DAVID FOWLIS: Welcome to the Legal Services Board’s series of podcasts on developing approaches to regulation for the use of technology in legal services. Applications of technologies like artificial intelligence and block chain are increasingly enabling lawyers to provide services to their clients in new and innovative ways and have the potential to transform the market for legal services in England and Wales. In this series of podcasts, the LSB will be speaking to experts in legal services, technologies and regulation about the challenges that new technologies present to legal services regulation, and how legal services regulators in England and Wales can approach these challenges. Hello I’m David Fowlis a regulatory policy manager at the legal services board. Today I’m talking with Professor Noel Semple of the University of Windsor in Ontario Canada about whether the framework for legal services regulation in England and wales is ready to respond to the challenges posed by legal innovation. Noel welcome to the podcast, if you’d like to introduce yourself.
Noel Semple: Thanks David, it’s a pleasure to be chatting with you today. So I’m an associate professor at the University of Windsor faculty of law in Ontario Canada. I write about legal services regulation with a particular focus on access to justice. I’ve done some work on how the market for legal services works, as well as some international comparative work about legal services regulatory regimes around the world.
David Fowlis: thank you Noel, and building on that international comparative work you’ve done about legal regulatory regimes, what would you say are the main ways that the LSA framework that we have here in England and Wales differs from others – just so we can have a bit of context for people listening outside of England
Noel Semple: Right. So I’d say many scholars of legal services regulation see England and Wales as sort of a vanguard jurisdiction in the sense that many of the trends that we’ve seen in regulation around the world have manifested most fully in your regime. More concretely it’s one of the more liberal regimes in the world. You can do more things with less regulatory oversight than you can elsewhere. The exclusion of advice giving from the regulatory regime is quite starkly different from the situation we have here in North America. Any offering of legal advice is considered practice of law subject to regulation. The other thing that really distinguishes your regime is its liberality with regard to what we call business structure regulations. So your openness to ABSs, regulatory tolerance for legal professionals collaborating, working with others, using capital for outside. And then of course on the structural governance level, the …the legal services act regime is complex network of regulators and the idea of regulatory competition was you know groundbreaking in 2007 and still is in many ways.
David Fowlis: and what challenges would you say there have been even though the act and the framework has been supportive of innovations, in alt business structures. What challenges do you thin have been experienced or still are being experienced by people wanting to set up alternative structures?
Noel Semple: Well I think that there’s a sense of disappointment at the level of innovation that occurred in legal services in England and Wales in fact throughout the world. I think people who look at the information technology sector or consumer products …the type of the transformative continually disruptive innovation you see in those economic sectors, look to legal services are disappointed. Now I’m not sure that’s a consequence of regulation. I’m not sure that any regulatory reform can change that I think it may just be unrealistic to expect professional services to be….to be …moving as fast as in other parts of the economy.
David Fowlis: And you think that’s happening not just with business structures, but also technology where people are trying to innovate in that field. Is it a case that it’s the ideas that people are having perhaps outside the legal services sector aren’t getting into the sector or do you think it’s more the case the legal services sector itself isn’t developing innovative ideas or isn’t trying to seek new business through innovation?
Noel Semple: I think both those things are true. So you mentioned whether innovative things happening in other sectors are failing to be brought into the legal sector and I think that’s true if you think about kind of the peer to peer sharing of information or the social network revolution, web 2.0 whatever you want to call it where sort of people help each other and share information that’s an idea that people have tried to bring into law. And it’s just kind of run up against the reality that you know law still is a matter of expertise? It’s still in some sense an esoteric knowledge which has to be applied to specific individual cases and situations and that was true 150 years ago and it still is. So that hasn’t yet been cracked. And there’s other examples of big ideas and tech or big sources of innovation which have failed to manifest themselves in the same exciting transformative way when it comes to legal services. but you also said err something which I think is equally true which is that people within the legal services sector aren’t as inclined to innovate as radically as you would find in other parts of the economy and I think that’s true people don’t generally go to law school and become lawyers because they want to burn the world down from their garage and it’s still a profession that people get into because they want to make a difference in the world, help people, but they also want a steady career….so I think there’s some of the sociology of law training and the type of people who becomes lawyers is…not necessarily the one that leads to that that type of transformation
David Fowlis: In your experience do you think that the regulators in England and wales and elsewhere are doing enough to sort of encourage technological innovation. It’s something we’ll probably talk about a little bit later on but…what challenges do you think technological innovation presents for legal regulators and how might they work to overcome that?
