The Regulatory Sandbox: A Proposal in Search of a Purpose
The Law Society of Ontario has decided to launch a regulatory sandbox for legal technology. The purpose appears to be to allow new technology providers, not just lawyers and law firms, to apply and, once accepted, to offer legal services free of the threat of prosecution by the regulator, thereby increasing access to justice while protecting Ontarians from risk.
Should the regulator launch this regulatory sandbox? No. First, it will not advance the justice rights of Ontarians/Canadians. In fact, it will have the opposite result. The formal extension of the LSO’s regulatory approach to entrepreneurs and businesses using technology and new approaches to meet the justice needs of Canadians will inhibit creativity and innovation and slow or prevent new approaches to justice from succeeding.
Second, to the extent that ‘protection of the public’ is its goal, the proposal continues to determine protection and risk by what lawyers are prepared to allow, not on the basis of evidence, experience or data. Third, it neither addresses the need of the profession to modernize, nor supports its modernization. The LSO regulatory sandbox is a proposal without a public purpose.
Justice is in crisis in Canada. It was long before the pandemic. Numerous studies by the legal profession itself over the decades have suggested that more than 80% of the legal needs of Canadians do not receive help from a lawyer. Lawyers have a monopoly over the delivery of legal services. The monopoly has been used to prevent new people and new approaches from delivering the justice needs of Canadians except in ways in which the profession approves.
We should recognize and thank all those lawyers who work for free, through organized pro bono or on their own accord, who deliver legal aid, and who give of their time in other ways to help meet the justice needs of Canadians. After decades of concerted effort, however, the situation is not getting better, it’s getting worse. Justice is too complex, too slow and too expensive for most Canadians.
Providing access to justice should not be an act of charity; justice, and effective access to it, is the right of all Canadians. Unfortunately, the majority are denied non-lawyer help with their justice needs by a monopoly that must know that most people will therefore have no effective help at all. Most Canadians and small businesses are left to fend for themselves, practicing law by Google or other means.
The monopoly restrictions are justified as ‘protecting’ Canadians from risk. The almost absolute denial of any legal help that is not a lawyer (or lawyer approved) is the only ‘protection’ the majority of Canadians receive. There is no assessment of whether there is any risk, no balancing of the risk of no help with any risk of non-lawyer help, no acknowledgment that anyone other than a lawyer can deliver what the consumer needs in the way they need it, no respect for the fact that non-lawyer providers can and are delivering such services, and no evidence that the risk from non-lawyer providers is different than the risk of lawyers doing legal work they have no expertise in. There is no regime of warnings, suggestions, alternatives, or an evidence-based realistic assessment of the benefits, costs and risks, just the denial of choice, and even the denial of any right to choose.
Canadians make decisions every day that have significant personal, community, economic, medical, and social consequences for themselves and others. Our democracy is about choice. The lawyer monopoly does not trust people with a right to justice to make any decision on the legal help they receive to achieve that right except to the extent the decision is approved by lawyers-the monopoly provider. The result of this denial is a denial of alternative routes to justice, is a denial for many of the right to justice itself, and is a significant contributor to the justice crisis facing Canadians.
Enter the entrepreneurs. Of different shapes, sizes and make-up, they are united in answering the desperate need of Canadians for the justice they have a right to. Some work for free, others to make money-just like lawyers. They bring their ingenuity, creativity, time, dedication, and their money, along with that of their family and friends. They identify a justice need, a market opportunity, and work to fill the need with what the public wants, in the way they want it, at a price they are prepared to pay.
Building any new business or developing a new approach to a problem is risky, takes time and money, and requires new thinking. The last thing these entrepreneurs need is an additional, strengthened regulatory burden imposed by a regulator that offers nothing except application procedures, reporting requirements and a promise not to prosecute. We are told that few of the details have been worked out.
What does the regulator offer that these entrepreneurs need? As I mentioned above, the traditional regulatory approach is not to assess and measure risk, but to assume risk and deny choice. How are they to assess the risk/benefit of new applicants to the sandbox, or providers in it? The regulator has no expertise in technology or new business methods, which is the reason the new businesses exist. Historically, the regulator does not seem to accept the value of any expertise except lawyer expertise in developing and delivering legal services, which is the heart of these new businesses. The governing body of the regulator is elected by lawyers, enough of whom say both loudly and often that they view these new enterprises as competition.
Will the promise not to prosecute those who are in the sandbox provide support or assistance to the innovation ecosystem? No.
