The LegalTech Ecosystem in Wales

A Report by the Legal Innovation Lab Wales, analysing the LegalTech Ecosystem in Wales, identifying opportunities for the future.

Authors:

Lois Jones Madhura Bhandarkar Sergios Papastergiou Tom Freed Research Assistants, Legal Innovation Lab Wales

and

Stefano Barazza Academic Lead, Legal Innovation Lab Wales

The moral rights of the authors have been asserted. © Swansea University, 2023

The authors express their gratitude to Welsh Government, WEFO and Swansea University, for funding and supporting the Legal Innovation Lab Wales; Prof. Elwen Evans KC and Chris Marshall, for championing LegalTech at Swansea University with passion, vision and energy; Prof. Alison Perry, Prof. Ryan Murphy and Prof. Stuart Macdonald, for supporting the Legal Innovation Lab Wales during its funded phase; the Solicitors Regulation Authority and the Law Society, for their support, engagement and advice over the years; Emma Waddingham, Clive Thomas, Cerian Jones, Nick Rundle, Ieuan Leigh, and many other friends, for their invaluable support, unwavering enthusiasm and commitment to the future of the legal services sector in Wales. We also wish to thank the entire Legal Innovation Lab Wales team (past and present): Adam Whitter-Jones, Alaric Sheer Harwick, Alex Wing, Amara Finbarrs-Ezema, Annie Benzie, Ben Riseborough, Beth Eakins, Beth Rogers, Freya Michaud, Gareth Andrews, Ieuan Skinner, Judith Fasheun, Livio Robaldo, Oluwatoyosi Oyegoke, Phil Reynolds, Rey Sheer Hardwick, Tobias Sheer Hardwick, and our colleagues from CYTREC and the Law Clinic.

Contacts:

Legal Innovation Lab Wales - legalinnovation@swansea.ac.uk To contact the research team, please write to Stefano Barazza - stefano.barazza@physics.org.

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Table of contents

Introduction ........................................................................................................................................4 1 – The legal services sector in Wales ....................................................................................................5 1.1 Composition and key characteristics......................................................................................................... 5 1.2 Contribution to the Welsh economy ........................................................................................................ 8 1.3 Issues affecting current and future growth ................................................................................................ 9 2 – LegalTech, LawTech and legal innovation: the future of legal services............................................13 2.1 Recognising the role of technology in law .............................................................................................. 13 2.2 LegalTech and LawTech ........................................................................................................................ 17 2.3 Technology and innovation .................................................................................................................... 18 3 – LegalTech innovation in Welsh law firms......................................................................................20 3.1 Methodology and limitations.................................................................................................................. 20 3.2 Innovation in Welsh law firms and in law firms with a substantial presence in Wales........................... 22 3.3 Overall evaluation and outstanding issues............................................................................................... 32 4 - The LegalTech start-up and scale-up ecosystem in Wales ..............................................................34 4.1 Methodology and limitations.................................................................................................................. 34 4.2 Mapping the LegalTech start-up and scale-up ecosystem in Wales ....................................................... 35 4.3 Welsh LegalTech Start-up and Scale-Up Map ...................................................................................... 47 4.4 An in-depth look: Credas, Identitech, Validient, Wyser ........................................................................ 49 4.5 Key findings ............................................................................................................................................ 53 5 - LegalTech education in Wales.......................................................................................................55 5.1 Postgraduate courses in legal technology ................................................................................................ 55 5.2 Undergraduate modules .......................................................................................................................... 57 5.3 Research centres...................................................................................................................................... 58 5.4 Brief considerations on LegalTech education in Wales .......................................................................... 58 6 - Wales as a global leader in LegalTech: a roadmap for the future......................................................60 6.1 The key findings of our research ............................................................................................................. 60 6.2 Paradigm innovation at industry-level: the importance of a cohesive Welsh LegalTech ecosystem ....... 61 6.3 A circular approach to legal innovation in Wales ................................................................................... 62 6.4 Key recommendations............................................................................................................................. 67 Conclusion.........................................................................................................................................69

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Introduction

In 2019, in its “Justice in Wales for the People of Wales” report 1 , the Commission on Justice in Wales (Thomas Commission) highlighted the importance of technology and innovation for the future of legal services in Wales, providing a wide-ranging set of recommendations to support the modernisation of the sector. However, the Commission recognised that the starting point was rather challenging: Whilst there are legal practices in Wales deploying technology to deliver commoditised, high volume work, Welsh legal practices do not at present have sufficient capacity to develop or acquire new technologies. Indeed, whilst legal services in the public sector have adopted technology in a significant and successful way, in the private sector the adoption of technology “barely exists” in Wales. 2 This assessment built upon the findings of “The legal sector in Wales - a rapid review” report (Jomati report) published by Jomati Consultants LLP in June 2019. 3 This report highlighted several factors hindering the growth of technology-based legal innovation in Wales, including the lack of (i) online legal service providers and one-stop shop multidisciplinary offerings, (ii) nearshored legal service centres (in particular, innovation centres), and (iii) a local market for LegalTech talent trained in Welsh universities. In early 2020, the Legal Innovation Lab Wales 4 , supported by Welsh Government and the Welsh European Funding Office (WEFO) through the European Regional Development Fund, opened its doors at Swansea University. The Lab, with the support of a team of researchers and developers, aimed to address some of the issues highlighted by the Thomas Commission and the Jomati report, improving legal innovation in Wales across three domains: cyber threats, LegalTech, and access to justice. In early 2023, the Legal Innovation Lab Wales undertook a comprehensive mapping of legal innovation in Wales, which resulted in the drafting of this report. We focused, in particular, on Welsh start-ups and scale-ups involved, directly or indirectly, in LegalTech innovation (chapter 4). We also surveyed examples of innovation in Welsh law firms (chapter 3) and legal innovation training offered by Welsh Universities (chapter 5), to understand the structure and dynamics of the Welsh LegalTech ecosystem. Our research led us to developing a circular approach to legal innovation in Wales, which leverages the strength of the ecosystem as a whole to promote an inclusive and sustainable roadmap for Wales to become a global leader in legal innovation (chapter 6). To this aim, we advance eight recommendations, which we consider essential to transform a perceived weakness of the Welsh legal sector into its defining strength for the future. 1 The Commission on Justice in Wales, Justice in Wales for the People of Wales (October 2019) available at www.gov.wales/sites/default/files/publications/2019-10/Justice%20Commission%20ENG%20DIGITAL_2.pdf. Please note that all URLs cited in this report have been last visited on 30 June 2023. 2 Ibid, para 9.77. 3 Jomati Consultants LLP, The Legal Sector in Wales - A Rapid Review (June 2019), available at https://www.gov.wales/sites/default/files/publications/2019-10/the-legal-sector-in-wales-a-rapid-review.pdf. 4 Official website: https://www.legaltech.wales.

