Legal Regulatory Reform & The Regulatory Sandbox
Law firms have traditionally been limited in their efforts to innovate by the prohibitions contained in the Rules of Professional Responsibility against the unauthorized practice of law, fee sharing arrangements with non-lawyers, and non-lawyer investments in law firms. These rules apply in most U.S. jurisdictions today, but recent legal regulatory reform by the Arizona and Utah Supreme Courts are changing the landscape in exciting ways that are likely to allow for the provision of legal services in new ways.
Arizona’s Supreme Court modified the state’s professional rules, effective 1/1/2021, to remove restrictions on non-lawyer investments in law firms, fee-sharing arrangements, and restrictions on referral fees. The new rules allow for the creation of alternative business structures (ABS) made up of both lawyers and non-lawyers. ABS entities, which are subject to licensing requirements, must have an Arizona-licensed attorney designated as the entity’s compliance lawyer. This individual is responsible for ensuring the members of the ABS comply with ethical obligations.
Arizona’s neighbor to the north, Utah, also made changes to its rules in August 2020 as part of a two-year “regulatory sandbox” pilot program. Under the pilot, entities with non-lawyer ownership or investments will be able to provide certain legal services, upon approval of their applications to the state’s new Office of Legal Services Innovation. Other changes to Utah’s rules include removal of restrictions on the payment of referral fees, removal of restrictions on non-lawyer ownership in law firms, and fee-sharing with non-lawyers, with notice to clients. During the two-year regulatory sandbox pilot program, the Utah Supreme Court will gather information and data about the benefits provided by new legal service providers and will assess potential risks, if any, to consumers from such arrangements.
These state-specific changes are intended to help address shortfalls in the states’ access to legal services by expanding access to affordable, high-quality, innovative, and competitive legal services. As the COVID-19 pandemic continues to change the way legal services are provided, it is likely that additional jurisdictions will be watching Arizona and Utah carefully, and may engage in similar legal regulatory reform.
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- On March 2, 2021
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