Noel Semple: but you know it’s not a natural frame of mind for regulators…the essence of regulation is controlling risk. Mitigating risks and preventing bad outcomes from the operation of a free market. So it’s a much more recent idea that regulators should be the one to actually foster innovation. The natural capitalist take on that is that it’s the free market that creates innovation and its regulators who control risks. And I’m not sure that’s wrong. It might be an old fashioned idea but I still think that you know, again I don’t want people to be too optimistic about the extent to which regulators can actually be a source of innovation
David Fowlis: there’s been some technological innovation in the past that’s affected how lawyers do their job. But in your paper you talk about those technologies up to now being largely supportive but now we’re seeing the advent of substitutive technologies. Could you perhaps just elaborate about the difference between those two and why new technologies might require a different response from regulators?
Noel Semple: sure this is a phrase used by Stephen Mayson. This distinction between substitutive and supportive. So a supportive technology is one which helps a person do their work. So email is a supportive technology or Skype that we’re using is a supportive technology that lets you and I do our work but it’s probably something we could have done anyway in the absence of that supportive technology whereas substitutive technology replaces human labour. And in terms of the difference that shift makes in regulation, when you have substitutive technology and you have tasks being done and outputs being created without human intervention or with much less human intervention in raises the question of who bears regulatory responsibility because in the paper I talk about if an algorithm or a sort of smart bot is created by some set of programmers and you know maybe they’re in India or California and that technology is adopted by a UK firm and hosted on a website run by a different set of solicitors the fact that the technology is in itself doing the work rather than a human creates a question for regulators if it goes wrong, who do we hold responsible? So that’s a technical challenge for regulation. In political economy terms, substitutive technology creates a risk or enhances the risk of economic protectionism, because protecting good jobs is something that people care about. It’s something that regulators care about so if the SRA is and I’m not saying this is happening – just hypothetically, they see substitutive technology creating large scale unemployment of solicitors or making it much harder for trainees to get jobs, then they come under pressure and just out of human compassion they might say put the brakes on substitutive technology and protect those good jobs. And that type of inclination may be incompatible with what the LSA regime expects that regulator to do in terms of fostering innovation and focusing on consumer interests.
David Fowlis: I suppose there’s the counterpoint to that which is that many technological innovations have actually created new types of jobs and you might for example see the creation of new classes of lawyers or of paralegal who have both a legal and technological skill set. So, you might need to code contracts, that kind of things. There’s a flip-side to that it’s not just that you might lose jobs you might also gain them in different ways.
Noel Semple: Oh yeah that’s absolutely right. People have been worried about technological unemployment since the Luddites were smashing looms in the 1830s and yet every generation of technology creates more employment than it destroys and you know unemployment I think is at record lows in many parts of the wealthy world right now.
David Fowlis: Just thinking about some other challenges you just mentioned just now it’s hard to work out who actually regulates the technology, whether it’s…or who should be regulated. Whether it’s the developer, the lawyer who uses the technology, the website operator. Is there an issue under the way legal services regulation’s structured in England and wales that say the SRA for example wouldn’t be able to easily regulate a developer of technology? They will obviously only be able to regulate the lawyer using it and is there a chance that might not be the right person to regulate?
Noel Semple: I think that is a real risk and that’s something I talk about in the paper in section 3.6 and then 3.4 that we assume now that if you if you regulate the entity which is actually consumer facing, you can require that firm or that lawyer that legal service provider to take regulatory responsibility for all the technology they use in providing that service. Whereas in other sectors of the economy that’s not the case. So I use the example of medical devices, right….so doctors will prescribe an artificial joint for someone who needs a new hip and the medical regulator might say okay, doctors are a regulated professionals so we’re just going to require doctors to only prescribe hips that are suitable for purpose and that work properly and if there’s something wrong with that hip then the doctor’s going to be held responsible. In fact we don’t do that, we regulate medical devices independently along with regulating the regulated professionals who provide or prescribe the devices to clients. So at some point in the future – I don’t think we’re there yet, but at some point in the future it may be necessary to say, look, these technologies, the artificial intelligence, the big data applications that are used to augment legal service provision are so esoteric and so powerful that it’s not sufficient to expect the provider to be held responsible. We actually have to go to the source and regulate the technology itself.