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1 – The legal services sector in Wales

In this chapter, we provide an introduction to the main characteristics of the legal services sector in Wales. We discuss its composition, including statistical data on the distribution of services and their availability across Wales, the contribution it makes to the Welsh economy, and the issues that appear to affect its growth and transformation, including in relation to the adoption and development of legal technology. 1.1 Composition and key characteristics Wales operates as part of the legal jurisdiction of England and Wales, and is separate to those of Scotland and Northern Ireland. Under the Government of Wales Act 2006, Wales does not have its own legal system or judiciary, but has the power to make legislation in several devolved areas. The distribution of legal services in Wales is mostly concentrated in South Wales, with around 34% of all legal activities enterprises in Wales based in Cardiff, followed by 13% in Swansea. 5 Most of the commercial legal services in Wales are based in these two cities. Outside of these cities, legal services may not be as readily accessible, especially in rural areas. a) Solicitors and law firms According to the Law Society’s Annual Statistics Report 2021 6 , as of July 2021, the number of practising certificate (PC) holders in Wales was 3,977, a 7.6 % increase compared to the 2011 statistics (3,683 PC holders). The number has also increased in the period 2019-2021, with 78 more PC holders (+ 2.0 %). 7 Despite this increase, the size of the cohort of solicitors practising in Wales has shrunk from 3.1% of the overall PC holders in England and Wales in 2011, to 2.6 % in 2021. 8 Taking into account population data for England and Wales as of mid-2021 9 , the ratio 10 of solicitors to people living in Wales was 1:781, substantially lower than the ratio of 1:417 in England. 5 Guto Ifan, The Legal Economy in Wales (Wales Governance Centre, Cardiff University, May 2019) available at https://www.cardiff.ac.uk/__data/assets/pdf_file/0008/1699217/Legal-Economy-report-FINAL.pdf. 6 Law Society, Trends in the solicitors' profession: annual statistics report 2021 (21 September 2022), available at https://prdsitecore93.azureedge.net/-/media/files/topics/research/annual-statistics-report-2021-september-2022.pdf. 7 Ibid, in comparison with Law Society, Trends in the solicitors' profession: annual statistics report 2019 (19 October 2020), available at https://prdsitecore93.azureedge.net/-/media/files/topics/research/law-society-annual-statistics-report-2019.pdf. The number of PC holders in Wales was 3,899 in 2019 and 3,977 in 2021. 8 Law Society (n 6), 15. 9 According to which, 56,536,000 people lived in England and 3,105,000 in Wales as of mid-2021. See Office for National Statistics, “Population estimates for the UK, England, Wales, Scotland and Northern Ireland: mid-2021” (21 December 2022), available at https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/bulletins/annualmidyear populationestimates/mid2021. 10 This ratio has been calculated using (i) for the number of solicitors (3,977 PC holders in Wales and 135,479 in England), the Law Society statistics for 2021 (n 6); (ii) for the population data for Wales and England (3,105,000 and 56,536,000 respectively), the Office of National Statistics population estimates for mid-2021 (n 9).

