Good afternoon and thank you for having me here today. I'm delighted to have the opportunity to talk about our plans for reforming legal services directly to many of the people for whom the changes will have real effects.
I see I am billed today in a slot entitled "the Big Shake-Up". And the reforms we will be seeing over the next few years in relation to the legal profession will be substantial.
But we are not proposing to throw the pieces of our legal services and legal professions up in the air and see where they land.
Rather, we are taking forward reforms to meet real needs - needs that have been identified by the government, by the Office for Fair Trading, by lawyers themselves, but most importantly by the users of legal services.
Today you've got a range of speakers talking about risk in all its many guises. I want to look at this - not in the parochial sense of "what will specific changes mean for me", but taking a wider perspective. Thinking about change, about risk, and about opportunities for the profession.
The need for regulation comes from the well accepted risk that, without it, abuse of the consumer and an unsatisfactory market in legal and related services will exist.
When we think about risk, let us distinguish between "risks" on the one hand and "uncertainties" on the other.
Risks are unknown, but they are unknowns that we can identify, plan around, and manage. For example, the risk that the client might be badly treated or exploited by his lawyer. Uncertainties are simply that - we cannot cater for them. Sometimes we cannot even comprehend them. The consequences of, say, an environmental collapse or a new, uncontrollable disease are hard to contemplate.
But as a society, we can manage risks. To do that we need a collective understanding of the level of risk we, as a society, are prepared to bear and the level of risk we are prepared to bear as individuals, whether clients or lawyers.
We need a sensible debate on this issue - a measured, grown-up discussion about risk in public policy making.
The corrosive effect of one hysterical headline can live on, long after the scare-story has disappeared. We see this regularly in relation to compensation claims which are dismissed by the courts as being entirely without merit, yet the screaming headline about the claim, and the often wrongheaded idea of the risks we face, linger on in the collective memory.
We must not let such stories have an unduly adverse effect. We must deal with the reality of the risks they describe, not the fearful headline.
So we need a proper debate. And we need a proportionate response to whatever the risk may be.
We must be aware of risks, but not live in fear of them. We must not legislate on the basis that we must eradicate all risk of it happening. If there is a problem, the government must not rush, blindly, towards regulation. We can act quickly if we need to - but under normal circumstances, we should reflect first, and regulate proportionately, later, with proper impact assessments.
We must continue our drive towards better regulation. Our six-month presidency of the EU starts in July and we will be working with our EU partners to develop better impact assessments and regulations. There is little point in acting to address risks if we create poor regulations which then cause more problems, and in eradicating risks eradicate good value for money services as well.
Those principles underpin our programme of reform for legal services.
There have been headlines threatening "Maxwell law" or even "IRA law" if we go ahead with our proposals. I find the idea of "Maxwell law" as distasteful as the next person. It is not on the cards. We must guard against it. But we must also recognise that not everybody who wants invest in a law firm who is not a lawyer may be undesirable.
We must also ensure the continued independence of the legal profession. Regulation must not jeopardise that.
The British legal system's excellent reputation and education, which will produce our next generation of brilliant lawyers, must be allowed to flourish.
But there are some real risks facing the legal profession. The risk that, under the current structure and regulations, too many consumers are being failed.
I'm sure you are all familiar with Sir David Clementi's report, and our plans which build on Sir David's recommendations, including setting up a Legal Services Board and an Office for Legal Complaints, and enabling legal services to be provided under new business models.
Later this year we will publish a White Paper, and in due course, we will follow this with the necessary legislation. Then, over the coming months and years, we will work with you and with the bodies that represent you, to make these new ways of working a reality, and to help with transition.
This package of reforms will transform the legal services landscape. So let me restate why I am undertaking them.
In 2001, the Office of Fair Trading's review found that many of the rules governing the legal profession could be unduly restrictive, meaning clients receiving poorer value for money than they would have done under more competitive conditions.
To follow this up, my department asked the public and stakeholders for their views about regulation, the complaints system and competition.
The results we got back were clear. Put simply, people think that the current framework is not up to the job in the modern market place. Consumers' needs are not being met, and the system is letting them down.