David Fowlis: so you’ve said that your overall conclusion is that with a few tweaks the legal services regime we have her in England and Wales should be able to accommodate technological innovation. You note that there are two main types of regulatory risk that the framework will have to deal with and they’re basically under regulation and overregulation and you go into detail on that in your paper. If you take a look at under-regulation risks initially, what would you say the main under regulation risks are ….as far as technology innovation’s concerned?
Noel Semple: So…there’s lots of legal services which are just not covered by the LSA, so the entire sphere of advice giving as I said, this is a distinctive thing about the LSA. There’s things that could be done in that sector that would be very deleterious to consumers…things that technology might make more likely to happen. So you know someone could set up a website offering misleading advice about employment law or whatever…and as I understand it that would not be subject to any LSA regime regulation. Now it is subject to non LSA regulation so the non-sector specific regulation is there
David Fowlis: so consumer law essentially?
Noel Semple: Exactly. I do say that the protection of legal privilege – so section 190 of the Legal services act basically says that when someone gives their information to a legal services providers the other legal entities can’t compel that legal service provider to divulge that information. So the classic example there is someone who’s committed a crime or has done something else to be of interest to law enforcement authorities: you can’t compel their lawyer to breach it. And that’s a core idea of legal ethics around the world. So that right now applies only to LSA regulated professionals. ….that can be extended to all information related to legal advice
David Fowlis: Okay. Sure so that would mean effectively bringing in a host of people who are pure unregulated legal providers into some sort of regulatory regime.
Noel Semple: yeah a very light touch regulatory regime, but I mean, the traditional rationale for legal services regulation is that legal advice is a credence good, and it’s a good where there’s an information asymmetry. People cannot tell whether that’s good employment advice or garbage employment advice and you know if its employment law advice being provided by a consortium of employers who have a vested interest in making people think certain incorrect things about employment law, I think there’s at least a rationale for regulation there.
David Fowlis: Do you think it’s the case that the problem with under-regulation is that consumers would receive poor service, or do you think it’s more about that legal services providers and technology providers won’t feel confident to enter the legal services market?
Noel Semple: I think both those can be true. In the paper, in section 3.9 I talk about whether the status quo might deter entrepreneurship. There’s a risk that the complexity of the LSA Regime and some of the ambiguities in it about for example who is going to be able to appear for certain courts and tribunals because judges are given discretion to let people appear before them. The whole McKenzie Friends regime is example of that. So there’s a potential that you know an entrepreneur or some brilliant person who’s Thinking well am I going to put my entrepreneurial brilliance to work in the field of legal services or am I going to try to you know revolutionise the pencil industry instead…and is going to say well “I’m staying away from legal services because it’s so complex I won’t be able to get my head around it, I won’t be able to predict what my start-up can do and can’t do and therefore the venture capitalists won’t see a potential”, and so forth. So that’s a possibility.
David Fowlis: but mainly the concern is around consumer protection?
Noel Semple: yeah I’d say that’s the most obvious concern, so whether consumers are going to be exploited by completely unregulated advice giving and also there’s the import question, that the legal services act regime applies to providers within England and Wales. And there’s no provision there for controlling imports. And one of the things technology is doing is increasing the feasibility of imports. So a classic example there is DONOTPAY and these kind of bots are based elsewhere, typically in the United States but are providing legal services in England and Wales. there is no evidence that I’ve come across at least that this is currently a source of exploitation or wrong to consumers in England and Wales, but if technology leads to more and more importing of legal services and more consumer harming legal services ten at some point you might need to change the regime so it takes explicit account of imports.
