Law Society votes to approve regulatory sandbox for innovative legal tech development

Benchers approved the motion, brought by the LSO’s technology task force, at Convocation Thursday

Law Society votes to approve regulatory sandbox for innovative legal tech development
Aaron Wenner, Aaron Baer

At Convocation Thursday morning, the Law Society of Ontario passed a motion to launch a five-year regulatory sandbox pilot for innovative legal tech services.

The initiative recommended by the Law Society’s technology task force would open up a regulatory safe zone for innovative technological legal services. Participants will report to and be monitored by the Law Society, which will study the sandbox to inform policy and regulatory decision-making.

"Innovative technological legal services currently operate in an environment of regulatory uncertainty," said Jacqueline Horvat, Bencher and chair of the technology task force, in her remarks to Convocation Thursday. "If legal technologies are operated by non-licensees, they could be prosecuted for the unauthorized practice of law. If the technology is operated by a licensee, it is not clear how our professional conduct rules apply, if at all. Standards for competent and ethical legal tech services have not been established and a number of technological legal services are operating in Ontario with no regulation whatsoever."

The status quo puts a chill on innovation, leaves the public vulnerable to unregulated tools and the Law Society's legal tech knowledge defecit makes it ill-equipped to regulate or shut down technolgies, said Horvat.

"Ontario’s legal tech industry will continue to grow and develop whether or not this sandbox is launched."

Several Benchers argued that in facilitating the sandbox, the Law Society was using funds from its members’ fees to subsidize start-ups operated by non-fee-paying members of the public, some of which may end up as competition.

There were also two last-minute motions, one to amend the task force’s motion and another to defer the matter to the professional regulation committee for further consideration. Both motions failed.

Ultimately the technology task force’s motion carried, with 34 in favour, 12 opposed and five abstentions.

“I think it's absolutely the right decision. I think the Law Society got it right,” says Aaron Wenner, CEO and founder of CiteRight, a Toronto-based legal tech startup. “I think that it signals to me anyway, as a legal innovator, that the Law Society is open to innovation in a real, meaningful way. And there's a lot of great opportunities that I know are going to come out of this.”

Launching the sandbox is in line with the Law Society’s mandate to serve the public interest, says Aaron Baer, partner at Aird & Berlis LLP, who practises corporate and commercial law and is a champion of legal tech adoption at his firm.

“And this is about that. Putting clients first,” he says. “… You don't want innovative people being afraid of building really great tools because they might get in trouble from a regulator. That does not help the public at all.”

“We have to really say to ourselves, are we really protecting the public if most people can't afford legal services? And if people can’t understand their legal rights because its cost prohibitive, we aren’t protecting the public at all. And that's what this is about. This is a compromise solution that allows people to try more innovative things.”

Given that Ontario is recognized as being a global hub for legal innovation, the province stands to learn and be able to direct change in the industry from this sandbox experience, says Sean Bernstein, co-founder of MinuteBox, the cloud-based legal entity management software.

“Legal tech entrepreneurs and innovators should embrace this opportunity to offer legal services differently. The most exciting part is not the business models that we can imagine, but rather to watch the models we could have never imagined take root and bring a new discourse to legal service. In many ways, the seeds for the future of legal service are being planted in this sandbox. I can’t wait to see the fruits they bear.”

At Convocation, Bencher Jared Brown spoke in opposition to the sandbox, arguing that regulation is not an effective method in spurring innovation.

“I encourage innovation in the legal tech space, let it roll. However, I also know that the best way to kill innovation is to regulate it,” said Brown. “For those of you who are opposed to this motion, take heart knowing that the sandbox regulatory framework will prevent any meaningful innovation.”

“This will put a pillow over the technology patient’s face. I see this as an expansion of the regulatory reach of the Law Society, which is anti-innovation and anti-competitive.”

The motion that would have deferred the matter to the professional regulation committee for further consideration was brought by Bencher John Fagan and seconded by Bencher Chi‐Kun Shi. It failed, with 17 in favour and 34 opposed.

Shi told Law Times she believed there were two main issues with which the Law Society should have dealt before launching the sandbox.

In the motion’s proposed By-Law 16, it states that sandbox participants permitted by the Law Society to provide an innovative technological legal service must do so “in compliance with the Society’s requirements.” But what those requirements are was not clearly delineated in the task force’s report, says Shi.

“This term embodies the entire regulatory regime being proposed, yet the report provides no substance, not even skeletal outline of what these requirements would look like,” she says.

The requirements must be comparable to the Rules of Professional Conduct, which lawyers and paralegals are required to comply with, “in order for the LSO to maintain its integrity and credibility,” says Shi. If there is not parity between the regulation of licensees and that of new legal tech products operating in the sandbox, “there will be revolt and chaos against the LSO,” she says.

Shi’s second concern was that the lack of funding and other assistance from government would “doom this project to fail.”

“Simple question, how does LSO assert its authority over a website hosted in Quebec or Manitoba, let alone US, UK etc.?” she says. “Protecting the public from mischief on the internet is ultimately a government imperative. LSO’s legislative mandate suggests a supporting role.”
 

 

 

 

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