Let me give you one example. Just look at the complaints system.
With roughly one complaint per year for every six solicitors, there are far too many individual practitioners letting down their fellow professionals. Many complaints then take far too long to resolve. The client, feeling badly treated once already, is then let down a second time by the system supposed to help them.
Pure self-regulation is not inspiring sufficient confidence among clients. People are not convinced by bodies who act as both the team manager and the referee.
And people cannot get legal advice in the way they often need it most. People don't want to have to traipse between firms, chambers, advice centres - getting piecemeal help from each. Whether it's housing, insurance, or representation in a court issue, clients want a seamless service from their providers.
The programme of regulatory reform will bring about substantial changes, and of course there will be some "risks". We cannot state what every single consequence will be, and what, precisely, the future will look like and how it will feel.
But we have a very good idea.
Let me say something about the three main proposals.
Turning first to new business structures. We will make provision for legal services to be delivered under new business models. The demands made of the sector by clients and by market conditions will continue to change, and providers need, within a sensible regulatory framework, to be able to adapt to meet these demands.
We have consulted consumers and practitioners on the possibilities, and developed proposals for new business structures which will meet consumer needs - both in terms of providing service and in providing assurance of high standards of probity.
I support these progressive moves. It is an essential part of the Government's duty, and part of its overall economic strategy, to promote competition and to foster innovation.
We will enable lawyers to work together with non-lawyers on an equal footing. External investment will be possible.
But there must be proper protections too. We will address the potential risks.
The Legal Services Board - which I will come to shortly - will approve regulators to licence such businesses. This will provide the necessary assurance that those who own and run these businesses are fit to do so.
The regulators - such as the Law Society or the Bar Council - will examine areas where there are possible conflicts of interest. And where such conflicts might be to the consumer or public detriment, the regulators will have power to intervene. For example, they might not allow some firms to act for some customers, or not allow some combinations of services to be provided by the same firm. They might not allow certain forms of outside ownership, or some outside owners.
And if businesses want to offer other services, which are regulated by bodies from different sectors, then they will also be overseen by those bodies.
New business structures will present opportunities to those who want to take them. Our proposals will unlock new ways of raising the finance needed to develop businesses, be they big or small. Imagine the possibilities for both international and high-street firms of being able to tap into new funding mechanisms such as access to the stock market.
And they mean firms will be able to bring a range of skills and expertise into their corporate and management structures in a more integrated way than is currently possible. Throughout the economy, and particularly in all service industries, professionalisms and specialisms are valued and individuals are expected to excel in their chosen field. So too should law firms be able to bring expertise on board at the highest levels in specialisms other than law. To value, and appropriately reward these staff for the vital contribution they make is the key to a successful business.
New business structures provide an alternative platform for firms who want to take advantage of external investment and other specialisms to do so. The new structures will lift the constraints of the present system, freeing the profession up and replacing burdensome prohibitions with targetted protections.
And they will give consumers access to a wider range of providers - and a better choice of services.
It is those businesses who provide the services that consumers want - whatever form they may take - who will flourish.
I have already mentioned the Legal Services Board which will oversee the sector. Let me give you some clarity on it.
Its objectives will be to:
? Protect and promote consumer interests;
? Maintain the rule of law;
? Improve access to justice;
? Promote competition;
? Encourage a confident, strong, independent and effective legal profession;
and
? Promote public understanding of legal rights.
I envisage that regulatory powers will be formally vested in the Board by statute, and the board will delegate powers to frontline regulatory bodies - the Law Society and Bar Council - as it sees fit. These front-line bodies will have to separate their regulatory functions from their representative functions, and they will have to meet the standards set by the Board. Both the Bar Council and the Law Society are in the process of separating these functions.
If they do not, the Board will be able to apply a range of sanctions, from having the power to direct a professional body, through to the ultimate sanction of de-recognising it. People must be confident that the Board can act - and will act - if self-regulation fails.
The Board will apply its regulatory powers using a very much risk-based approach - using its objectives and principles as the central consideration in determining how to use its powers and resources.