David Fowlis: do you think that the lack of evidence of consumer detriment so far is more to do with there just isn’t enough actual activity, or do you think it’s because the activity that is there isn’t actually detrimental. ….
Noel Semple: You know if there’s no evidence of a problem, it’s very hard to say to answer that question. I do think that the Legal services board has world leading research capacity between your work and the work of the consumer panel, and the ombudsman you are really ahead of the curve when it comes to actually doing surveys of consumers, and the CMA as well, actually doing empirical research about what’s happening. I do think that giving the ombudsman scope over complaints involving unregulated legal advice would be an additional source of empirical data? If people are being ripped off by unregulated advice giving websites, then they should be able to tell the ombudsman about that, and that would give the evidence base to know whether there is a need for further regulation.
David Fowlis: Are there are some other issues around the way the LSA framework works and the fact that we have a regulators of varying sizes of different potential capacities to handle technological regulation? Are there some issues when you say compare to financial services where essentially in the UK we have one large financial services regulator?
Noel Semple: yeah…yeah that’s an interesting one as your listeners probably know, there’s a large number of regulators in England, which as you say are quite small… So technology increases the demands on these frontline regulators. And there’s no doubt whatsoever that technological change requires constant regulatory reform, both because it gives rise to new risks that have to be responded to , but also because it can mitigate previously existing risks and thereby justify rollback or reduction in regulatory intervention to maximise consumer interests. So that constant balancing act and necessity to tweak the entrance requirements and your codes of conduct that work kind of falls on these frontline regulators and its possible that some of them are just kind of too small to keep up with that.
David Fowlis: is there also an issue there perhaps that there might be too much that’s in primary legislation and that regulators would actually need more flexibility to manage innovation themselves are they going to be bound by outdated legislation whether that’s primary or secondary legislation??
Noel Semple: So meaning like things in the LSA itself or…
David Fowlis: the LSA Itself or for example…or that are at the discretion of the Ministry of Justice, Lord chancellors department, to make alterations to the types of activities that are regulated….if we have more innovation that may be moving quite quickly, do you think the regulators will have the flexibility to be able to address issues?
Noel Semple: I think we can think up scenarios where that would fail to happen but I haven’t seen it fail to happen yet. And from an outsiders perspective the LSA regime seems to have a lot of built in flexibility. Maybe at the expense of too much time and money being spent with regulators fighting each other or having hashed things out, but it’s really compelling to me network structure, where you’ve got the frontline approved regulators, you’ve got the LSB, you’ve got the consumer facing regulatory bodies like the ombudsman and you’ve got a level of parliamentary oversight of the whole thing. And it seems like it was drafted in a way that’s that anticipated change or built in the ability to change you know you can approve the regulators to do new things; at the LSB level, you can regulate yourself , you have these tools to foster collaboration. From my perspective, looking at it from the outside and looking at the act, it makes a lot more sense in principle than it actually seems to make when you’re in it. But from here it looks pretty good. David can I say one more thing. Just about this …the work the LSB does to kind of what we think of sometimes as meta regulatory work like regulating regulators….
David Fowlis: oversight regulation….
Noel Semple: regulatory performance assessment I find really interesting. What you do, it’s kind of report cards on the frontline regulators…
David Fowlis: that’s right
Noel Semple: and I think that what I like about that it honours the idea in the legal services act that there are specificities, there’s things that are unique about being a cost lawyer and that you know we have the frontline regulators exist for a reason…to take account of the specificities of practice and regulate in a way which is responsive to that, but at the same time the LSB’s role is to keep an eye on that. So I think that this regulatory performance assessment regime is perhaps a very effective way to deal with the risks that technology can create. And in section 3.7 I talk about the idea of how to modifying that to include some references to technology…some kind of lines on that report card that are about how these regulators are responding and that can contribute to conversations between different levels of the regime about how to keep up.
David Fowlis: because that’s one of the challenges that you can argue that the LSA regime presents, whereas in say financial services where you have one big regulator, obviously if technology is used across a series of activities or by different types of service providers, to provide the same activity, they can look at it holistically, I think one of the challenges we may find here is that where you say you have solicitors who do conveyancing…selling property…and then you have convey….licensed conveyancers, and then you have legal executives doing that as well…that you could end up with three different regimes for addressing how they all use block chain, just for argument’s sake. And that’s something that the LSB may need to think about ….
