British lawyers like to think of themselves as being at the liberal end of the regulatory scale. European Commission guidance suggests the sector could be opened up further.
Last week the European Commission made an important announcement affecting lawyers. We - along with other professionals - are now in its cross-hairs, as a result of its increasing efforts to improve the single market in services.
The announcement, titled ‘A services economy that works for Europeans’, covered a package of measures, including ‘Guidance on reform needs for Member States for regulation in professional services’. This guidance has numerous items of interest for us as UK lawyers. First, although we like to think of ourselves as well towards the liberal end on the deregulatory scale, that turns out not to be the case. UK architects and engineers are much less regulated compared to their EU counterparts than UK lawyers are compared to theirs. Whereas the usual liberal suspects of Sweden, Finland and the Netherlands are at the liberal end of lawyer regulation, the UK is over halfway along the scale towards the other end.
The following four factors were taken into account for this measurement:
- the regulatory approach, such as reserved activities and protection of title;
- the qualification requirements, including years of education and training, mandatory state exam and continuous professional development obligations;
- any other entry requirements, such as compulsory membership or registration in a professional body; and
- exercise requirements, meaning restriction on corporate form, shareholding requirements, restrictions on joint exercise of professions, or incompatibilities of activities.
The Commission goes on to make two general recommendations applicable to all member states, while the rest are addressed to some individual member states, including one for the UK. Regarding the general recommendations, they show which way regulatory trends are heading.
First, all member states are asked to ‘clarify the scope of the reserves so as to facilitate the provision of legal consultancy services by lawyers or other service providers, in particular for online services.’ In other words, sharpen up your regulation of lawyers to what is necessary and proportionate so as to allow others to provide online services.
Second, all member states are asked to ‘assess legal form and shareholding requirements, incompatibility rules and multidisciplinary restrictions’, among other things to see whether ‘their effects might be accentuated in the case of extensive reserves of activities (e.g. where legal advice is also part of the reserved activities)’. In other words, loosen up your strict rules to allow others into the sector.
Whereas Italy and Germany both receive two recommendations to improve, some other countries, including ours, receive only one. The UK’s recommendation is that our regulators ‘should assess the possibilities for adopting a more flexible approach as regards professional liability insurance obligations so as to reduce the financial burden for professionals’. Many solicitors would say hurray to that.
We remain a member of the EU for another two years, and apparently a fully signed up member. This is written before the prime minister’s speech on Brexit and well before the beginning of the negotiations, but we may also remain a member of the single market in whole or part. Therefore, it will be interesting to see what becomes of these recommendations at home, even though they are not legally binding.
But that is not the only item of interest in the Commission’s package. There is also a proposed new directive on a proportionality test before adoption of new regulation of the professions. This will doubtless become EU-wide law after our departure, since there is usually a two-year implementation period. As its title states, it covers new regulation, not existing rules.
More specifically, it will cover ‘requirements under the legal systems of the member states restricting access to a regulated profession or its pursuit, or one of its modes of pursuit, including the use of professional titles and the professional activities allowed under such title’. To the extent that there are already existing EU rules under the current lawyers’ directives, the rules in the lawyers’ directives will prevail.
It will be interesting to see what becomes of these recommendations in England and Wales, even though they are not legally binding
The essence of the draft directive is that new regulation should be necessary and suitable for securing the attainment of the objective pursued and not go beyond what is necessary to attain that objective. There is a long list of issues to be considered by the authorities – for instance, whether reserved activities can be shared with other professions, or to what extent technological developments may reduce asymmetry of information between professionals and consumers.
There is a requirement for the relevant authorities to inform ‘citizens, service recipients, representative associations and relevant stakeholders other than the members of the profession’ before introducing new rules caught by the directive, to give them the opportunity to make their views known.
I imagine that the dancing has already started at the Legal Services Board. For the purposes of lawyer regulation, it seems that whether we are in or out of the EU and the single market, the direction of travel is the same.