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About 86 % of Welsh law firms, in 2021, had less than 4 partners (321 out of a total 373 private practice firms), 11% had between 5 and 10 partners, while only 3% had more than 11 partners (and none more than 80). 11 The overall size of Welsh law firms is small: according to Jomati report 12 , in 2019 43 % of Welsh law firms employed 10 solicitors or less and only around 18% employed 50 or more people. Around 56% of law firms in Wales reported having an annual turnover of £500,000 or less. 13 Solicitors Regulation Authority (SRA) data provided to the Commission on Justice in Wales for the “Justice in Wales for the people of Wales” report show that, as of 2019, there were 713 law firm offices in Wales, 436 being ‘head offices’ or firms with only one office (39 of which also had an office in England). Therefore, it is possible to estimate that around 10-15 % of Welsh law firms currently provide legal services outside of Wales, while most of the sector remains focused on the national market, a factor that is also correlated to the small size of the average Welsh law firm. According to The Legal 500 14 , Hugh James, Capital Law, Acuity Law, Geldards LLP, Blake Morgan LLP and Eversheds Sutherland (International) LLP are among the leading law firms in Cardiff. While Eversheds Sutherland (International) LLP and Blake Morgan have Welsh roots, having formed through mergers involving a Welsh law firm (respectively, Philips & Buck and Morgan Cole), the other law firms listed above were founded in Wales and retain their headquarters in Wales, despite their expansion to England and beyond. Despite being home to many commercially focused firms, the top three practice areas in Wales, as of 2019, were residential conveyancing, wills, trusts and tax planning, and family/matrimonial. 15 The geographical distribution of law firms in Wales is uneven. Data collected for the Jomati report indicate that, in 2019, over 60% of law firms were registered as working across south Wales, 20% in west Wales, 14% in north Wales, and only 5% in mid Wales. 16 This is a long-standing characteristic of the Welsh legal sector, already identified and researched in the 1990s 17 , which has led to the characterisation of legal services in rural Wales as “fragile”. 18 This fragility was further evidenced by the impact of COVID-19 and the ensuing recession, which overwhelmingly affected sole practitioners (-22.8 % between March 2020 and April 2023) 19 and resulted in a contraction of the number of law firms in Wales, from 387 in 2020 to 373 in 2021, a decrease largely caused by the closure of 11 high street firms (having fewer than 4 partners). 20 11 Law Society (n 6), 27. 12 Jomati report (n 3). 13 Ibid, 12. 14 The Legal 500, “Legal Market Overview”, available at https://www.legal500.com/c/wales/. 15 Jomati report (n 3), 14. 16 Ibid, 13. 17 See C. Harding and J. Williams (eds.), Legal Provision in the Rural Environment: Legal Services, Criminal Justice and Welfare Provision in Rural Areas (University of Wales Press, 1994). 18 A. Franklin and R.G. Lee, “The Embedded Nature of Rural Legal Services: Sustaining Service Provision in Wales”, (2007) 34(2) Journal of Law and Society 218, 224. 19 According to the SRA, there were 2,143 sole practitioners across England and Wales in March 2020 and 1,655 in April 2023. See Solicitors Regulation Authority, “Breakdown of solicitor firms”, available at https://www.sra.org.uk/sra/research- publications/regulated-community-statistics/data/solicitor_firms/. 20 Law Society (n 6) and Law Society, Trends in the solicitors' profession: annual statistics report 2020 (22 March 2022), available at https://prdsitecore93.azureedge.net/-/media/files/topics/research/annual-statistics-report-2020-april-2022.pdf.

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Solicitors in Wales are regulated by the SRA and are represented by The Law Society of England and Wales, a professional association which provides support to practising and training solicitors, and acts as a collective voice on behalf of the profession. b) Barristers As of June 2023, there are 360 barristers registered as working in Wales, up from about 325 in June 2019. 21 Welsh barristers, 53.6% of which are male and 46.4% female, are predominantly located in Cardiff, Swansea, Newport and a few other locations in south and west Wales (including Carmarthen, Neath, Port Talbot and Bridgend): there appear to be no barristers located in mid Wales and only 8 in north Wales. 22 Of the nine chambers in Wales, five are in Cardiff (9 Park Place, 30 Park Place, Apex Chambers, Civitas Law, Temple Court Chambers), three in Swansea (Iscoed Chambers, Angel Chambers, Pendragon Chambers) and one in Newport (Cathedral Chambers). The main areas of practice are crime (131 barristers, or 36.4%), family (125, 34.7%), public law (24, 6.7%) and personal injury (15, 4.2%). 23 These data mirror earlier findings. 24 The ratio 25 of barristers to people living in Wales, in 2021, was 1:8,974, which appears in line with the 1:8,294 ratio in England, excluding London. 26 However, the comparison is misleading, as mid Wales has no access to local barristers and north Wales has an effective ratio of 1:85,875. 27 The low number of barristers in north Wales could in part be due to Chester and Wales sharing a legal circuit until 2006 and a large number of barristers choosing to be based in Chester for convenience in order to practise in both north Wales and north-west England. Barristers are regulated by the Bar Standards Board and the representative body for barristers in England and Wales is the General Council of the Bar (known as the Bar Council). The Legal Services Board is an independent body sits above the SRA, Bar Council and other regulatory bodies of legal professionals, and oversees the regulation of all those providing legal services in England and Wales.

21 The Bar Council, “Demographics Dashboard”, available at www.barcouncil.org.uk/policy- representation/dashboards/demographics-dashboard.html.

22 Ibid. 23 Ibid. 24 Jomati report (n 3), 18.

25 This ratio has been calculated using (i) for the number of barristers (346 in Wales, 16,093 in England including London, 5756 in England excluding London), the Bar Council statistics for June 2021 (n 21), (ii) for the population data, the Office for National Statistics (ONS) population estimated for mid-2021 (n 9), (iii) for the population data for Greater London (8,796,628), the ONS data for mid-2021 as re-elaborated by the Greater London Authority, available at https://data.london.gov.uk/dataset/londons-population. 26 Including Greater London, the ratio in England was 1:3513, as of mid-2021. 27 Population data from Office for National Statistics, “Population and household estimates, Wales: Census 2021” (28 June 2022), available at https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/bulletins/populationandh ouseholdestimateswales/census2021. The population for North Wales was recorded as 687,000 as of 2021.

