An interim report into the legal services market released by the Competition and Markets Authority (CMA) has found that competition in legal services for individual and small business consumers is not working as well as it should, while upfront information on price and quality is often not available to consumers. However the investigation has stopped short of recommending a full review.
An investigation was launched by the CMA in January this year, a move welcomed by industry groups, over concerns about the affordability and standards of legal services. The review focussed on small businesses and individuals and excluded major corporates as well as criminal law.
The results show that few service providers (17%) publish their prices online while it is also difficult for providers to signal quality in the sector. The body found there are a lack of digital comparison tools to make comparisons easier for consumers.
Subsequently only 22% of individual consumers surveyed compare providers before choosing one. The report said this could reduce the incentives for providers of legal services to compete. ‘This lack of competition may mean some providers are able to charge higher prices when substantially cheaper prices are available for comparable services.’
The CMA also surveyed whether legal services regulation has an adverse effect on competition. Its provisional view was that this regulation does not create significant barriers to entry or distort competition between regulated and unregulated providers of legal services, but imposes significant costs on providers that ‘in some cases may be excessive relative to the benefits in consumer protection.’
It added: ‘The CMA welcomes the liberalising steps that have already been taken by regulators to address these issues within the current regulatory framework. It is open to more fundamental change of the regime, but at this stage believes that there is a risk that such change might lead to increased regulation and might involve significant transitional costs as well as regulatory uncertainty.’
Several legal bodies welcomed the outcome of the report, including the Bar Standards Board (BSB) which agreed with the CMA that individuals and small businesses would benefit from better information about the quality and price of legal services.
‘The regulator shares the CMA’s aim to promote competition in the provision of legal services. The BSB is already working to improve the information which legal customers receive through the client care letters which they require barristers to send to their clients.’
Chantal-Aimee Doerries, chairman of the Bar, said: ‘From the review of the particular legal services covered by this market study, the CMA has concluded that it is predominantly a lack of information that is currently restricting competition in the sector. We agree with the CMA’s conclusion that wholesale change to the regulatory framework carries risks, for reasons of cost and uncertainty.’
Solicitors Regulation Authority (SRA) chief executive Paul Philip (pictured) added: ‘Too many people and small businesses are not using legal services. We agree [with the CMA] that the best way to address this unmet need is through significantly improving information for the public and driving an open, healthy competitive legal market that provides affordable services.’
The Law Society chief executive Catherine Dixon added: ‘The Law Society’s view is that it is imperative that the regulatory framework protects clients and the public interest. These issues were carefully thought through as part of the Legal Services Act by Sir David Clementi and the system seems to be working effectively and importantly regulation is operationally independent. Although we don’t think now is the time for change, we do agree that simpler and better regulation which focuses on applying consistent regulatory rules to protect buyers of legal services across the market is desirable.’
The Law Society also made headlines last week (29 June) after appearing in front of MPs, as Dixon called for plans to give the SRA and other regulators full independence to be shelved due to the uncertainty and economic volatility stoked by the Brexit vote.
sarah.downey@legalease.co.uk
