Chapter 3. Regulatory barriers common to self-regulated professions in Portugal

Description of the barrier

Professional associations in Portugal jointly hold representative and regulatory powers.17

Harm to competition

When a professional association exercises both the regulatory and disciplinary functions over its members, and controls all access to and exercise of the profession, there is necessarily a tension between promoting the well-being of the professionals and the wider public interest. Since the professional association represents the professionals and, at the same time, regulates the market, it has incentives to adopt anticompetitive measures to protect the associated professionals.

As stated by the US Supreme Court "[t]here is no doubt that the members of such associations often have economic incentives to restrain competition and that the product standards set by such associations have a serious potential for anticompetitive harm."18 This tension is particularly relevant when other types of professionals outside the professional association start providing a service initially provided exclusively by members of the professional association with the same quality but at lower prices. As an example, in North Carolina (United States), the dental board tentative of excluding non-dentists from the market for teeth-whitening services due to the low prices charged by the latter was considered an anticompetitive practice by a professional association.19

In Portugal, several professional associations were condemned for anticompetitive practices including setting of minimum prices,20 setting of minimum and maximum prices,21 22 and unclear and not transparent criteria related to compulsory training.23

Shaked and Sutton (1981) establishes a trade-off between consumer welfare and professional members’ income, where restricting entry of other rival professionals decreases consumer welfare but increases its members’ income.

The professional association can also introduce through their regulations unjustified requirements to access the profession (such as unnecessary internships or overly restrictive academic qualifications) acting as barriers to competition. These regulations or practices might limit the number of professionals in the market, protect incumbents and result in higher prices to consumers, as fewer professionals are available to provide the same services.

In certain cases, such as when a professional association (composed exclusively of professionals) is legally responsible for dealing with complaints from clients, such powers can be used to protect professionals to the detriment of customers, decreasing the transparent functioning of the market.

Alternative models of structuring the professional associations’ powers might provide more independent, pro-competitive and transparent regulation of professional services, mitigating the inherent conflict of interest in the self-regulatory system and protecting the public interest.

The creation of an independent supervisory body, which would not possess an advocacy mandate on behalf of the professions that it regulates, may improve the alignment of the professional regulatory framework with its public interest objectives, and eliminate potential barriers to competition.

In particular, granting oversight functions to an independent over-arching body by sector or trade, or its creation inside the existing professional associations with the necessary ‟Chinese walls” could address potential conflicts of interest between professionals and the consumers they serve.

This independent supervisory body, external or internal to the professional association, would promote the interests of consumers and the public interest in general; promote competition in the provision of professional services; increase public understanding of citizens’ legal rights and duties; and assist the professional association in the setting of standards of regulation, education and training. Specific powers could include:

• approval of changes to regulatory arrangements deemed to have a significant impact on the functioning of the profession and on consumers’ welfare (households and firms);

• guidance for the purpose of meeting regulatory goals such as: protecting and promoting the interest of consumers and the public interest in general; promoting competition in the provision of professional services; increasing public understanding of citizens’ legal rights and duties; assisting in the setting of standards of regulation, education and training.

The existing regulatory functions of professional associations would be shared with the independent body, which would take on a supervisory role vis-à-vis the professional association. Each individual professional association would keep its representative functions and a range of regulatory functions, such as implementing access to the profession regulations and supervising the internship process (see Box 3.4.

An external, independent supervisory body could be structured to benefit from the expertise of all the relevant professions while working in the interest of the public at large. For instance, it could be governed by a board that includes representatives from the self-regulated professions, high-profile and experienced individuals from other regulators or organisations and representatives of consumer organisations and academia. When common to a trade, the independent body could take responsibility for supervising the work of the different public professional associations within the same professional area (e.g. engineering).

An internal supervisory body could consist of an independent "board" within each public professional association. In addition to the representatives from the professional association itself, the board would include among its members high-profile experienced individuals from other regulators or organisations and representatives from consumer organisations and academia. The board would have to be assured of its independence within the rules guaranteeing transparency and professionalism, with the implementation of the necessary ‟Chinese walls”.

This board would take over the regulatory function for the profession, for instance establishing the rules of entry and exercise of the profession. Moreover, it would exercise some of the existing disciplinary powers over the members of the professional associations, particularly in the case of lapses of professional association oversight, or when more serious offenses (e.g. cases of malpractice) are involved that can lead to a suspension of membership.

Description of the barriers

Only university law graduates may (after successful completion of an internship and final exam), register and exercise the profession as a lawyer25 or as a notary.26

Candidates for solicitors and enforcement agents can alternatively hold a law degree or a university degree in a solicitor’s practice.27

Harm to competition

Requiring academic qualifications, i.e., a law university degree or experience in a solicitor’s practice, in the case of solicitors and enforcement agents, limits the number of professionals that can enter the market and offer their services in it. Owing to these entry restrictions, there is a smaller number of professionals to serve the same number of clients. This may lead to higher prices charged for those services as demand may outstrip supply. In addition, with little or no competitive pressure, professionals have few incentives to innovate and to provide a broader range of services. According to the European Commission (2017c, 10 January 2017, p. 15, para. 12),28 this ultimately leads to a welfare loss for businesses, including small and medium-size enterprises (SMEs) and individual consumers.

