#LegallyThinking : Regulation or deregulation: which is best for legal innovation? by Stuart McMillan

Technological innovation in the legal services sector is happening right now. Not only that, the legal tech market — set to top US$25 billion in revenues by 2025 — is getting bigger all the time. This year, Magic Circle law firm Allen & Overy had the highest ever number of submissions for its innovation 'incubator' programme, Fuse. Now in its fifth year, Fuse has agreed to sponsor five more legal tech companies with a truly international range — the companies hail from Melbourne, Toronto, New York, Luxembourg, and London.

But as with all innovation, the question that quickly follows is: to regulate, or not to regulate? While it is well known that too much regulation will stifle opportunities for new business to flourish, too little may see it ride roughshod over personal rights and freedoms. Plus, a lack of oversight could mean that the advantages legal tech can offer are not maximised for the benefit of consumers and society at large. In the legal world, such issues are particularly important. For lawyers and their clients, the idea is that new technologies help to make life easier and cheaper, without disturbing the well-honed legal process or impacting on access to justice.

For an idea of what form legal tech regulation might take, we can look towards two recent proposals in related areas: the Kalifa Review’s proposal for fintech regulation, and the European Union’s plan for a legal framework on AI. The Kalifa Review, a UK-based report by Ron Kalifa OBE on the state of Fintech, uses the word ‘regulation’ seventy five times throughout 106 pages. Most notably, it has as one of its key recommendations the need for a ‘digital finance package that creates a new regulatory framework for emerging technology’. Features of the ‘enhanced environment’ it proposes include digital ID and data standards. The wording is vague, but the report demonstrates a belief that new technology must be monitored to ensure it adheres to standards like any other product.

But digital standards are tricky. To what standard would you plan to hold the digital innovators? The EU wants a regulatory framework for artificial intelligence that treats AI used in law enforcement as ‘high risk’, and would ban any AI that is considered a clear threat to the safety, livelihoods and the rights of individuals. It is a commendable aim, but poses questions for legal professionals and innovators. What rules must they observe? What products can they use? It is no good having a set of rules without an interpreter and robust enforcement, and so far the EU’s record on similar matters like GDPR fines for companies that break the rules has been patchy. There is plenty of legal innovation going on in Europe, and the EU offers an opportunity to deliver truly uniform standards across all member states. If done right, Europe could be the poster child for effective, safe legal and technological innovation. Meanwhile, in the United States, President Biden’s Cybersecurity Executive Order represents another step in the codification of data protection and privacy law in one of the world’s most powerful economies, suggesting they are finally catching up after lagging behind.

Overarching frameworks could offer guidance and hopefully stop the most insidious forms of technology which attempt to curtail access to justice, hinder fair use of data and information, and erode the rule of law. But what about day-to-day legal practice? It is the changes to existing processes, like digitisation of services, that arguably spell the greatest change for practitioners. There are some positive signs. Attempts to regulate disputes relating to digital transactions in the form of the UKJT's Digital Dispute Resolution Rules demonstrate a real effort to regulate from the bottom up, as opposed to the top down. Such initiatives offer more opportunity to individuals to resolve their legal disputes quickly and efficiently. They also represent an opening gambit in a much larger competition — to be the first nation to create a portable universal standard that can be implemented across the world. It is likely that any regulatory framework that works well will then be looked towards as an example of best practice; this is a coveted position for any political leader.

For clients, such battles between more versus less regulation are besides the point. They will go with the firm, lawyer, and system which offers the best results, and practitioners will be expected to work within any regulatory frameworks for the benefit of their clients. Regulation which provides enforceable standards with flexible operation will allow legal innovation to flourish. But the rise of dreaded ‘red tape’ may tie practitioners’ hands and make life harder, which their clients will then hear about. Beyond the battle to ensure legal tech does what the consumer needs it to do without jeopardising personal liberties there is perhaps a bigger battle: to create a gold standard for regulation that can be replicated across the world. The race is on.

All opinions my own.