Noel Semple: Absolutely…yeah that’s exactly the sort of thing the LSB is there to do I think
David Fowlis: yeah. Okay…well let’s move onto over-regulation risks now. And what do you consider to be the main risks to technology regulation from over-regulation and is it something that’s going to affect consumers directly or is it more likely to effect the providers or the technology developers?
Noel Semple: yeah so in the paper I use this metaphor technological innovation as a flame which you want the flame to create heat and light ….which is sort of what I think of as the potential of innovation to increase access to justice, to give consumers better quality services and lower price services as well. But at the same time we don’t want that flame to burn down the house.
David Fowlis: Right
Noel Semple: so under-regulation is about making sure the flame doesn’t get out of hand, but the over-regulation risk is that regulation is going to choke the flame and then it’ll fail to do all the good things which we expect innovation to do
DF: Do you think there’s any current evidence of over-regulation?
Noel Semple: Not really. So here I was guided in large part by the LSB’s research. You’ve done these major surveys of providers in legal services realm and then there was another one that was done by another group asking questions to firms about are you innovating? How are you innovating? And to the extent that you’re not, why aren’t you innovating? And it doesn’t seem to me like regulation is really choking that process. Also, given that every jurisdiction regulates legal services, if there was some other part of the world where legal services are dramatically more innovative than they are in England and Wales then that would be a red flag, that there’s something wrong with your regime. That’s not the case. I mean even in you know Silicon Valley is kind of the ultimate hotbed of innovation of all kinds in the wealthy world today. They’re not really transforming legal services. You know there’s Rocket Lawyer and Legal Zoom and a couple of others. And there’s lots of people who are trying, lots of start-ups but it’s not really happening? To me, that sort of international comparative piece suggests it’s not a problem with your regulation.
David Fowlis: Do you think there’s maybe some things about legal services that make it slightly less amenable to technological innovation than other services?
Noel Semple: I think that might be the case. You know I think that there’s a sense in which law is inherently a source of stability as opposed to a source of innovation in society. You know it’s kind of like ballast in the ship. And law and legal services are what give human beings comfort or security that things will continue to be in some sense the way they were 10 or 20 or 100 years ago, given that everything else we do and the way we work and the way we govern is consumed by constant technological change and disruption. And the lawyer-client relationship…it’s an old fashioned idea but it’s still true that this is about professional advice to and trust is essential to that relationship. And it’s not….im not saying that it doesn’t need to be innovation, but I’m saying that people should not necessarily take consumer technology or information technology as the benchmark for innovation and assume that if legal services fall below that in any way there’s something desperately wrong.
David Fowlis: do you think there’s a potential for politicians to over-regulate because many of them happen to be lawyers, but also that there’s concern about risk?
Noel Semple: yes those certainly are risks…so protectionism, to the extent that market participants control regulation, they will use it to protect themselves. That’s the ancient critique of professional self-regulation, but there’s also this gold plating risk, where the people who run the SRA overly keen on the idea that solicitors work has to be excellent, and over-regulated to the detriment of consumers interest because quality is overemphasised at the expense of price. So those are risks but I think those are risks that the drafters of the legal services act anticipated and I think that for example there’s the role of the competition and markets authority is written into the LSA. They have a specific role and one they’ve acted on? They’ve written reports. The LSB likewise is designed to have no pecuniary interest in these questions and to be an oversight body that makes sure that the frontline regulators are not gold plating or engaging in protectionism. So the short answer is there definitely is a risk but I think it’s one the LSA framework responds to adequately.
David Fowlis: Can you imagine a situation where a few years from now, a new technology comes to the market, and it causes a real problem from a regulatory perspective, and one we’re not sure how to handle? Do you think that this is something that the current framework is sufficiently flexible to handle?