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c) Other legal professions In addition to solicitors and barristers, several other regulated legal professions provide services in Wales including Licenced Conveyancers, Chartered Legal Executives, Patent and Trade Mark Attorneys, Costs Lawyers, Chartered Accountants and Notaries. The Legal Services Act 2007 introduced the Alternative Business Structures (ABS), which allowed non- lawyers to become shareholders in law firms, to open up legal services and encourage innovation. They are regulated by the SRA just like traditional law firms and many offer other complementary services such as accounting and insurance. Examples of ABS operating in Wales include Admiral Law and NewLaw Solicitors. 1.2 Contribution to the Welsh economy Around 11,000 people were employed in legal services in Wales in 2020 28 , a sharp decrease from 16,000 in 2015. 29 However, during the same period, the Gross Value Added (GVA) contribution of legal services to the Welsh economy increased from 0.4 30 to over 0.5 billion GBP 31 , which corresponds to 0.8% of the total Welsh GVA in 2020. 32 While this is in line with the contribution of legal services to the Welsh economy in previous years 33 , it suggests that significant room for growth remains, as the GVA of Welsh legal services in 2020 was only 2.2 % of the UK total, surpassing only the GVA of legal services in Northern Ireland (1.5 %) and the North East of England (1.5 %). 34 As of 2022, the number of legal services enterprises in Wales was reported as 900 35 , an increase from 890 in 2018 36 , but still far from the 2015 peak of 955. 37 In this respect, as well as in relation to the number of 28 TheCityUK Legal excellence, internationally renowned – UK legal services 2022 (December 2022), at 31, available at https://www.thecityuk.com/media/5url4ni1/legal-excellence-internationally-renowned-uk-legal-services-2022.pdf 29 TheCityUK Legal Excellence Internationally Renowned: UK Legal Services 2017 (November 2017), as cited in The Commission on Justice in Wales, The role of Legal Services and the Legal Profession in the Welsh Economy (Welsh Government, 2018), at 2, available at https://www.gov.wales/sites/default/files/publications/2018-08/supplementary-evidence-welsh-government- commission-justice-in-wales-the-role-of-legal-services-and-legal-profession-in-welsh-economy.pdf. Other estimates suggest that the number of people employed in legal services in Wales in 2015 was lower, about 13,000, but evidence a similar declining trend (see Ifan (n 5), 11). 30 Ibid. 31 Ibid. 32 The total GVA in Wales in 2020 amounted to 66.6 billion GBP, according to the Office for National Statistics (see Welsh Government, “Regional gross domestic product and gross value added: 1998 to 2020”, (31 May 2022), available at https://www.gov.wales/regional-gross-domestic-product-and-gross-value-added-1998-2020) . 33 The Commission on Justice in Wales (n 1), para 9.27. 34 TheCityUK (n 28), 30. See also KPMG, Contribution of the UK legal services sector to the UK economy (January 2020), available at https://assets.kpmg.com/content/dam/kpmg/uk/pdf/2020/10/kpmg-contributions-of-legal-services-sector-in-the-uk.pdf, at page 26, which confirms similar estimates for 2017. 35 Office for National Statistics, “UK business; activity, size and location: 2022” (28 September 2022), available at www.ons.gov.uk/businessindustryandtrade/business/activitysizeandlocation/bulletins/ukbusinessactivitysizeandlocation/2022. 36 Ifan (n 5), 6. 37 Ibid.

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employees in legal services, Wales compares favourably with other regions of the UK, performing at similar levels. 38 However, the contribution of the legal services sector to the economy remains notably lower than in the rest of the UK.

1.3 Issues affecting current and future growth Overall, the Welsh legal sector appears to remain undersized, at least when compared to England. The insufficient allocation of resources to the justice system has proven to be a long-standing challenge for the Welsh legal sector, as highlighted by the Commission on Justice in Wales in 2019. 39 This included reductions in the Westminster Justice and Home Office budgets 40 – which seem to be continuing at present, due to the effect of high inflation 41 -, legal aid cuts 42 and reductions in funding for the youth justice system 43 and the Crown Prosecution Service 44 . In addition to funding issues, other factors appear to limit the growth of the Welsh legal sector. These include: a) geographic distribution, b) fragmentation and lack of coordination, c) advice deserts, d) slow As evidenced by the data examined above, the geographical distribution of legal services in Wales shows a concentration in south Wales and west Wales and, within these regions, in Cardiff, Swansea and, to a lesser extent, Newport. The availability of legal services in rural parts of Wales, and in particular in Mid Wales, is limited. With the proximity of larger cities with a high concentration of legal services providers just over the border from Wales, such as Bristol, Chester, Manchester and Liverpool, it is likely that Welsh firms lose out to firms in these cities. The reasons for this could include better transport connections, higher competition driving costs down, and a higher concentration of expertise in these cities. b) Fragmentation and lack of coordination The Thomas Commission highlighted, in several areas of its report, the need to encourage greater collaboration within the Welsh legal sector. These areas include: adoption of legal technology. a) Geographical distribution

38 Ifan (n 5), 27. 39 The Commission on Justice in Wales (n 1), chapter 2.

40 The Commission on Justice in Wales (n 1), para 2.99. See also House of Commons Library, The spending of the Ministry of Justice (1 October 2019), available at https://researchbriefings.files.parliament.uk/documents/CDP-2019-0217/CDP-2019- 0217.pdf. 41 The Law Society Gazette, “Autumn statement: Real terms cut for justice spending” (17 November 2022), available at https://www.lawgazette.co.uk/news/autumn-statement-real-terms-cut-for-justice-spending/5114334.article. 42 The Commission on Justice in Wales (n 1), paras. 2.103-2.105. 43 Ibid, paras 2.110-2.111. 44 Ibid, para 2.118.

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a) collaboration between law firms and other professional firms, to create business networks, in particular in rural areas 45 ; b) collaboration between law firms, for example through fee share arrangements for referrals, in particular to support small law firms 46 ; c) collaboration between law firms and universities, to develop the pool of law graduates and increase knowledge transfer 47 . To support these collaborations, the Thomas Commission suggested a range of initiatives including a mentoring and coaching scheme, a matching service for practitioners seeking to merge their businesses, discussion groups for professionals, and legal hubs across Wales. 48 Lord Lloyd-Jones, in his 2017 speech at the Legal Wales Conference, called for an umbrella body to be a voice for legal Wales to encourage cooperation and collaboration with an emphasis on promoting awareness of Welsh law, ensuring that Welsh language resources are available, and to ensure that Welsh law schools, the judiciary and legal professionals are supported to provide or receive the necessary training, including in legal tech, to be successful in practice. 49 Welsh Government, as well as the Law Society, SRA, and other organisations, such as Legal News Wales, have taken steps in the direction of increasing coordination and collaboration in the sector. For example, Legal News Wales, together with the Cardiff and District Law Society’s LawTech Committee, has launched a survey on technology adoption in 2021 50 and is currently planning a LegalTech showcase in the autumn of 2023. The Department for Economy and Transport of Welsh Government has recently launched another survey 51 , with input from the Law Society, Legal News Wales, the SRA and the Legal Innovation Lab Wales at Swansea University. The Justice Policy department and Business Wales are also contributing to a range of initiatives in collaboration with the Law Society, such as funded access to Cyber Essentials certification for Welsh law firms. 52 At industry level, Legal Network operates as a free referral network for law firms, with a fee share arrangement, thus promoting collaboration between law firms. 53 The SRA 54 and LawTech UK 55 have also led initiatives to bring together the Welsh legal sector, including law firms, start-ups and researchers.