The LSO doesn’t prosecute many providers now. They do investigate them. They act on complaints by lawyers to investigate new providers, which in most cases are serving consumers the lawyers are not. Imagine a new small business investigated by the house of lawyers. Imagine the innovation chill this represents. Yes, new companies have been investigated and then have folded-not because they did anything wrong, but because they were too small and fragile to fight the battle. Does this approach seem fair?
The proposal will regularize and formalize investigations and accelerate complaints by lawyers who feel threatened by anything new. History has shown the regulatory reaction to new approaches.
How will the LSO define the legal services that are covered? What is a legaI service? Is it the same as when the monopoly was granted, or have things changed? In the face of a justice crisis, should it be? Can it be? I suspect many companies in Canada, including many large ones, will be quite surprised by the answer given. Or will no answer be given, and this issue will remain ‘at the will’ of the complaints process? Will companies that are now offside have to apply to the sandbox, to be regulated by the LSO? What happens to those who are not accepted? Do they have to stop operating?
Imagine a start-up applying to the sandbox to help families in crisis. The LSO has waged a 10 year fight to prevent paralegals, which they regulate, from doing anything to help these families. Are paralegals the only or even most significant answer to the needs of families? Not likely. Could they help some people? Of course. Why aren’t they allowed to? Are the voting members of the regulator going to welcome new businesses that do not use any of their members? To compete with their own members?
Imagine a start-up that is owned in whole or in part by non-lawyers. Most are. They exist because they use the expertise, knowledge and skills of others to leverage legal skills and meet a market need. It’s not just the money, but money is important. The LSO has driven itself to distraction to prevent anyone other than a lawyer from owning a piece of a law firm. Why? The stated fear is that the lawyer’s ethics will dissolve. Seriously. No, there is no evidence anywhere that lawyers' ethics will dissolve if they rub shoulders with new skills, expertise, knowledge and/or take investment money from ‘others’. If money from others made your ethics dissolve, how would you be able to help any client other than a lawyer?
The LSO has no trouble taking the fees from over 6,000 members of in-house corporate law departments in businesses not owned by lawyers. And yet this fiction is maintained. Why? So are we to imagine that a new business with non-lawyer expertise and investment will be allowed to compete with a law firm doing the same work?
Why can’t lawyers be allowed to be innovative too? Why just new businesses in the sandbox? Why aren’t lawyers in private practice allowed to build their future in new ways? 80% of the legal needs of Canadians are not served by the traditional approach used by lawyers. Let those who want to, serve those who need service, in the way they need to be served. Why hold lawyers back?
The technology sandbox proposal does not recognize what is already happening in Canada, and throughout the world. We do not live in a world of provincial digital sandboxes. It is not that the horse has left the barn. Society has left that age. The sandbox has a timeline of 5 years. When technology advances every few months, is this not a timeline of another era? Do Canadians really have to wait another 5 years for the lawyer monopoly to decide whether they can have another route to justice?
You will note that I spoke of the justice needs of Canadians, not only Ontarians. These new entrepreneurs are often looking to fill a national or global need, not just an Ontario one. What are the national and international implications of this proposed provincial regulation?
Does it have to be this way? No. England has opened up the legal profession, reduced regulations, and are reducing more. They have more lawyers and others providing the services that consumers need. Even before they opened the market up, they did not have a monopoly with as many restrictions and barriers to competition as exist in Canada today.
So what should the LSO do? I will speak more of this at another time, but for now let me say the following. First, they should recognize the reality of what is actually happening. When you serve the legal needs of 20% and dropping, but have a monopoly to deliver legal services to 100%, you have lost the market. Immediate action is required. The regulatory denial of consumer choice is wrong. When combined with regulations restricting how lawyers compete, the approach has created a problem for all Canadians, and for the lawyers who want to help them.
Sandboxes are in fashion. I am not surprised that some of my colleagues who support innovation see in the LSO sandbox a movement by the regulator that they have not seen before. I take a different view. The proposal is a continuation of the existing regulatory approach-you can’t do anything unless the regulator says so, and then only on the regulator’s terms. This approach has not worked for most Canadians, and will not help most lawyers build the professional futures they have worked so hard to achieve.
The starting point by which to judge this proposal is not whether it deviates from what we have always done, but by the extent to which it provides a significant part of the solution to the problems that confront us. This proposal does not advance the solutions to the problems we face. It does not advance the right to justice for the 80%.
Chris Bentley