Access to Justice Ventures and the Utah-based Libertas Institute released a new public policy brief supporting the development of legal regulatory sandboxes as a vehicle through which to bring critically needed innovation to legal consumers.
Innovation & Evolution in the Regulation of Legal Services argues for regulatory innovation in the legal sector and explains how regulatory sandboxes provide a promising solution for ensuring consumer protection while modernizing out-of-date regulatory rules. The brief pays particular attention to the Utah legal services sandbox.
The chief justice of Utah’s Supreme Court acknowledged recently in his State of the Judiciary address that we have a severe access to justice gap in our country. And despite efforts to offer legal aid and pro bono services, this gap remains unfilled. But the Court’s creation of a legal services sandbox in Utah has given many a reason to believe the gap in access to justice will be filled by innovators now allowed to advance the practice of law.Caden Rosenbaum, Technology & Innovation Policy Analyst at Libertas Institute
A Struggling People Law Sector
A clear and growing disconnect between what attorneys are providing and what consumers are buying reflects the sector’s troubled financial performance and inability to meet consumer needs. Meanwhile, consumers are increasingly voting with their feet and forgoing attorney services altogether—even if they badly need those services and, in some instances, even if they can afford those services.
This is a complex problem which calls for a coordinated approach across stakeholders. With respect to market-based solutions, any number of regulations on legal services would benefit from modernization. But there are a few that form the greatest obstacles to transformative industry innovation: unauthorized practice of law rules and restrictions on fee-sharing and co-ownership between attorneys and other professionals.
- Under state Unauthorized Practice of Law (UPL) rules, anyone other than an attorney (with few exceptions) who is providing legal services is likely engaging in UPL and can be punished—sometimes criminally. Legal consumers have few options for price point, and no other options when it comes to type of provider. Unlike in the medical industry, there is no continuum of care available to consumers: the choice is between an attorney or nothing.
- Regulations on the practice of law set out in state analogs to American Bar Association Model Rule 5.4 prohibit attorneys from offering equity shares in a business to reward employees and attract talent that routinely comprises the C-Suite in other industries (e.g., business development professionals, marketing experts, technologists). Further, access to investment is critical for funding innovation across industries. Under current legal regulations, attorneys and law firms are expected to fund massive innovation efforts with a high potential of failure from their own accounts. Most do not, because they cannot.
The justification for these regulations is based on unfounded assumptions that are nearly a century old. And the tie between these unfounded assumptions and their stated regulatory goal of public protection is without any evidence.
Proactive & Risk-Based Regulation through Sandboxes
Regulatory sandboxes—controlled environments with relaxed regulatory requirements—are in place across the country for innovative technologies in market sectors. In the United States, regulatory sandboxes have been erected by states testing and monitoring disruptive technologies in the medical, financial, insurance, agricultural, energy, and property sectors. The use of these regulatory mechanisms is increasing across sectors (and around the world) as a policy approach that balances regulatory modernization with consumer protection.
Utah was the first state to launch a regulatory sandbox for legal services. (At the time of writing, it is the only state with such a regulatory approach, but several other jurisdictions are in varying stages of exploring this idea.) The Utah Sandbox specifically allows entities to experiment with products, services, and business models that require flexibility with unauthorized practice of law rules and fee-sharing and ownership restrictions. The state bar continues to regulate individual attorneys, but Utah attorneys are permitted to work for or with an entity in the Sandbox if they can still comply with the body of rules that are not waived through Sandbox participation.
The Utah Sandbox is a proactively regulated environment. Once authorized, an entity must maintain its risk threshold and submit data on a regular basis. The result is regulation in real time. The regulator can see risks from the data it collects and intervene to mitigate or, if necessary, rescind authorization. This system offers more protection than disciplinary actions against attorneys, which are solely reactive and addressed only if they are reported.
Data > Assumptions
Evidence collected from the Utah sandbox to date suggests that this regulatory approach is safe and is spurring innovation.
Since opening in 2019, the Sandbox has authorized 47 active entities, which have provided 35,870 legal services sought by approximately 24,000 unduplicated consumers. There have been only six harm-related complaints received: approximately one complaint per 5,679 services delivered.
The legal services market is not meeting the needs of everyday people, and the situation gets worse every year. We need thoughtful innovation to develop better business models and better ways to deliver legal help to those who need it. The Utah Sandbox for legal services has proven itself to be a safe and proactive way to spur that innovation, offering us the glimpse of a better future.Zack DeMeola, Co-Founder of Access to Justice Ventures
No reliable data exist on complaints against lawyers, but estimates indicate approximately one complaint for every 2,150 lawyer-provided services—suggesting a similar, if not worse, rate than the complaint rates reported in Utah.
Supporting—fiscally and otherwise—the Utah Sandbox is critical for the long-term success of regulatory innovation across states, as the data collected in Utah will inform regulatory innovation in Utah and beyond. But now is also the time to set the foundation for legal regulatory sandboxes in states across the country. The Utah Sandbox provides the model states can look at when erecting their own innovative, effective, and sustainable sandboxes.
More broadly, regulatory sandboxes are quickly becoming best practice for modernizing regulations across industries. Sandboxes allow regulators to experiment with new rules and practices, monitor risks to consumers, and develop data-informed regulations. In the area of legal services delivery, regulatory sandboxes can revitalize a declining market for consumers and providers alike.
This is not deregulation. It is a different approach to regulation. A better approach to regulation.