Watchdog's damning report charges Scots legal profession with conflicts of interest and unaccountability

But the LSS and the FSS say that the Competitions and Markets Authority's proposals will just increase the costs of regulation, which in turn "would have an impact" on the cost of legal services for consumers in Scotland.

Full details of the Competitions and Markets Authority's damning report into the legal services market revealed for the first time found there was a "conflict of interest" between the Law Society's role as a representative body for the legal profession while also acting as a regulator to protect the interests of consumers and the wider public.

It said a professional body which was also acting as a regulator was less likely to be open to new ways of doing business that may increase competition that would reduce costs to the public.

It found that the process for setting and approving funds for the LSS's regulatory work "lacks transparency" and that its decision-making process was "opaque".

It questioned its independence, pointing out that all appointments to the regulatory committee are made to the LSS Council with members able to sit on both bodies. The CMA said that the overlap between the two "remains considerable" and that it appeared to give the council a "monitoring function and strong influence".

"The current regulatory structure of the LSS thus provides opportunities for both actual and perceived conflicts of interest to arise," said the CMA.

It said concerns about a "distinct lack of transparancy" over regulation, governance and how decisions are made existed within the FOA's work.

Leading English legal costs expert Jim Diamond, who was asked to contribute to a round table meeting on a similar CMA probe into the England and Wales legal system said the report was "far more damning" than the south of the border equivalent. The CMA gave England and Wales three years "to get their act together" in 2016, he said.

The CMA said with both legal bodies there was a "lack of detailed information" on regulatory activities, costs and governance "which prevents each regulator "from being effectively held to account and challenged in regard to the fulfilment of its regulatory duties".

It said their probe was carried out as there were "indications" that the legal services sector may not be providing "good outcomes" for people with consumer complaints "increasing".

It found that the legal profession did "not have strong incentives to be transparent about their prices and quality" with just six per cent of those firms surveyed publishing prices on their websites. A further 72% had no plans to do so.

In taking aim at the Faculty of Advocates, it said that as they do not interact directly with consumers "there is even less evidence of consumer focus..." It exhibited a lack of transparency by failing to outline its regulatory work, the CMA said.

The report said that leading Scottish legal firm Harper Macleod noted that under the current regulatory system, certain conduct complaints are prosecuted by peers of the solicitor facing the complaint who, "as competitors of the subject of the complaint, cannot therefore be considered wholly impartial".

The Scottish Legal Complaints Commission, the government agency that deals with unresolved complaints against legal practitioners noted that the LSS does not allow others to access the regulatory data it collects, some of which could be "useful in monitoring the sector and alerting consumers or other relevant bodies to potential risks".

The SLCC said the LSS may withhold information in order to "protect the privacy of members, or to benefit commercially from exclusive access to such information, when it could be in the public interest for it to be disclosed".

The CMA's investigation also uncovered changes to the legal profession's indemnity cover, knowns as the Master Policy as an example of decisions that prioritised the interests of members over consumers.

The changes allowed members to opt for a higher excess in exchange for lower premiums, which "could put their ability to compensate consumers in the event of a claim at risk".

The CMA report said: "As such, this would pose a significant risk to consumer redress. The SLCC considered that this change reflects organisational conflicts in how the LSS achieves its regulatory objectives..."

The SLCC also told competition investigators it found it "difficult to engage" with the LSS because there were "internal splits" over issues, in particular on the appropriate standard of proof in conduct complaints cases.

While the LSS Council wanted to keep the status quo, the regulatory committee argued for lowering the bar to successful prosecution.

"The SLCC noted that this particular internal division may have disadvantaged consumers by holding back a change to the standard of proof."

The CMA also raised concerns that both the LSS and the FoA failed to publish minutes of meetings over regulation.

And neither could be forced to publish details under the Freedom of Information (Scotland) Act 2002, "even though there is a clear public interest component in their activities".

It said that an independent regulator of the Scottish legal profession would provide "greater transparency and accountability and increased public trust" as well as "consistent standards across entry requirements, entics, monitoring, complaints and redress, set in a way that is targeted and proportionate to the consumer interest".

The CMA also pointed to a lack of transparency with the LSS's regulatory committee which did not publish a standalone annual plan explaining and justifying its activities and outcomes. Other information appeared to be "targeted at members rather than consumers or the wider public..."

The CMA has proposed a series of measures to improve the information made available to people to make it easier for them to shop around when arranging a house purchase, dealing with a divorce or when needing to make bereavement arrangements.

The CMA carried out an investigation into whether there was evidence of a lack of competition among legal service providers in Scotland particularly on how it reflects on the transparency of information on price and quality.

It found that prices between different solicitors varied "significantly" for essentially the same services.

For example, the price of a standard will may vary from around £100 to £200 and the cost for an undefended divorce may vary from around £300 to £925.

It wants the LSS to review the impact of existing price and service transparency guidance, including whether mandatory rules could strengthen what information is available.

It said:"Well-functioning legal services are critical to people and businesses, who can face costly legal needs at important moments in their lives. However, there are indications that the Scottish legal services sector may not currently be delivering good outcomes for people.

"Consumer complaints are increasing; high street solicitors are facing challenging market conditions; and regulation in Scotland has not adequately responded to new market pressures."

Roddy Dunlop QC, vice-dean of the Faculty of Advocates, said: “The Faculty notes the CMA’s paper and its suggestions which will require time to examine in detail. We are committed to playing a full and constructive part as the Scottish Government takes forward its consideration of reforms of Scotland’s legal services.”

John Mulholland, president of the Law Society of Scotland said they want to consider the content of the CMA probe "carefully over the coming months".

He added: "On the issue of wider reform, the CMA started its work with a clear policy position in favour of creating a new regulatory body. So it is no surprise to see it reiterating that position. However, at this of all times, we must avoid creating complicated new structures which add little benefit and only serve to build in extra costs for legal firms. All this would do is increase prices for consumers and undermine the competitiveness of the Scottish legal services market.

"Some of the recommendations around price transparency involve actions which we are already committed to taking forward at the appropriate time."