Malaysia’s regulatory hurdle poses a challenge for NewLaw in Asia.

As the Star Online, Asian Legal Business and Marcus van Geyzel, lawyer and co-author of TheMalaysianLawyer.com — all detailed last month — Hong Kong-based legal startup Dragon Law is facing regulatory scrutiny by the Malaysian Bar after its recent entry into the local market.

Dragon Law is among a small number of Asia-Pacific Region legal startups and NewLaw firms that are pioneering new delivery models for legal services to consumers and businesses.  In the case of Dragon Law, its services revolve primarily around the provision of custom legal documents — a similar offer to LegalZoom in the United States and LawPath in Australia.  NewLaw firms also include services providers that second lawyers into the general counsel’s office, including Axiom and AdventBalance, both of whom operate in the Asia-Pacific region.

As with many disruptors in other industries including AirBnB in lodging services and Uber in taxi services – regulatory scrutiny has been a consistent challenge to the expansion of alternative legal services offers in various jurisdictions around the world.  To gain insight into the prospects for NewLaw in the Asia-Pacific in general and Malaysia in particular, I interviewed Marcus van Geyzel, Malaysian lawyer and co-author of TheMalaysianLawyer.com and Eric Chin, long-time Asia-Pacific legal services analyst — for this article.  Here’s what they had to say:

Navigation of regulatory roadblocks a necessity in Malaysia

As van Geyzel detailed:  “The challenge for those looking to introduce NewLaw models into the Malaysian market is that the restrictions under the Legal Profession Act (LPA) are worded very widely, and it is possible for those restrictions to be interpreted in a manner which catches almost all NewLaw type activities which have been successfully introduced in other jurisdictions.

The Bar Council’s comments about Dragon Law, and the fact that the Bar Council persisted (and succeeded) with a court case over several years to prohibit Answers In Law from operating, hints that the Bar Council will be very active in resisting many of the NewLaw models.

Based on the recent experiences of legal-related services such as Locum Legalis and Burgielaw, neither of which are as disruptive to the legal market as many NewLaw businesses, any product or service which is even remotely related to legal services will have to navigate roadblocks in bringing their services to the market. These roadblocks could arise because of complaints made pursuant to the LPA, or proactive action by the Bar Council to prohibit or request modifications (such as the removal of monetisation mechanisms) to the structure.

My concern is that with the strict stance taken by the Bar Council, it is lawyers who will lose out. Non-lawyers have a competitive advantage, as they have less to fear from breaching the LPA. As we have seen in many jurisdictions and with the disruption of other industries, it is just a matter of time before these NewLaw models will be legitimately introduced here. I hope that the Bar Council will encourage innovation and support lawyers in being a part of the NewLaw wave that is being experienced all over the world.”

Malaysia’s regulatory environment is not representative of the whole of the APAC

As Eric Chin explained:  “While Malaysian Bar Council’s recent investigation into Dragon Law’s entry and services in the Malaysian legal services industry might paint a hostile environment for legal innovation in Asia, it would be a misrepresentation of the whole region. As we await the country’s peak body on its decision on whether Dragon Law is in breach of the Legal Profession Act 1976, this looks like a case of regulation coping with innovation.” 

“Will the decision create a precedent for the rest of the Asia-Pacific countries on how it deals with innovation in legal services? Only time will tell”, Chin noted, adding:  “It is also important to remind ourselves that the Asia-Pacific region is made up of a heterogeneous group of countries driven by varying degrees of protectionism.”

Using data collated by think tanks like the World Bank, The Heritage Foundation, International Chamber of Commerce and The Global Innovation Index, Chin gauged each of the following APAC countries’ ease of doing business indicator, index of economic freedom, open markets index and innovation index to find the following:

“The above analysis”, Chin explained, “shows Singapore, Hong Kong, New Zealand, Australia and South Korea (surprisingly) leads the pack on the measure of ease of doing business, economic freedom, market openness and innovation. Interestingly, the country in question, Malaysia is ranked seventh.  

Of course this analysis does not adequately provide a clear picture specifically of the legal industry in these countries. It is however an indicator of how innovative international legal services firms might be received in these countries.

In recent years we have seen mushrooming of NewLaw activities in Australia (lawyer secondment, legaltech, online legal services and LPO), Singapore (lawyer secondment and online legal services), Hong Kong (lawyer secondment and online legal services), India (LPO) and Malaysia (online legal services)”, he concluded.

NewLaw in Asia remains a growing, competitive threat to traditional legal services providers

So while NewLaw firm Dragon Law may be facing a regulatory challenge in Malaysia, the region as a whole continues to see the number of NewLaw firms expanding and their market share increasing.  And just as disruptive innovators have pushed the regulatory frameworks around the world in a variety of industries, so will they do so in law in the Asia-Pacific region.  

However, it seems more likely than not that regulators will adapt to meet the changing needs of legal consumers and service providers while at the same time continuing to fully maintain their remit to protect the public and the profession.