The aim of the Board is not to increase the regulatory burden. Quite the opposite. Light-touch regulation will be the experience of most people who are regulated under these arrangements. Our energies must be focussed: targetted where regulatory attention can do good, and where it can improve outcomes for the consumer. In many cases I would hope this would mean less red tape. Good regulation does not equate with more regulation. By changing the system, we do not want to increase the burden.
So under the Legal Services Board structure, regulation and controls will be focussed where they need to be. Applied heavily if there are problems, and lightly if there are not. We must have the powers to deal with the extreme cases. But this does not mean all should receive the same level of attention.
This is a regulatory model which is sensible and proportionate.
And it presents opportunities for the sector. Opportunities to reform the way it operates, building consumer confidence in the regulation and standards of the legal profession. That can only be good for firms, and good for consumers.
As well as regulating established legal service providers, the Board will monitor the sector, and must have sufficient flexibility to bring currently unregulated services within the scope of its regulatory oversight too. The forthcoming Compensation Bill will subject claims management services - claims farmers - to statutory control, and we will look at will writing services to see whether statutory regulation is appropriate there also.
Finally, let me turn to the Office for Legal Complaints - the OLC. This will be a single independent body to handle all consumer complaints.
Complaints and poor complaints handling has dogged the legal profession for too long, dragging the reputation of good firms and practitioners down along with the unscrupulous few.
There has been progress in improving the way complaints are handled. Zahida Manzoor, the Legal Services Ombudsman and Complaints Commissioner is working constructively with the Law Society.
But we need to go further. Consumers expect, and deserve, to have their complaints handled better.
We need a system where it is clear for consumers how and where to make a complaint. We need a system which is independent of the legal profession, and consistent for consumers of all legal services. We need a system which is simple to understand, and provides quick and fair redress where complaints are upheld. The OLC offers all of this.
As the new OLC establishes itself, there will of course be questions as to what its new processes will mean for firms. In order to manage business properly, firms will naturally need to have an understanding of when the OLC is likely to make awards for redress for consumers, and how big those awards are likely to be. How different will the outcomes under the OLC be to the present system - will findings in favour of complainants be more or less frequent? Will payments tend to be higher or lower?
These are questions that, as an independent body, the OLC will want to answer for itself.
But what I must stress now is that the intention behind the OLC is not to change the grounds on which complaints are dealt with - the same standards of professional care and duties to clients will still apply. What the OLC will do is improve the process by which complaints are handled. Regardless of whether a complaint is upheld or not, the complainant deserves to have it handled in a timely, consistent and fair manner. The OLC will ensure this happens.
The Regulatory Impact Assessment will examine the potential overall impact on practitioners of the proposed changes. A more efficient complaints system is likely to benefit the good, and provide an incentive on the poor to improve. And improve quickly. However I must leave it to you - the professional lawyers, risk managers, and insurers - to judge whether processing complaints better is likely to affect your particular firm's exposure, and what levels of indemnity you will need.
My overriding concern is to ensure that consumers are provided with the level of customer service they need.
There will be a cost to setting up this new system. We estimate that setting up the Legal Services Board and Office for Legal Complaints will cost in the region of £13 million, and our general principle is that those benefiting from the regulatory system should bear the cost of that regulation. But in a legal services market with a turnover of around £18 billion annually, this one-off cost represents around 0.07%.
I hope you will agree with me that is a price worth paying to secure a strong future for the sector, and better services for consumers.
This programme will involve change: change in order that the sector can better meet customer needs. It will have its risks, which we are addressing. And it will create opportunities, which I encourage you to seize.
I hope I have given you some food for thought on where we are going, and where this journey can take us.
Let me leave you with the thought that the biggest risk of these reforms is not firms facing higher levels of claims against lawyers' indemnity cover. It is not lawyers facing conflicts of interest between investors and clients.
The biggest risk we face is not grasping this once in a lifetime opportunity to transform the way legal services are regulated and delivered - in the interests of consumers, and in all our interests.
Thank you.