45 Ibid, para 9.55. 46 Ibid, para 9.73. 47 Ibid, para 9.55. 48 Ibid, para 9.75 (and included subparagraphs).

49 The Commission on Justice in Wales, Law Council of Wales - Discussion and Consultation Paper (2018), available at https://www.gov.wales/sites/default/files/publications/2018-10/law-council-of-wales-discussion-consultation-paper.pdf. 50 Business Wales, “LawTech Wales Survey 2021“ (9 August 2021), available at https://businesswales.gov.wales/news-and- blogs/news/lawtech-wales-survey-2021. 51 Cardiff University, “Digital Adoption Survey for the Legal Sector in Wales 2023”, available at https://cardiff.qualtrics.com/jfe/form/SV_02mPOeWPDKfI2Ka?Q_CHL=qr. 52 Emma Waddingham, “Funded Cyber Essentials Launches for Law Firms in Wales” (Legal News Wales, 2 September 2022), available at www.legalnewswales.com/news/funded-cyber-essentials-launches-for-law-firms-in-wales/. 53 Hugh James, “Legal Network”, available at https://www.hughjames.com/service/legal-network. 54 A SRA Innovate event was held in Swansea on 7 July 2022. See Solicitors Regulation Authority, “News” (5 May 2022), available at https://www.sra.org.uk/sra/news/sra-update-103-innovate/. 55 An event jointly organised by LawTech UK and Swansea University was held in Cardiff on 14 June 2023. See LawTech UK, “The Future of Lawtech in Wales” (16 May 2023), available at https://lawtechuk.io/news/cardiff.

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Despite all these positive examples, there appear to be two main obstacles to greater collaboration and coordination in the sector: (i) the need for a joined-up approach to the Welsh legal ecosystem, involving all the relevant stakeholders, and (ii) the challenges presented by a sector characterised by a preponderance of small firms, which may lack capacity for sustained engagement and retain a strong individual identity. The first obstacle was directly addressed by the creation of the Law Council of Wales in 2022, defined by its constitution as “a forum for the legal sector to come together to deliberate and act on common issues affecting the legal sector in Wales 56 ”, including “[d]eveloping a collective approach to the economic development of the legal sector in Wales to promote the sector and facilitate its growth and sustainability 57 ”. The establishment of the Law Council of Wales was recommended by the Thomas Commission 58 and its executive committee consists of prominent members of the legal sector in Wales including members of the judiciary, academics, practising legal professionals and various legal organisations. The Council’s work to date involves establishing working groups in the areas of legal education and training and legal services. 59 The second obstacle appears to be more challenging to address, although the technological transformation that the sector is undergoing appears to provide a strong opportunity for greater collaboration, as discussed later in this report. c) Advice deserts With a significant percentage of Wales’ legal services focused around Cardiff and Swansea, and the significant cuts to Legal Aid funding since 2012, this is thought to have contributed to an ‘advice desert’ in rural and post-industrial areas of Wales. As these areas tend to be more traditional ‘high street’ firms dealing in civil, family and criminal matters where Legal Aid funding has been dramatically reduced, this has led to fewer viable legal practices and a barrier to accessing justice for consumers. 60 The level of Legal Aid spent in Wales has fallen from £113.60m in 2011/2012 to £80.14m in 2018/19. 61 d) Slow adoption of legal technology Legal technology has been highlighted as an area which particularly requires increased awareness, guidance and training in Wales. 62 The Jomati report found that “the country’s LegalTech and online legal services market barely exists at all 63 ”. The finding was echoed by the Thomas Commission, which recommended that “Welsh Government should provide strong support for investment in technology 64 ”, 56 Law Council of Wales, Law Council of Wales Constitution (31 January 2022), Schedule 1, available at https://www.lawcouncil.wales/_files/ugd/d065c0_be44ef1850e74c679e5359dae3136d39.pdf. 57 Ibid. 58 The Commission on Justice in Wales (n 1), recommendation 65 (p. 26). 59 Emma Waddingham, “A Forum for a Resilient, Relevant and Accessible Legal Sector in Wales” (Legal News Wales, 4 July 2022), available at https://www.legalnewswales.com/features/a-forum-for-a-resilient-relevant-accessible-legal-sector-in-wales/. 60 The Commission on Justice in Wales (n 1), paras. 9.70-9.71. 61 Ibid, para 2.103. 62 Jomati report (n 3), 112. 63 Ibid, 6. 64 The Commission on Justice in Wales (n33) 403

