Research Report

Legal Services in Scotland Research report 24 March 2020 © Crown copyright 2020 You may reuse this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit www.nationalarchives.gov.uk/doc/open-government- licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected]. Contents Page Summary .................................................................................................................... 5 Empowering consumers through better information ........................................ 9 Recommendations to improve the information available to consumers .............. 11 The impact of regulation on competition ........................................................ 11 Recommendations to reduce the impact of regulation on competition ................ 12 Wider regulatory reform ................................................................................. 12 Recommendations for regulatory reform ............................................................. 13 1. Introduction ......................................................................................................... 14 The scope of the research .................................................................................. 17 The evidence-gathering process ......................................................................... 19 The purpose and structure of this paper ............................................................. 20 2. The legal services sector in Scotland .................................................................. 21 Overview ............................................................................................................. 21 Legal services in Scotland .................................................................................. 22 Reserved legal services ................................................................................ 23 Unreserved legal services ............................................................................. 24 The regulation of the authorised legal sector in Scotland ................................... 26 The Lord President of the Court of Session ................................................... 28 The Law Society of Scotland ......................................................................... 29 The Faculty of Advocates .............................................................................. 30 Legal services providers ..................................................................................... 30 Solicitors ........................................................................................................ 31 Advocates and solicitor advocates ................................................................ 32 3. Competition in legal services: consumer characteristics and provider strategies 35 Consumer experience ......................................................................................... 35 Consumer barriers ......................................................................................... 36 Consumer outcomes: Unmet need for legal services and low engagement .. 38 Overview of providers’ commercial strategies ..................................................... 40 How solicitors attract clients .......................................................................... 41 How providers set prices ............................................................................... 42 Level of information transparency and price dispersion ...................................... 45 Degree of transparency in information about price ........................................ 45 Degree of price dispersion across solicitors .................................................. 47 Transparency of information about quality ..................................................... 51 Conclusions and recommendations on transparency and competition ............... 52 4. Impact of regulation ............................................................................................ 59 Regulatory responsiveness to competition concerns .......................................... 60 Evidence of outcomes in relation to entry and innovation ................................... 62 Entry .............................................................................................................. 62 Innovation ...................................................................................................... 62 Impact of regulation ............................................................................................ 68 The lack of ABSs ........................................................................................... 68 Other regulatory restrictions on competition .................................................. 78 Conclusions on the impact of regulation ........................................................ 84 5. Independence ..................................................................................................... 87 Introduction ......................................................................................................... 87 Better Regulation Principles .......................................................................... 88 The structure of the regulatory framework in Scotland .................................. 90 3 Assessing the current regulatory framework ....................................................... 94 Evidence supporting the need for independent regulation ............................. 95 Concerns raised about regulatory independence ........................................ 106 Conclusions on the merits of independent regulation ....................................... 114 Appendix A: Stakeholder engagement ................................................................... 117 Appendix B: Map of solicitor offices in Scotland ..................................................... 118 Appendix C: Bibliography ....................................................................................... 120 4 Summary 1. A person’s need for legal advice and support frequently arises when they are experiencing some of the most challenging times in their life, for example, bereavement, family separation or when purchasing a property. These moments rely on people being able to access and use legal services that are of high quality and good value. A well-functioning legal services sector is, therefore, critical to society. Furthermore, the sector makes an important contribution to the Scottish economy, estimated at up to £1.7bn per year.1 2. There are indications that the sector in Scotland may not be delivering good outcomes for consumers. Consumer complaints are on the rise, with general disaffection about the process governing how they are handled. High street solicitor firms are facing challenging conditions. In addition, there are indications that consumers are not seeking legal services when they have a legal need (see Chapter 3). There are also concerns that regulation in Scotland has not adequately responded to new market pressures, affecting the sector’s competitiveness with an influx of firms from England and Wales and an erosion of the use of Scots law (see Chapter 4). 3. Effective regulation is necessary to ensure the sector operates in the public interest, by maintaining the integrity and independence of a wider judicial system that is open to all, protecting consumers’ rights, and ensuring adequate outcomes for consumers in terms of choice, price and quality. Strong competition can drive innovation and new business models to reflect consumers’ changing needs, and make existing firms compete harder on price and quality, giving consumers greater choice. 4. In 2016 the Scottish Government – recognising the importance of legal services – commissioned an independent review into the regulatory framework in Scotland, led by Esther Roberton (the ‘Roberton Review’). The resulting report,2 published in 2018, proposes as its primary recommendation the introduction of a new independent regulator for Scottish legal services, offering the prospect of significant reform and the potential for the transformation of the existing legal services sector in Scotland. 1 TheCityUK estimated that legal services contributed £1.7bn gross value added (GVA) in Scotland in 2017. See TheCityUK (2019), Legal Excellence, Internationally Renowned: UK Legal Services 2019, p25. This compares to a total GVA for Scotland estimated at £142bn in 2018 – see the Office for National Statistics website. 2 See Roberton, E (2018), Fit for the Future–Report of the Independent Review of Legal Services Regulation in Scotland. 5 5. The Competition and Markets Authority (CMA) responded to the Roberton Review in June 2019, launching this research project to further contribute to the debate on the future of the legal services sector in Scotland.3 6. The CMA’s research into the Scottish legal services sector is focused on competition in consumer-facing legal services and has considered: • whether there is evidence of a lack of competition in the sector, based on observed levels of price dispersion and transparency of price and quality; • the impact of regulation on competition in the sector, particularly in relation to innovation and entry; and • the merits of the recommendation of the Roberton Review for a new regulatory framework in Scotland that is fully independent of the profession.

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