Noel Semple: I certainly would not foreclose the possibility that something big will happen in legal tech within 5 years or even 18 month that will create a major new over-regulation or under-regulation problem. I mean the future is inherently unknowable. You know I do think that if that happens the LSA regime will likely to be able to respond to it before it does any type of irreversible or serious damage to consumer or public interest. There’s certain risks where regulators…where regulators have to be proactive, they have to get it right before the risk materialises right? So climate change. If we don’t get this right in the next ten years it’ll be too late forever? Nuclear power safety, terrorism, these are things where regulators have to get it right before the problem materialises because the risk is so catastrophic. Legal services I don’t think are like that… especially when you’re talking about the consumer sector and the you know the unspoken reality is that the whole LSA regime is mostly all about the consumer sector as opposed to the corporate legal sector, so it’s not that the risks don’t matter, but if new class of website or new class of legal professional empowered by legal technology starts ripping people off, and you know you’ve got a good ability to detect that as I think you do, then I think that that risk can be responded to when it materialises. So to carry the flame metaphor forward, you can wait to see signs of smoke before you call the firefighters.
David Fowlis: Okay, so we shouldn’t be too worried about letting something out of the bag that we can’t put back in. you think that if we do have risks then thy are going to be manageable and in fact we may need to allow innovation that might be a little bit risky, but you think that the regulatory regime can handle that and address it if it proves to cause consumer detriment?
Noel Semple: I think so…especially when the only alternative to that is trying to regulate in anticipation of risks that have not yet manifested especially when every new regulatory innovation that you make has a cost as well as a benefit. If it protects against new type of risk, it also imposes a new type of cost. How can you possibly get the balance right when the risk is one you’re just imagining?
David Fowlis: and potentially you’ll deprive consumers of services that are cheaper or better or more access to justice.
Noel Semple: exactly
David Fowlis: So Noel, what do you think frontline legal services regulators and the LSB ought to do to get ready to address technological innovation and the risks it might pose?
Noel Semple: Well to be honest, I think you’re already doing it. Most of it anyway. So obviously the legal services board with this technology project is very proactively looking out there for what you need to keep an eye on. For the frontline regulators, keeping an ear to the ground, really being attentive to consumers and what’s actually happening to consumers. In my book I talk about this idea that self-regulatory bodies are prone, even when they’re not being protectionist, they’re prone to being lawyer-centric. So if a regulator is composed of lawyers and they talk to lawyers and all the submissions come from lawyers you know the board of directors gets angry emails and has cocktails with lawyers then that’s going to be the way they think So it’s like lawyer-centricity whereas consumer centricity is what regulators need to aim for…and I think again, looking at what you’ve got there from Canada, you’ve really got a lot of institutions which are designed to create that. We don’t have here…we have self-regulation and it works alright…but we don’t have the ombudsman and our competition authorities are basically quiescent when it comes to legal services and America has bar associations, we have law societies which are controlled by lawyers, and elected by lawyers. So in the paper I talk about a couple of tweaks to that having the ombudsman deal with consumer complaints about unregulated providers of legal services and the survey work you guys do….actually talking to consumers and thinking of consumer panel’s work here, I think that’s a really a great set of institutions.
David Fowlis: well that’s good to hear. Do you think we need to have a specific regulatory objective added to the LSA about technology and innovation to encourage regulators to equip themselves properly and to really focus on this issue?
Noel Semple: I don’t think so. I mean the problem with lists of regulatory objectives is that the more items there are on it, the less each one of them means. Just based on human cognitive limitations, when you’re looking at a list that says, okay we’re supposed to do these two or three things, you can get your head around them and keep these 2 or 3 things in mind as you go about your daily work. If its 11 or 12 things, it’s meaningless. It doesn’t stick in anyone’s head and it doesn’t change what anyone does. And I think that technology is basically something that changes the appropriate regulatory response but doesn’t change the fundamental goal of regulation which pertains to consumer interests and the public interest.
David Fowlis: so it’s really just a means of delivery rather than something that’s going to fundamentally change how they’re going to think about everything?
Noel Semple: I think that’s right.
David Fowlis: Noel, Thank you. That’s been very interesting and informative. Our next podcast will feature Anna Donovan of University College London and it’ll be about Block Chain and its implications for legal services regulation. And just a reminder that all of the Talking Tech podcasts and papers are available on the Legal Services Board’s website. Thank you.