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with a view to “establishing a technology-based nearshoring centre 65 ”. The Thomas Commission also noted that “greater focus is needed in law schools on legal tech, which is crucial for the success of the legal profession in Wales” and recommended that legal technology should be taught in law schools. 66 The composition of the legal sector in Wales explains some of the challenges encountered in adopting technology. A report by the University of Oxford for the SRA noted that the top three barriers to adopting new technologies reported by legal professionals are a lack of financial capital, lack of staff with appropriate expertise and regulatory uncertainty. 67 For smaller firms, the element of risk involved would be greater than that for larger firms, and cost and expertise barriers are self-evident in such context. 68 Consumer appetite may also be reduced in rural parts of Wales, thus deterring investment from law firms: Welsh Government warned, for example, of the dangers of increasingly utilising technology and digitalising services, which could potentially restrict access to justice by excluding the 7% of the population that do not use the internet. 69 Lessons from the experience of FinTech suggest that Wales represents, in any case, fertile ground for the transformation of traditional services sector into technology-driven, dynamic ones. Indeed, FinTech is an area of innovation in technology which has seen successful in Wales and is aspirational to what the LegalTech industry could similarly achieve. After the compound semi-conductor industry, FinTech is the largest start-up area in Wales. Notable start-ups based in Wales in this area include Yoello, a mobile payment app; Coincover, which protects digital assets; and Delio, which connects potential investors with opportunities. Wales is home to around 128 FinTech companies, which contributed £3.6bn to the Welsh economy in 2021. 70 There are an estimated 55,000 people employed within the financial services sector in Wales, around 16,000 of those in the Fintech sector. 71 An estimated 22,000 students study FinTech- related subjects in Wales. 72 The sector is supported by FinTech Wales, a non-profit association whose purpose is to bring together people across the sector to share ideas, support, training and build a community. Relevant support is also provided by Business Wales, Technology Connected, and Blockchain Connected.

65 Ibid 407 66 Ibid 13

67 M. Sako and R. Parnham, Technology and Innovation in Legal Services: Final Report for the Solicitors Regulation Authority (University of Oxford, 2021), available at www.sra.org.uk/globalassets/documents/sra/research/chapter-2---technology-and- innovation-in-legal-services.pdf?version=4a1bfe, at 31. 68 Ibid, 30. 69 Welsh Government Delivering Justice for Wales (May 2022), available at www.gov.wales/sites/default/files/publications/2022- 06/delivering-justice-for-wales-may-2022-v2.pdf. 70 FinTech Wales, 2021/2022 FinTech in Wales (2022), available at https://fintechwales.org/wp- content/uploads/2022/11/FinTech-Wales-Annual-Report-2022.pdf, at 11. 71 Ibid, 25. 72 Trade and Invest Wales, Together Stronger: The Rise of Welsh FinTech (25 January 2023), available at https://tradeandinvest.wales/inside-story/together-stronger-rise-welsh-fintech.

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2 – LegalTech, LawTech and legal innovation: the future of legal services

In this chapter, we discuss the role that technology plays in shaping the future of legal services, reviewing some of the most significant initiatives that have supported the exponential growth of legal technology in the United Kingdom in recent years. We briefly analyse the two most common terms used in the sector to describe the use of technology in law - LawTech and LegalTech -, before setting out a definition of legal innovation for the purposes of this report. 2.1 Recognising the role of technology in law The role of technology as a critical factor in the transformation of the legal services sector has long been recognised in academic research 73 . Professor Richard Susskind, a pioneering researcher in LegalTech, has suggested that technology is a disruptive force that confronts the sector with the need to embrace innovation: Rather than automate, many systems innovate, which, in my terms, means they allow us to perform tasks that previously were not possible (or even imaginable). There is a profound message here for lawyers – when thinking about technology and the internet, the challenge is not just to automate current working practices that are not efficient. The challenge is to innovate, to practise law in wats that we could not have done in the past. At the same time, though, many of these innovative technologies are disruptive. […] These pervasive, exponentially growing, innovative technologies will come to disrupt and radically transform the way lawyers and courts operate. 74 Beyond academia, the UK Government, Welsh Government, sector regulators (Solicitors Regulation Authority, Bar Standards Board, Legal Services Board), and other key stakeholders (including the Law Society and the Bar Council) have come to similar conclusions on the role of technology in law, seeking to support the sector in embracing the opportunities for technological growth. To offer only a few examples, the UK Government funds LawTech UK 75 , a hub that supports legal start- ups and law firms in their engagement with technology and innovation, delivered in collaboration with Tech Nation (until 2023) and Codebase and Legal Geek (currently). Among various other initiatives, LawTech UK provides networking opportunities, education and training, support for start-ups through sandboxes and mentoring, and convenes the Regulatory Response Unit to coordinate the work of 73 See, for example, William T. Braithwaite, “How is technology affecting the practice and profession of law?”, (1991) 22 Texas Tech Law Review 1113; D.S. Wall and J. Johnstone, “The Industrialization of Legal Practice and the Rise of the New Electric Lawyer: The Impact of Information Technology upon Legal Practice in the U.K.”, (1997) 25 International Journal of the Sociology of Law 95; R. Susskind, The future of law: facing the challenges of information technology (Clarendon Press 1998). By the end of the 1990s, the transformative role of technology for the legal profession had already been identified and recognised. 74 R. Susskind, Tomorrow’s Lawyers: An Introduction to Your Future (2 nd edition, Oxford University Press 2017) 14-15. 75 See https://lawtechuk.io/.

