ABS FAQs

Introduction and history

What is the Legal Services (Scotland) Act 2010?

The Legal Services (Scotland) Act 2010 aims to allow solicitors to provide legal services via a range of different business models which are currently prohibited - such as allowing non-solicitor partners, working in partnership with other professionals (multi-disciplinary practices (MDPs)), and external ownership. The Act, introduced as a Bill by the Scottish Government to the Scottish Parliament on 30 September 2009, is permissive rather than prescriptive legislation to allow increased choice for those running law firms. Traditionally structured solicitor practices will remain.

The Bill also provides:

  • regulatory objectives and professional principles which will apply to regulated businesses and legal professionals
  • powers allowing Scottish ministers to approve and authorise regulators to license legal services providers
  • requirements for all licensed providers to appoint suitably qualified persons responsible for ensuring that the business complies with the regulatory scheme and professional principles
  • safeguards to ensure that those owning or directing a licensed provider are fit and proper persons

The Act received royal assent on 7 November 2010.

Why has it been introduced?

The Act aims to broaden access to legal services by allowing the creation of new business structures, in addition to existing solicitor practices, which can provide legal advice and services for clients. It aims to ensure that there are no unnecessary barriers to competition created by restrictions on business organisations or regulatory requirements on practitioners and organisations, and to ensure that any restrictions on the way legal services are provided, are necessary and proportionate to secure the regulatory objectives.

What have been the key drivers behind the legislation?

There have been a number of factors which have brought the debate on ABS to the fore, from advances in technology and innovation in business development changing how solicitors work and how legal services can be delivered, to the introduction of the Legal Services Act 2007 in England and Wales following the 2004 Clementi report on ABS.

The consumer group Which? submitted a super-complaint about restrictions in the Scottish legal services market to the Office of Fair Trading in May 2007, which made the issue more acute in Scotland and which resulted in the OFT making recommendations to the Scottish Government to introduce measures to lift these restrictions.

Among the profession, it became clear that there was some appetite for change in Scotland, initially from the larger commercial firms which wanted to be able to be able to structure their businesses to compete on an equal footing with competitors elsewhere in the UK and an increasingly global legal market; but also from some smaller firms which saw an opportunity to develop their businesses and combat the threats that high street businesses are increasingly facing.

A research working group report on the legal services market in Scotland has shown that, while there was no empirical evidence and MDPs are as yet a hypothetical, looking at them in other jurisdictions, eg Germany, it seems they do well, particularly those working for business and commercial clients.

How was the Society's policy on alternative business structures developed?

Business practice and the regulatory environment has changed enormously for legal firms and, following the Clementi Report and the introduction of the Legal Services Bill in Westminster in October 2006, the Society set up an ABS working group in January 2007 to consider how alternative business structures might work and what impact they might have in Scotland and the potential impact that new legislation in England and Wales would have in Scotland.

In September 2007, the Society held a conference in Edinburgh, The Public Interest - Delivering Scottish Legal Services. By this time, the OFT had made its recommendations to the Scottish Government following the Which? super-complaint and the cabinet secretary for justice, who was the keynote speaker at the conference, stated that "no change was not an option". He then gave the legal profession the opportunity to take the debate forward and advance proposals for how restrictions on the legal profession should be lifted.

The Society conducted a three-month consultation with its members on how restrictions might be removed. The results of the consultation informed the Society's policy paper, The Public Interest: Delivering Scottish Legal Services. That policy was then voted on by members at its AGM on 22 May 2008, with a majority vote in favour of the Society's proposal, with an amendment. The hand vote was 57 to 20 in favour; the proxy vote was 801 for, which included the 600 from four large firms, and 132 against.

In April 2009, the Society's response to the Scottish Government's consultation, backed the modernisation of legal services by allowing alternative business structures. It also suggested that the Scottish Government should take the necessary steps to amend or repeal the legislation that currently impedes or prevents alternative business structures as soon as possible.

The Society has promoted four key points throughout all stages of policy development and during its evidence sessions before the Justice Committee at the Scottish Parliament. These are:

  • a robust regulatory system must be put in place to provide strong consumer protections and ensure that high standards are maintained among those delivering legal services
  • independence of the legal profession must be maintained
  • a level playing field is required for those in the legal services market, whether as a legal services provider or as a regulator
  • access to justice must not be hindered

In 2010, the Society also consulted widely and held a series of roadshows and faculty meetings as part of its policy development on ABS. The profession voted on the issue a number of times, bringing divergent views. The Society changed its policy to rule out 100% external ownership as a result. Its revised policy in favour of legislation that would allow for 51% ownership of firms by solicitors or solicitors with other regulated professionals and 49% external capital prevailed when MSPs debated and voted on the Bill at stage 3 in October 2010.

Further questions

What is a licensed legal services provider?

As set out in the Act, LPs will be business entities which, through the designated and other persons within it, provide legal services to the general public for a fee and do so under licence issued by an approved regulator.

What are the possible benefits - I don't see any for my firm?

The legislation aims to increase options for firms in an increasingly competitive marketplace. Firms, big and small, are already diversifying, offering online legal services and other niche market services and there is already an element of cherry-picking going on, with many firms having ceased to do civil legal aid.

