Regulatory strategy in a dynamic Scottish legal market
I spoke recently at an HSBC roundtable with business leaders from the Scottish legal market. Results shared by HSBC from their 2025/2026 UK law firm strategy survey made clear what many in the room already sensed: This is a dynamic market, with the combined forces of private equity investment, consolidation, AI adoption, and fundamental regulatory reform creating an inflection point.
Private equity as a catalyst for consolidation
Total PE investment into UK legal services has exceeded £1.5 billion since 2019. The SRA has reported an increasing volume of PE-backed transactions, and the pattern in England is now well established — scale and consolidation in the mid-market, with firms like Fletchers, Higgs and Stowe growing into multi-region platforms.
The HSBC survey reflects growing awareness of this direction of travel: four-fifths of leaders expect further consolidation in the year ahead, and just under a quarter see a stronger case for PE involvement than they did in 2023.
In England and Wales the PE story is gathering momentum notwithstanding that external ownership of law firms has been permitted for over 15 years.
Scotland sits in a distinct regulatory position. The Legal Services (Scotland) Act 2025 received Royal Assent last June, removing the requirement for lawyer-only control of licensed legal service providers. The Law Society of Scotland has confirmed that work on the licensing scheme won't begin until 2027.
However, the legislation itself has acted as a signal, and some investors are moving now, in anticipation of what 2027 and beyond may bring. Moreover, the regulatory position does not require firms to wait. It is already possible to structure deals to keep the legal practice within a lawyer-owned entity that meets current requirements, while allowing investment and profit-extraction through a PE-owned MSO or equivalent structure. External investment in Scottish firms is not a post-2027 consideration. For those thinking strategically, it is a current one.
Artificial intelligence: opportunity and accountability
The development of AI and the digitisation of legal services are changing what firms can offer and how they can price it. For those exploring the possibilities, there is genuine potential for scale, diversification, and improved margins and market share. AI-native providers are moving into the regulated sector — and the first SRA-regulated AI-led firms, Garfield Law and Law Fairy, are now delivering reserved litigation and immigration services. The direction of travel is clear.
From a regulatory perspective, the safe and effective use of AI is a stated priority both sides of the border. AI can support access to justice; drive speed, efficiency and transparency for consumers; and drive firms to build the kind of data infrastructure that facilitates heatmaps, anomaly tracking, and audit trails — and makes robust compliance easier and easier to demonstrate.
The risks are also well-documented. Almost 60% of firms in the HSBC survey identified cyber risk as an overarching challenge. Recent high-profile cases have underlined the professional consequences of relying on AI-generated submissions without adequate checking — and the supervisory accountability that follows. Where work is automated, the question of appropriate QA and sampling is one firms will need to consider carefully.
AI also forces a rethink of charging models; severing the link between time and cost and changing client expectations around pricing. And bringing in the challenge of value based pricing and the need to review how to meet obligations around cost certainty and transparency
The regulatory framework has not kept pace with the market here, and firms cannot wait for it to catch up. The question is not whether you have an AI policy, but whether your arrangements are sufficient to demonstrate that you have taken reasonable steps to manage the risks.
Regulatory change: the framework is shifting
At the same time, Scotland is undergoing fundamental reform of its legal regulatory framework. The new legislation lays the groundwork for entity-based regulation, which will bring with it new authorisation and practice requirements, new powers to investigate and sanction firm-level complaints, and greater transparency around regulatory information and decisions. Firms should anticipate increased focus on culture, policies, controls, and complaints handling.
Alongside this, the Financial Services and Markets Bill is providing the platform for transferring AML oversight to the FCA. A more data-driven supervisory regime — with the complexity and potential duplication that brings alongside existing Law Society regulation — is a real prospect.
In closing
The firms that will navigate this period most effectively are those that treat regulatory strategy as a business priority rather than a compliance obligation; ensuring they are agile enough to keep pace with a market that is changing on multiple fronts.
That is a leadership conversation, not just a risk management one.
Juliet Oliver is Founder & Managing Director of Passmore & Oliver Partners. The firm advises law firms, investors and regulators on regulatory strategy and the changing legal market in the UK and internationally.