the government on these reforms, with representatives from the Federation of Small Businesses, the National Consumer Council and the Welsh Consumer Council, from Which? and from Citizens Advice.

The Panel will meet for the first time next month. I am delighted they have agreed to take part and I look forward to working with them.

The creation of this advisory panel is my clear commitment to continue listening to the public - individuals, families, small and large businesses.

So, to sum up - consumers have told us what they don’t want.

They don’t want to be let down. They don’t want delays. They don’t want quotes for work which turn out to be only a fraction of the final cost. They don’t want to receive letters which they don’t understand. They don’t want the same groups representing and regulating members.

They do want legal services overseen by an independent board. They want a single body dealing with complaints. They want regulatory gaps closed where necessary.

And they want our legal services to continue to flourish, with competition and innovation encouraged, so that they receive the best possible product.

Reform of legal services is overdue. Where the system is not working as well as it needs to, we must put it right.

And, most importantly, all the changes we make must pass the simple test that they put the consumer first.

Thank you very much.

 

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