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regulators. The Government Legal Department has also partnered with the University of Oxford for the Oxford LawTech Education Programme 76 . UKRI has funded research into legal technology via its Next Generation Services Industrial Strategy Challenge Fund 77 , while Innovate UK has supported several legal technology start-ups, through its Sustainable Innovation Fund 78 , the Global Incubator Programme 79 , the Innovation Lab 80 , and other schemes. Welsh Government has also supported research in, and engagement with, legal technology. Welsh Government has undertaken or commissioned a number of reports on the legal sector in Wales (from the Justice in Wales report 81 to the Jomati report 82 and, more recently, the cmp21 report 83 on small Welsh law firms), placing an emphasis on the impact of technology on the Welsh legal sector. In 2023, Welsh Government has commissioned a Digital Adoption Survey 84 to understand how the sector is using technology and what barriers it is encountering. Further, Welsh Government has supported a wide range of initiatives to help the sector embrace legal technology, from funding for major innovation centres like the Legal Innovation Lab Wales at Swansea University 85 and the Innovation Hub at Cardiff University 86 , to support for Cyber Essentials and Cyber Essential Plus certification 87 . Additionally, Welsh Government, in its 2021-2026 programme “The Future of Welsh Law 88 ”, seeks to “explore the potential for using machine learning and artificial intelligence to make Welsh law more accessible 89 ” and has collaborated with Swansea University to organise the first hackathon on technology for legislation in 2022. 90 76 University of Oxford, “Training lawyers for a digital world”, available at https://www.socsci.ox.ac.uk/training-lawyers-for-a- digital-world. 77 UKRI, Next Generation Services Challenges (March 2022), available at https://www.ukri.org/wp- content/uploads/2022/03/5980-Next-generation-brochure-CS-v2-1.pdf. 78 Neil Rose, “Law firm and start-ups awarded government cash to develop lawtech” (2 December 2020) https://www.legalfutures.co.uk/latest-news/law-firm-and-start-ups-awarded-government-cash-to-develop-lawtech. 79 UKRI, “Global Incubator Programme: business acceleration for SMEs”, available at https://www.innovateukedge.ukri.org/enter-new-markets/Global-Incubator-Programme. 80 TechUK, “New Innovation Lab launched by Innovate UK” (1 July 2019), available at https://www.techuk.org/resource/new- 83 Emma Waddingham, “Business Wales launches “critical” research on the future of small Welsh law firms” (Legal News Wales, 18 January 2023), available at https://www.legalnewswales.com/news/business-wales-launches-critical-research-on-the-future- of-small-welsh-law-firms/. At the time of writing, the report had not yet been published. 84 Emma Waddingham, “New Digital Adoption Survey for the Legal sector in Wales” (Legal News Wales, 15 May 2023), available at https://www.legalnewswales.com/news/new-digital-adoption-survey-for-the-legal-sector-in-wales/. 85 Welsh Government, “EU funding to help Law Lab deliver universal access to justice” (30 October 2019), available at https://www.gov.wales/eu-funding-to-help-law-lab-deliver-universal-access-to-justice. 86 Welsh Government, “£9.5 million new Innovation Hub to support Wales become a global leader in cyber security” (10 May 2022), available at https://www.gov.wales/new-innovation-hub-to-support-wales-become-a-global-leader-in-cyber-security. 87 Technology News Wales, “Cyber Security Company to Deliver Welsh Government-Funded Support to Wales-based Law Firms” (22 September 2022), available at https://businessnewswales.com/cyber-security-company-to-deliver-welsh-government- funded-support-to-wales-based-law-firms/. 88 Welsh Government, “The future of Welsh law: A programme for 2021 to 2026” (21 September 2021), available at https://www.gov.wales/the-future-of-welsh-law-accessibility-programme-2021-to-2026-html. 89 Ibid. 90 Legal Innovation Lab Wales, “Legal Hackathon Wales” (2022), available at https://legaltech.wales/legal-hackathon-wales- 2022. innovation-lab-launched-by-innovate-uk.html. 81 The Commission on Justice in Wales (n 1). 82 Jomati report (n 3).

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The Solicitors Regulation Authority (SRA) has been particularly active in supporting engagement with legal technology and addressing regulatory challenges. Legal technology and innovation were identified as one of the core objectives of the 2020-2023 SRA Corporate Strategy 91 and remain a key priority in its draft strategy for 2023-2026. 92 The regulator also appointed in 2020 an Executive Director for Strategy and Innovation with experience in the fast-growing financial sector 93 and an experienced Head of Technology. 94 SRA Innovate, in addition to providing access to guidance and one-to-one support to technology firms and law firms 95 , publishes the Lawtech Insight newsletter, organises events in England and Wales, and participates in a number of initiatives, including collaborations with universities, support for LawTech UK sandboxes and more. 96 The SRA has commissioned research into “Innovation and technology in the legal sector 97 ”, as well as into the attitudes of the public and solicitors towards technology in legal services 98 (with the Legal Services Board), and has partnered with universities and local authorities to assess the role of technology in access to justice. 99 The Legal Services Board LSB has also commissioned research, together with LawTech UK, on legal technology and its impact on SMEs 100 , outlined priorities for technological innovation in law 101 , published a collection of articles on “Perspectives on LawTech and Regulation” and the “Talking Tech” podcasts series dedicated to technology and regulation. 102 The Bar Standards Board has supported the LawTech UK sandboxes 103 , collected information on use of technology and perceived barriers and risks via the Regulatory Return 104 , and is currently commissioning further research into “Technology and Innovation at the Bar 105 ”. 91 Solicitors Regulation Authority, “SRA Corporate Strategy 2020 to 2023” (20 March 2020), available at https://www.sra.org.uk/sra/corporate-strategy/. 92 Solicitors Regulation Authority, “Open Consultation” (10 May 2023), available at https://www.sra.org.uk/sra/consultations/consultation-listing/corporate-strategy-2023-26/. 93 Solicitors Regulation Authority, “SRA appoints Executive Director Strategy and Innovation” (3 February 2020), available at https://www.sra.org.uk/sra/news/tracy-vegro-exec-director/. 94 Legalex, “Ben Wagenaar”, available at https://www.legalex.co.uk/speakers/ben-wagenaar. 95 Solicitors Regulation Authority, “What is our offer?” (July 2021), available at https://www.sra.org.uk/solicitors/resources/sra- innovate/what-is-our-offer/. 96 Solicitors Regulation Authority, “Innovate Projects” (December 2022), available at https://www.sra.org.uk/solicitors/resources/sra-innovate/innovate-projects/. 97 Solicitors Regulation Authority, “Innovation and technology in legal services” (January 2022), available at https://www.sra.org.uk/home/hot-topics/innovation-technology-legal-services/. 98 Legal Services Board, “New research reveals the appetite for lawtech among the public and legal professionals” (31 May 2022), available at https://legalservicesboard.org.uk/news/new-research-reveals-the-appetite-for-lawtech-among-the-public-and-legal- professionals. 99 Solicitors Regulation Authority, “Further fund award is an opportunity to connect innovative services with those who need legal help” (16 September 2021), available at https://www.sra.org.uk/sra/news/press/2021-press-releases/regulators-pioneer- fund-2021/. 100 Legal Services Board, Qualitative research into SMEs’ legal needs and adoption of lawtech (October 2021), available at https://legalservicesboard.org.uk/wp-content/uploads/2021/10/Lawtech-and-SMEs-report-October-2021.pdf. 101 Legal Services Board, Striking the balance: how legal services regulation can foster responsible technological innovation (April 2021), available at https://legalservicesboard.org.uk/wp-content/uploads/2021/04/Striking_the_Balance_FINAL_for_web.pdf. 102 Legal Services Board, “Talking tech podcasts”, available at https://legalservicesboard.org.uk/our-work/ongoing- work/technology-and-innovation/developing-the-next-phase-of-our-work-on-technology-and-innovation/talking-tech- podcasts. 103 Bar Standards Board, progress update for Lord Evans, available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/956810/AI_survey_responses_ updated.pdf. 104 Ibid. 105 Bar Standards Board, “Action plan – Transformational change”, available at https://www.barstandardsboard.org.uk/uploads/assets/914f0b5e-fd73-40ab-906a69804631ac2f/LSB-action-plan-final.pdf.

