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New white paper explains how a “regulatory sandbox” for legal startups would promote innovation

Thomson Reuters Institute  Insights, Thought Leadership & Engagement

· 5 minute read

Thomson Reuters Institute  Insights, Thought Leadership & Engagement

· 5 minute read

One of the challenges for legal tech startups and other legal industry innovators is that regulation of legal services can sometimes be a barrier to experimentation.

Indeed, restrictions on unauthorized practice of law, and rules on licensure, training, and ethics can hinder new innovations in the delivery of legal services.

In related fields, such as financial services, regulators have set up “regulatory sandboxes” that allow innovators and entrepreneurs to experiment with new forms of service delivery within the confines of a well-defined relaxation of current regulations, without the risk of fines or liability. The practice provides a sort of laboratory for all parties to examine what is possible without fear of censure, allowing new innovations to be tested and tweaked in order to offer new solutions to the real world once the experiment is done.

You can read the full white paper, A Regulatory Sandbox for the Industry of Law, by Jorge Gabriel Jiménez and Margaret Hagan, here.

Regulatory sandboxes for the legal industry are a relatively more recent phenomenon. A new white paper, A Regulatory Sandbox for the Industry of Law, prepared by Jorge Gabriel Jiménez and Margaret Hagan of the Legal Design Lab at Stanford Law School and published by Thomson Reuters Legal Executive Institute, introduces the concept of regulatory sandboxes in the legal world, provides some examples of sandboxes already underway around the world, and highlights some of the ways these experimental sandboxes can lead to greater innovation and improvements in access to justice for all citizens.

Regulatory sandboxes benefit all the players in the ecosystem — legal services innovators, regulators, and the public. “A sandbox is a safe playground in which to experiment, collect experiences, and play without having to face the strict rules of the real world,” the authors write. “The private sector can innovate without worrying about fines or liability, the regulatory agency can test regulations to see what works before going through the long process of creating new rules, and consumers have access to these services in a controlled environment.”

The burden of regulation in law

However, has government regulation become a barrier to innovation within the legal industry?

Research from the Solicitors Regulation Authority (SRA) and the Legal Services Board in the UK shows that legal entrepreneurs believe that the most common barriers to innovation initiatives were regulatory and legislative, with more than 25% of respondents listing those two factors as the main problem.

Indeed, the SRA sees reducing those barriers to innovation as part of its mission. “We do not want to be a barrier in any way to firms trying out new ways of working — quite the reverse,” the agency states. “We want to reduce the burden of regulation while maintaining critical protections for the public interest.”

In response, the SRA has introduced SRA Innovate, an innovation initiative that includes aspects of a regulatory sandbox. Jiménez and Hagan’s white paper details the features of this initiative and examines its objectives to encourage new forms of legal service delivery to the public. These objectives include:

  • Offering multi-disciplinary partnerships that give the public access to a “one-stop-shop” for legal and non-legal professional services;
  • Allowing specific rules to be waived — for example, to allow firms to introduce more streamlined legal service arrangements; and
  • Establishing a dedicated guidance service to help firms deal with any regulatory barriers they think may be hindering innovation or stopping them from doing something new.

The white paper also includes a model for the structure of a regulatory sandbox as well as a timeline for how innovators and regulators can together initiate a sandbox experiment, determine its scope, and evaluate its results. It also details the ways that regulators can protect the public interest by drawing boundaries around innovation experiments by establishing guiding principles, restricting access to the sandbox, formalizing waivers or no action letters, creating evaluation processes, and providing informed consent for consumers.

Regulatory sandboxes can be an important driver for new forms of legal services, especially in fields and populations that are currently underserved by the legal system. As Jiménez and Hagan describe it “a regulatory sandbox for the legal industry would allow experimentation with new approaches involving new business models or legal technology.

“The sandbox enables a safe environment for business to test services or products without the risk of being sued for the unauthorized practice of law,” the authors continue. “In return, regulators could require participants to incorporate appropriate safeguards to protect the public interest and support competitive innovation in the legal market.”

In many ways, a regulatory sandbox approach to improving legal service delivery and access to justice may provide a win for legal entrepreneurs, government regulators, and the public.

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