The Legal Services Board Says Evidence to Date Suggests Alternative Business Structure Status Alone Is Not a Reliable Indicator of Consumer Risk

The Legal Services Board oversees the regulation of legal services in England and Wales. Its annual report and accounts for 2025-26 was ordered by the House of Commons to be printed on June 25, 2026. The report says the board is required to comment in its annual report on how the activities of licensing authorities and alternative business structures, or ABS, have affected the regulatory objectives. Parts of the report's section on ABS follow, not the whole report.

Licenses and the Wider Market

The number of ABS firms operating in England and Wales, the report says, "has shown a slow but steady increase over time." According to the frontline regulator's records, "by the end of March 2018, a total of 1,075 ABS licenses had been issued, and by the end of March 2026, this had increased to 1,790."

"While growth in ABS licensing has been gradual, the wider market context in which ABSs operate has changed more rapidly." Recent years, the report says, "have seen increased levels of private equity investment and merger and acquisition activity across the legal sector." It goes on: "This investment spans both ABS and non-ABS firms and reflects a range of drivers, including competitive pressures, the search for scale, and interest in technology-enabled service delivery."

How much of this is attributable to the ABS regime itself, rather than broader market and economic factors, "remains unclear."

Mixed and Uncertain

"The implications of these developments for consumers and competition are mixed and uncertain." More outside money may intensify competition in the short term, the report says, potentially improving efficiency, innovation and service quality. But there is also a risk that continued consolidation "could reduce competition over time or give rise to business models that prioritise short-term financial returns over long-term resilience." And it adds: "Where firms are acquired primarily for investment purposes, there may be heightened risks to financial sustainability, particularly if investor incentives are misaligned with consumer protection objectives."

The report moves the question from who owns a firm to how it is run. What would show a client, or a regulator, how a firm bought by outside owners is governed in practice?

Both Opportunities and Risks

On consumer risk, the report says that "evidence to date suggests that ABS status alone is not a reliable indicator of consumer risk." An analysis of the Solicitors Regulation Authority's disciplinary outcomes, it says, shows that ABS firms fare no better or worse than traditional law firms overall, "with consumer risk more closely associated with firm-level governance, financial controls and management quality than ownership structure."

The board's own Technology and Innovation Survey, the report adds, indicates that ABS firms are more likely than non-ABS firms to report having introduced innovations in recent years, and to cite service quality, cost reduction and responsiveness to client needs as drivers for change. These findings, it says, point to potential benefits associated with some ABS models, "while underlining the importance of effective oversight and management."

Overall, the report says, the available evidence suggests that ABSs present both opportunities and risks, and that their impact on the regulatory objectives "depends less on legal form and more on how firms are governed, financed and operated in practice." The report says there remains limited evidence on the long-term effects of evolving business models, and that "further monitoring and analysis will be needed to assess their implications for consumers, competition and market resilience over time."