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The Law Society has recently collaborated with academic researchers to evaluate adoption, attitudes towards, and intended use of legal technology within solicitor firms. 106 It has also produced guidance and training materials on legal technology 107 , including on ethical aspects 108 , developed the “Tech Talks” podcast series 109 , published research on legal technology adoption 110 , and designed a technology curriculum for solicitors. 111 The Bar Council offers a resources section on its website with (infrequent) technology updates and Q&A. 112 At the industry level, the importance of technology in law has found clear recognition in the efforts of major law firms to develop innovative products, support legal technology providers, and introduce technology across many of their services. Examples abound: Linklaters backed its own legal technology start-up, Nakhoda, in 2017 113 and has developed a number of highly successful technology products, including CreateIQ 114 ; Allen & Overy has opened the Fuse hub to support the development of legal technology and collaboration between technology providers, clients and the firm’s lawyers 115 ; Simmons & Simmons acquired technology firm Wavelength in 2019 116 , to create its own legal engineering firm, Simmons Wavelength 117 ; Mishcon de Reya’s MDR Lab provides an incubator for legal technology start- ups 118 ; Slaughter and May runs a Collaborate programme for innovator and entrepreneurs 119 , offers a Client Innovation Network for in-house legal teams 120 , and spearheaded development of Luminance 121 , a leading AI legal technology product. 106 The Law Society, “We've collaborated on a new report on attitudes towards Lawtech adoption with University of Manchester and UCL” (5 July 2023), available at https://www.lawsociety.org.uk/topics/research/read-our-new-report-on-attitudes-towards- lawtech-adoption. 107 The Law Society, “Lawtech”, available at https://www.lawsociety.org.uk/campaigns/lawtech/. 108 The Law Society, “Lawtech and ethics principles report” (28 July 2021), available at https://www.lawsociety.org.uk/topics/research/lawtech-and-ethics-principles-report-2021. 109 The Law Society, “Tech Talks - an introduction to lawtech” (21 May 2019), available at https://www.lawsociety.org.uk/campaigns/lawtech/podcasts/tech-talks-an-introduction-to-lawtech. 110 The Law Society, “Lawtech Adoption Research report” (14 February 2019), available at 112 The Bar Council, “Resource Library”, available at https://www.barcouncil.org.uk/resource-library.html?q=technology. 113 The Global City, “Nakhoda CEO Shilpa Bhandarkar tells us about the thriving UK legal tech scene”, available at https://www.theglobalcity.uk/resources/case-studies/nakhoda. 114 Linklaters, “Linklaters > Nakhoda”, available at https://www.linklaters.com/en/about-us/nakhoda. 115 Allen & Overy, “Tech innovation”, available at https://www.allenovery.com/en- gb/global/expertise/advanced_delivery/tech_innovation. 116 Caroline Hill, “Why Wavelength sold to Simmons” (Legal It Insider, 9 September 2019), available at https://www.lawsociety.org.uk/topics/research/lawtech-adoption-report. 111 The Law Society, “Improve your professional development”, available at https://learn.lawsociety.org.uk/?fwp_curriculum=technology.

https://legaltechnology.com/2019/09/09/why-wavelength-sold-to-simmons/. 117 See https://www.simmons-simmons.com/en/expertise/service/wavelength. 118 See https://lab.mdr.london/. 119 See https://www.slaughterandmay.com/our-firm/innovation/collaborate/. 120 See https://www.slaughterandmay.com/our-firm/innovation/client-innovation-network/.

121 Slaughter and May, “Luminance launches with backing of invoke capital and in collaboration with Slaughter and May” (14 September 2016), available at https://www.slaughterandmay.com/news/luminance-launches-with-backing-of-invoke-capital- and-in-collaboration-with-slaughter-and-may/.

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