There may be motivational advantages in allowing an enhanced role for non-solicitors already working in firms and providing client facing advice or in administration roles. In England and Wales, the first phase of the Legal Services Act has been adopted and non-solicitor managers have become partners or members.

Are there going to be any takers?

This is already happening in practice within estate agency, wealth management and tax work where accountants, financial advisers and others already work with solicitors.

I don't want to change. Do I have to?

No. The Act is permissive legislation and does not require firms to change their structure but it creates options. If the traditional partnership model is the most effective for that business, that is the one which should remain. Not to allow change could lead to a drain of talent in Scotland and potentially lead to a downturn and demise of the Scottish legal sector to lasting effect, not only to the profession but to the Scottish economy as a whole. We want talent to remain in Scotland. The legal sector contributes an estimated £1.2 billion to the Scottish economy annually.

Why can't traditional firms (partnerships or LLPs) become LPs but retain all solicitor partner/members?

This is what the Act says. Given that there is intended to be no advantage or disadvantage for the traditional firms v LPs then it is hard to see why a traditional firm would want to become a LP and make no other changes to its structure.

What changes will the Act bring?

The Act will permit law firms to restructure if they choose and for new providers to provide legal services in Scotland. There will be a new regulatory framework for LPs.

What will it mean for the profession?

In all likelihood, many solicitors will choose to retain the solicitor partnership model in order to provide their clients with the legal services they require. However the Act would allow non-solicitor ownership of LPs. It will also allow solicitors to set up in partnership with other professionals, such as surveyors, accountants or architects, and promote existing senior but non-solicitor staff to partner level and allow LPs to seek external capital. All new LPs would require at least one solicitor to be employed in the business and to have a solicitor as head of legal services. We do anticipate demand from our members to create some forms of ABS.

What role will the Society play?

The Society will continue to act as the governing body for the solicitors' profession in Scotland. The Society intends to apply to be an approved regulator of LPs, to meet the anticipated demand from members.

Does the Act mean the government will have a bigger influence over the Society?

No. The Society is accountable to its membership. It will continue to represent the solicitors' profession while carrying out its regulatory duties and maintaining its obligation to the public interest, which work to ensure the reputation of the profession among its clients, the wider public and other stakeholders, including MSPs and ministers. The Society will continue to represent the Scottish profession and its members whether they are part of a solicitor practice, an in-house team, or those who may become part of a LP.     

The Council believes that the four non-lawyer Council observers and non-lawyers who account for 50% of regulatory committees and Scottish Solicitors' Discipline Tribunal membership currently contribute substantially to the quality and accountability of decision-making. The Society proposes to revise its Council structure to allow up to 20% non-lawyer membership.

How can the Society properly represent its members if it is to have non-solicitors on its Council?

Most similar organisations have lay members on their boards and councils. They not only meet any obligations there are to the public interest, but bring additional skills, talent and knowledge to the workings of the organisation and to its membership. Any future non-solicitor members of the Council will be appointed through a recruitment process which would seek to comply with the spirit of the Nolan principles.

What will the Act mean for clients?

The intention of the Act is to address both the interests of consumers as well as wider, public interest issues. Clients would expect to have wider access to legal services and will be able to expect the same standards of service, advice and consumer protection from LPs as from solicitor practices.

How will professional principles and core values be safeguarded?

All solicitors will be expected to work to their professional principles and the profession's core values. The Act provides a set of professional principles to which LPs must adhere. They must:

  • support the proper administration of justice
  • act with independence and integrity
  • act in the best interests of their clients
  • maintain good standards of work
  • comply with duties normally owed to the court when i) exercising a right of audience, or ii) conducting litigation in relation to proceedings in any court

Furthermore, the Act requires both regulators and LPs to act in a way that is compatible with the regulatory objectives which are set out in section 1. These include:

  • supporting the constitutional principle of the rule of law
  • protecting and promoting both the interests of consumers and the public interest more generally
  • promoting an independent, strong, varied and effective legal profession
  • promoting adherence to the professional principles

How will standards be maintained?

Scottish solicitors must adhere to a set of core values, as well as to standards of conduct rules which are set by the Society. To ensure that LPs adhere to the same standards, the Act provides a set of regulatory objectives, with which all LPs must act compatibly; and professional principles to which all LPs must adhere. Approved regulators, who are obliged to act compatibly with the regulatory objectives, must create a regulatory scheme to which the legal services providers that they licence have to adhere.

In practice, it is the responsibility of the LP's head of legal services to ensure compliance with the regulatory objectives, professional principles and the approved regulator's scheme. Under the Act, every LP is obliged to appoint a head of legal services who must be a qualified solicitor in possession of a current practising certificate. It is his or her duty to ensure that the firm meets all of its obligations.

Will there be the same level of client protection?

The Act allows that regulators can opt to use the existing Guarantee Fund for their LPs or they are required to set up an equivalent fund. There are safeguards for the Society as the operator of the fund in respect of the ability to require regulators to inform the Society of any breaches of the equivalent of the accounts rules and an ultimate power for the Society to carry out its own inspection.

