OECD urges competition bodies to help open up legal markets to disruptive innovators

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Technology: change in delivery of legal services will require regulatory reform, OECD says

Regulation of lawyers across the developed world is under pressure from technological and other disruptive innovation, and national competition authorities should grab the opportunity to guarantee market access for new entrants, the OECD has advised.

The ‘issues paper’ by the Organisation for Economic Co-operation and Development, Protecting and promoting competition in response to ‘disruptive’ innovations in legal services, was written to prepare delegates attending a working party on competition and regulation on 13 June.

The authors concluded that traditional resistance to change in legal professions was breaking down in the face of competition from ‘disruptive’ innovators, transforming the delivery of legal services and putting pressure on the regulatory frameworks in which lawyers operated. Competition authorities should step in to ensure new competitors secure market access, they suggested.

“Authorities can play a role in advocating for regulatory systems that reflect current market realities and ensure market access for pro-competitive disruptive innovations. Such a role could include advising policymakers who may be seeking to balance the benefits of competition with other policy objectives such as consumer protection.

“This process will require consideration of the objectives of legal professional regulations, particularly those addressing market failure, as well as the current design of those regulations.”

Among transformational developments affecting the global legal services market, the OECD highlighted online service delivery, comparison sites, unbundling and automation. At the same time, the non-regulated sector was growing and “technology is supplementing and replacing [lawyers’ work] at an increasing rate”.

Examples of change ranged from “the automated preparation of custom wills to the emergence of outsourced litigation support providers”. There was a growing “democratisation of knowledge” due to the availability of online information, and communication technology was enabling alternatives to face-to-face legal service delivery. One impact was pressure on law firm fees, the authors observed.

These and other trends would force legal regulators to reappraise their approaches because “some elements of current professional regulations no longer fit market realities or are at least not being enforced in a consistent way”, the paper concluded. At this point competition authorities would have a key role to play.

The authorities could conduct their own market studies – such as that currently underway by the UK’s Competition and Markets Authority – or use the OECD’s own ‘toolkit’ which is designed to help “governments to eliminate barriers to competition by providing a method for identifying unnecessary restraints on market activities”.

The study advised: “Competition authorities should analyse legal professional regulations in the context of new market realities, considering both (i) the rationale for the regulations and (ii) their current design.

“This can set the stage for a reasoned discussion involving policymakers, legal professionals and disruptive entrants in a manner that balances the undeniable benefits of competition with the need to address market failure and policy objectives.”