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.