Time for Legal Regtech?

As the role of technology in legal services delivery increases and delivers many benefits, new regulatory risks may also emerge. The challenge for regulators will be to understand the changing environment, ensure regulation keeps pace and effectively manages these risks without stifling innovation.

The Legal Services Board of England and Wales (LSB) anticipates the following likely trends in the legal sector:

· An increased role for the use of artificial intelligence;

· Technology driving further commoditisation of legal services;

· ‘Big data’ allowing providers to develop more personalised services;

· Modernisation of the court system, with a focus on online dispute resolution and some use of online courts.

Technology offers the potential to crack seemingly intractable problems in the legal sector. This coupled with the development of an increasing range of tools, underlines the need for regulators to keep an open mind on technology.

In a recent consultation on its Strategy and Business Plan 2019-2021 the LSB proposed that technology neutral regulation was a concept worth exploring. This is a useful starting point, since regulators should be encouraged to ensure that their rules do not hinder the development of technologically driven solutions. There is much to be learnt on this topic from other sectors, notably the financial services sector, which has addressed the risks of regulatory neutrality, inter alia, through the use of sandboxes. 

However, the sandbox approach only deals with circumstances in which innovators have a proposition which needs to be tested against the existing rulebook. It doesn’t help regulators to positively encourage innovation at a conceptual stage. There are even risks in a ‘neutral’ approach, in that it can promote inaction as an antidote to making the wrong choices.

Regulators therefore have a role to play in setting positive innovation challenges for the sector, which would encourage more radical thinking over a longer period of time than permitted by, for example, the current vogue for legal hackathons.

Regtech

Technology also has a role to play both in terms of how it is used by front line regulators and how it is used by actors in the sector to meet their compliance requirements. There is a strand of technology which has emerged in recent years, commonly referred to as Regtech, and is designed to deal with these issues. Whilst law firms are themselves incubating tech solutions that will help them in this regard (e.g. with AML compliance), there are existing sector-neutral solutions that could be useful for regulators to explore (e.g. Robotic Process Automation) as they could help to remove cost from regulation. 

Regulators should cast their net widely when looking at other sectors which may offer insights for the legal market. There are a wide range of other sectors which are heavily influenced by technology, so tracking developments in regtech, insurtech, healthtech and proptech, as well as fintech, may well offer lessons in how legal tech can be supported and propagated appropriately by regulators.

Regulators should start thinking about other areas of technology which could impact on their internal functions, such as enforcement, credentialing etc. Whilst some technologies are already being experimented with by regulators (e.g. the Solicitors Regulation Authority’s experiments with neural networks), others may not yet have appeared on the horizon (e.g. quantum key distribution) but may offer significant long-term potential for regulatory activity.

There are also applications which could promote the take-up of technology in the legal sector once they are further developed (e.g. the use of explanation nets in AI neural networks), because they could potentially overcome a regulatory/insurance concern, for example, who is liable for AI advice? More research on these topics both by universities and practical research organisations is required and there is much to be learnt from other sectors on these topics.

Technology will increasingly illustrate the limitations of the reserved activities silos, on the demand side, as changing consumer preferences for obtaining information and advice take hold. Whilst on the supply side, tech is likely to drive a growing need for different types of legal professionals who are able to accommodate the need for new STEM related skills in the legal sector.