How does the Act guard against corrupt influences on the legal profession?

In general terms, the Act guards against corrupt influences by setting out very stringent criteria for each stage of authorisation that must be met before a LP can operate. These stages include:

  • authorisation of approved regulators
  • approval of regulatory scheme, including examination of licensing and practice rules
  • eligibility criteria of licensed providers
  • approval of appointment of head of legal services, head of practice or member of practice committee
  • determination of fitness of outside investors

Scottish ministers may monitor the performance of approved regulators and, in turn, the approved regulators would require LPs to submit an annual performance report. This level of scrutiny reduces the potential for undesirable influences on the legal profession.

The Act also addresses the question of external ownership and/or control of law firms, which is of most concern among those who fear that the Act might result in the corruption of the legal profession. Under the Act, approved regulators must first determine the fitness of outside investors before issuing a licence to a LP. There is a list of relevant factors as to fitness, which includes details about the background, finances and probity of potential investors. Some of these factors would, if met, automatically result in a presumption of unfitness. These include:

For individuals:

  • if the investor is subject to a trust deed
  • if the investor has been adjudged bankrupt and has not been discharged from bankruptcy
  • if the investor is disqualified from holding, or has been removed by a court from, a position of business responsibility (eg director of a charity)
  • if the investor has been convicted of an offence involving dishonesty (and has either been sentenced to 12 months or more in prison, or has been fined at least the maximum level four amount on the standard scale)

For corporate investors:

An outside investor must not act in a way that is incompatible with the regulatory objectives. The role of the head of legal services is important here, as he or she (who must be a qualified solicitor in possession of a practising certificate free of conditions) must report any failure of the LP to fulfil its duties under the Act or any other enactment to the approved regulator. This would include anti-terrorism legislation, proceeds of crime legislation and the serious organised crime provisions of the Criminal Justice and Licensing (Scotland) Bill.

How does the Act deal with the prospect of LPs cherry-picking profitable areas of business and having an adverse impact on access to justice?

It is stipulated in the Act's regulatory objectives that access to justice must be promoted, making it the first time that there has been a statutory duty to have regard to access to justice issues. Moreover, an approved regulator must provide in its licensing rules how it will deal with a licence application where it believes that granting it would cause (directly or indirectly) a material and adverse effect on the provision of legal services.

It should be remembered that this is an issue which already exists in Scotland. While the Act would make consideration of access to justice a statutory duty, such a complex issue cannot be wholly solved by this piece of legislation and must be addressed at a number of levels.

Could law firms be listed on the stock exchange?

This may be possible, although whether this will happen is unclear. In New South Wales, Australia, there is at least one listed firm (Slater & Gordon).

Would listing create or increase tension between investors and clients and court duties of the firm?

Again looking at Slater & Gordon, its original prospectus stated:

"Where an inconsistency or conflict arises between the duties if the company (and the duties of the lawyers employed by the company) the company's duty to the court will prevail over all other duties and the company's duty to its clients will prevail over duties to shareholders."

The primacy of a lawyer's duties to the court as stated in the prospectus are also reflected in Slater & Gordon's constituent documents and shareholder agreements.

Regulation

Who will regulate LPs?

Only approved regulators will be able to regulate LPs. The Society intends to apply for approved regulator status and ICAS may also choose to apply.

Is there room for more than one regulator?

It remains to be seen how many applications Scottish ministers will receive from professional or other bodies which are seeking to become approved regulators. However, the size and nature of the legal services market in Scotland is such that there is unlikely to be a complex 'regulatory maze'. The Act as passed limits the number of regulators to three.

Will this cause confusion?

Some solicitor firms already have to comply with the regulatory conditions set by more than one regulator, for example the Law Society of Scotland and the Financial Services Authority, or the Office of the Immigration Services Commissioner. From the client's perspective, the Scottish Legal Complaints Commission is likely to remain the single gateway for all legal complaints raised about solicitors, advocates or potentially those emanating from LPs. This is for the Scottish Parliament to decide.

Why are there no plans to introduce a Legal Services Board in Scotland?

Because of the relative simplicity of the legal services market in Scotland, the Cabinet Secretary for Justice took the view that a Legal Services Board would be "a disproportionate and inefficient response", adding an unnecessary layer of bureaucracy and additional financial burden. The Society agrees with this.

How will any regulatory conflict be resolved?

The Act provides that the approved regulator's regulatory scheme must include provision for the prevention or resolution of regulatory conflicts between professional or other regulatory bodies.

If the Society becomes an approved regulator, it would want to work with other relevant bodies to ensure that conflicts - actual or potential - will be dealt with as effectively and efficiently as possible.

Will the Society seek to regulate all LPs?

The Society intends to apply to become an approved regulator. As such, it would regulate any LP which met its licensing criteria.

The Society will develop a regulatory scheme for LPs. This will be approved by the Council before it is submitted to Scottish ministers as part of the application for the Society to be an approved and authorised regulator.

How can I be sure that my interests are represented?

The Society will continue to represent its solicitor members whether as part of a solicitor practice or a LP.