The latest Solicitors Regulation Authority’s (SRA) Risk Outlook report1 has moved away from the traditional risks facing the legal profession and explores what challenges and opportunities law firms can expect as we start to emerge from the pandemic.
This article considers the key challenges and opportunities which the SRA categorise as:-
Due to the lockdown restrictions many law firms have adopted new working practices in response to the pandemic, which has resulted in many businesses operating a hybrid working structure – a blend of working in the physical office and remotely. Such changes have seen an increased reliance on technology and online services, with 44% of legal services being provided online including virtual court hearings and witnessing wills.
44% of legal services are provided online including virtual court hearings and witnessing wills.
The lockdown has also seen a change in business structures with law firms looking to consolidate, particularly conveyancing and personal injury practices. There has been a reduction in the number of sole practitioner practices and partnerships, with a shift from the limited liability partnership structure to limited companies. There has been an increase in law firms expressing interest in floating on the London Stock Exchange, a significant move from the traditional law firm structure.
During the lockdown restrictions the legal profession responded resiliently and contributed £59.9bn to the UK economy, despite the profession facing challenges from a hard professional indemnity insurance (PII) market, which has been a concern especially for the smaller law firms.
The cost of PII is unlikely to fall any time soon and there is concern that the soft market costs seen prior to the pandemic are not expected to return even once the economy recovers. The conditions of PII is being kept under review by the Legal Services Board in order to understand how the market is operating and what this means for the legal profession and their clients.
Over the last two years the UK economy has been affected by two significant factors, namely the pandemic and Brexit and economic growth has fluctuated. Whilst we saw the economy recover when the lockdown restrictions were lifted last Summer, that recovery is now slowing. The Office for National Statistics has identified that Britain’s rate of recovery is slower than the other G7 countries2.
Law firms can be impacted by an uncertain economic climate because they need to adapt to manage uncertainty to ensure that they can serve their clients’ needs, particularly vulnerable clients, as well as managing their clients’ ability to afford legal services. Clients facing financial difficulties may require employment or housing advice or commercial clients may require legal advice concerning employment issues, supply of goods contracts and debt recovery. Meeting the needs of their clients affordably and effectively is a crucial challenge for the legal profession.
The Government is seeking to reform existing regulation by increasing the use of digital services with a view to improving the way the justice system operates and to offer greater transparency, efficiency, consistency and increase access to justice.
The Land Registry is building a centralised digital register of land charges and is looking to digitise the identification verification process which intends to compliment and support the Land Registry online conveyancing process. In addition, a centralised legal judgment register is being developed to enhance transparency and provide easier access to all legal judgments.
The process for resolving disputes is changing with the Ministry of Justice encouraging the profession to use the alternative dispute resolution (ADR) process, such as the new claims portal for personal injury claims arising from road traffic accidents and the proposed digital triage portal to be used for all civil claims, which seeks to direct claimants to the most appropriate online resolution service for their case. Law firms may see an increase in competition from unregulated ADR providers, especially in respect of the lower value claims and need to prepare for this.
Such digital advances will hopefully increase efficiency and accessibility of legal services and may help expedite processes that can often be considered too lengthy, such as the conveyancing process and litigation. However, there is concern that this may limit legal services to those who are unable to access online services. Furthermore, when introducing new technologies there is need to ensure compliance with the requisite data protection legislation and keep information secure from data breaches and manage threats from cyber criminals.
Consumer awareness around social movements such as Black Lives Matters, #Metoo and concerns about climate change are likely to impact law firms as they face increased political pressure around such issues and the need to satisfy their clients that they are acting ethically.
Research undertaken by Ofcom identified that around 6% of households in the UK are not online. Whilst there has been a shift to people heavily relying on online services, for those without access there is a risk that those individuals may be deemed vulnerable with a greater need for affordable legal assistance but cannot benefit from such online services and may feel digitally excluded.
Meeting consumers legal needs affordably and effectively is an increasing challenge facing the legal profession particularly with the continued decline in legal aid, with just 3% of legal services funded by legal aid during 2021 compared to 8% in 2014. This will impact the most vulnerable people with the greatest need for legal assistance particularly in practice areas such as welfare, immigration and debt recovery disputes.
The biggest change impacting the profession during the pandemic has been the increase in the use of technology to support, supplement or replace traditional methods used to deliver legal services, as identified in the Law tech and Ethics Principles Report published in July 20213. With the advancements in technology many law firms are seeking innovative ways in which to manage their workloads and assist their clients. Technological advancements should increase efficiency, productivity and growth at the same time as reducing costs and benefit clients by allowing solicitors to work more flexibly, better manage clients’ expectations and achieving better outcomes for their clients. However, law firms will need to protect themselves from the risks of operating an increased digitised service by being alive to cyber security risks and ensuring compliance with their regulatory and legislative obligations to effectively manage such risks.
Many law firms have chosen to operate a hybrid working structure following the pandemic. Whilst some law firms may return to their city premises, it is envisaged that home working and the provision of online legal services will continue and may become the new normal.
We have seen the legal profession demonstrate real resilience to the challenges imposed by the pandemic. With change comes opportunities and law firms that can adapt swiftly to a rapidly changing environment in the way they provide legal services are expected to benefit and even thrive from the current challenges facing the legal profession.
1 Solicitors Regulation Authority. (2021). Risk Outlook 2021/2022 What is the new normal? Challenges and opportunities for law firms after the lockdowns.
2 The Office of National Statistics. (November 11, 2021). GDP first quarterly estimate, UK: July to September 2021.
3 The Law Society. (July, 28, 2021). Lawtech and ethics principles report.
