Edinburgh Qs and As

Solicitors attending the Society's ABS roadshow in Edinburgh on 18 March showed a fairly typical range of concerns over the reforms. Here are the main points raised and the answers from the panel (Fergus Ewing MSP, minister in charge of the Legal Services (Scotland) Bill; Ian Smart, President of the Society; Philip Yelland, Director of Regulation; Neil Stevenson, Director of Professional Support; Michael Clancy, Director of Law Reform; and Andrew Mackenzie, a civil servant with responsibility for the bill).

Q. A Falkirk solicitor asked what would be the advantages of ABS to a small firm - sole practitioner or two or three partners.

A. Ian Smart said that probably the majority of firms wouldn't do anything. The legislation is permissive. He himself wouldn't go into partnership with other professionals though he had working relationships with accountants and others. However some solicitors might want to set up specific ventures. The real benefit to the profession would be if it kept the regulatory regime intact.

Neil Stevenson said the Society's work with the Scottish Family Business Association illustrated an area where a multidisciplinary practice could be in the client's interest. A family business might need advice on tax, accountancy and legal aspects of the same issue and could find itself having to go to different advisers at present. Or a specialist in an area such as employment could work in a "hub" with various other professionals.

The minister said legal practices would be able to operate more like other businesses. There could be sharing of offices and other overheads. The legislation was enabling.

Q. An SSC said the law was not a commodity but that was how the bill treated the provision of legal services. External ownership was the problem. Although some speakers had doubted the supermarkets' willingness to move into legal services, the Co-op was interested in doing so.

A. Ian Smart said he didn't see the law as a commodity, and he thought that people who tried that approach were doomed to failure. But solicitors had to sell themselves.

Michael Clancy pointed out that the regulatory objectives in the bill included promoting the interests of consumers, the public, and access to justice. The regulator had to consider the impact on competition when licensing a new practice. The "fitness to own" safeguards were substantial and key duties were placed on investors.

Andrew Mackenzie said the regulator would be able to take away a business's licence if it was not being properly exercised.

Q. A solicitor from a medium sized firm asked how you could prevent predatory pricing from large firms who attracted a lot of capital.

A. Ian Smart said a new entrant to the market would need a business model when applying to the regulator. It was more difficult with businesses already in the market; there was only so much a regulator could do and you might have to fall back on competition law. It was uncharted territory.

Mr Ewing said that if the bill was not passed, Scots lawyers would be vulnerable to English firms doing precisely that; and a solicitor from a large firm said that her firm was already seeing evidence of predatory pricing in competitive tenders. She added that client expectations were changing: solicitors were being presented with contracts framed on the basis of a commoditised approach, and the biggest clients of big London firms were insisting on outsourcing of specified parts of their legal work, but on the firm's indemnity insurance! "We have to present ourselves as the no 1 legal providers", she added.

Q. Another solicitor from a small firm predicted the bill would mean "the end of the lower side of the profession". Enough business would be taken away by larger institutions "to wipe us out". He added: "It would have come but you are bringing it forward".

A. Ian Smart said it was known to the Society that during the property boom, a number of big lenders had looked at bringing in very restrictive panel arrangements instead of the "open panel" approach that exists at present. They had not proceeded - why? Perhaps because it would not have been popular with clients? He didn't underestimate Tesco but seriously doubted their ability to deliver a personal service. Cost was not the only consideration. "I'm not naive about the challenges but they can be overcome."

He added that when advertising was first allowed, the small firms argued that the big firms would do it and the high street wouldn't be able to compete. But the big firms don't advertise like that because it doesn't work.

Michael Clancy pointed out that for the first time, the regulatory objectives of competition and access to justice would have to be taken into account in licensing. Those seeking to be approved regulators would also have to put forward the criteria they would require to be shown by applicants. A large entity might not be able to satisfy these. Regulators could be tested on their ability to make sure the fears were not realised.

Q. Another questioner pointed to the "abject failure" of regulation of the banks: would we not discover whether the new system was a success or failure only after several failures?

A. Philip Yelland said we couldn't know but the Society could draw on its own experience. It had a robust financial compliance regime and could take lessons learned when moving to a more risk-bsed approach. The Society was talking to the English SRA. It aimed to ensure that any problems were caught at an early stage. There would be rules for annual statements from and three-yearly assessments of licensed providers. It was a subject covered in the Society's consultation now running.

Lorna Jack added from the chair that some people had predicted that we would see a failure of regulation in the profession because of the recession, but it hadn't happened.

The minister said that no system could be absolutely effective but a huge amount of work had been done on the bill and it had a very sophisticated model. He expected the Society to pursue regulation with equal zeal if it was approved, and it didn't follow that regu;ation would fail because of the banks' experience.

As a postscript mention should be made of Bruce Beveridge, who said from the floor at another point in the discussion that when in his former post, Deputy Keeper of the Registers, commercial lenders had told him that they envied the quality of the profession in Scotland. He asked how else could we ensure that we maintained that quality except by staying ahead of the game?