As stated by the LSB (2016, p. 76/7)29 research commissioned in 2013 to explore the reasons why people choose not to use lawyers, highlighted the importance of perception of cost and the lack of transparency of costs for legal services, as key barriers. It is believed that these barriers reduce the overall size of the potential market for legal services, especially when the demand for legal services is discretionary. This same 2016 LSB Report refers to the 2016 “legal need survey” targeting England and Wales, which found that for those who had a legal problem over the 2012-2015 period and considered using but did not in the end use a “solicitor”, 28% assumed they would be too expensive. A further 11% did not think the solicitor would offer value for money.

Less restrictive access to the profession, for example of lawyer, may mitigate similar problems in Portugal, particularly when we consider middle-income households (and not the very rich; or the very poor who may benefit from legal aid) and SMEs.

In addition to that, in specific cases such as lawyers specialising in patents or construction disputes, they may benefit from having initial training in another field such as engineering, providing better services to consumers.

We note that a number of jurisdictions in OECD countries have different entry criteria for becoming lawyers, for example. There are two paths to becoming a barrister in England and Wales: a candidate to obtain a standard degree in law awarded by a university in the United Kingdom, or a degree awarded by a university or establishment of equivalent level outside England and Wales, accepted by the Bar Standards Board. An alternative path is designed for candidates having graduated in a subject other than law. These candidates may undertake a one-year full-time course (or two part-time years) and obtain a Graduate Diploma in Law (GDL), formerly known as the CPE (Common Professional Examination). Successful candidates may then access common legal practice for candidate solicitors or training for barristers. Similarly, in Germany no university law degree is necessary to enter the profession of "lawyer”. Candidates must pass a 1st State Exam (after completion of university studies), followed by a two-year induction period common for all legal professions, then pass a second state exam and finally qualify as lawyers.30

The England and Wales and German models open alternative access routes for entering the legal profession, to the benefit of both university graduates and final clients. Both the profession and clients benefit from a greater diversity of academic backgrounds, and are better able to meet demands for greater multidisciplinary practice and innovative approaches to increasingly complex legal problems. The benefits also accrue to law firms themselves, as they can better compete to attract new lawyers/entrants, and are in a better position to compete for clients when facing other law firms, including law firms from other EU Member States.

As with lawyers, there may be other ways to qualify as a solicitor, notary, or enforcement agent without requiring a university degree in law or experience in a solicitor’s practice. For example, in Germany, to become a notary, one must pass a state exam, but no law degree is a priori required, and the candidate must have minimum of two or three years of experience as a notarial candidate or lawyer.31 Notaries are also divided into three types (the single profession notary, the advocate-notary and the state-employed or civil servant notary). The advocate-notaries are more common in Germany, since they are lawyers first of all, the notarial duty being exercised as a second profession.

If lawyers, notaries, solicitors are able to deliver or share several reserved activities, to open alternative qualifying routes to lawyers but not to solicitors and notaries would not make sense. As for enforcement agents, since the scope of the law in which they work is smaller than in the case of lawyers, it would hardly be justified not to allow enforcement agents the benefit of alternative qualifying routes.

Recommendations

We recommend that access to the professions of lawyer, solicitor, notary and enforcement agent be open to university degrees other than law and a solicitors’ practice degree, as the case may be.

The professional associations should work with the legislator to set a transparent, proportional and non-discriminatory process for identification of alternative routes to obtain the strictly necessary or adequate qualifications for the exercise of legal profession. In this case, candidates may be required to hold a postgraduate degree in law or to take a conversion course, and should undergo the same training as other legal trainees, including passing the Bar Exam.

Benefits

The implementation of these recommendations will bring into the market new entrants, with different backgrounds and different professional approaches, resulting in improved market dynamics and new innovative services.

Description of the barriers

The bylaws applicable to the professional association of economists establish an academic degree in economics as a requirement for registration with the professional association. 32

For auditors, national provisions require a pre-2005 degree,33 a master’s or a doctorate in any field,34 to access the profession (after successful completion of an entry exam followed by a practical internship).

Only those holding a university degree, master’s or doctorate, in the area of accounting, management, economics, business sciences or taxation,35 can access the profession of certified accountant.

To register with the professional association of customs brokers an applicant must hold a university degree in economics, management or business administration, law, international relations, international trade or logistics and customs.36

Harm to competition

In spite of the fact that economists must hold an economics degree to register with the corresponding professional association and use the title of economist, they have no reserved activities (see Section 3.4.) meaning that, in fact, they do not need to be registered with the professional association of economists to exercise the profession. Hence, there is no harm to competition in such a provision.

For auditors, it is not enough for a candidate to hold a specific undergraduate degree (concluded before 2005). By contrast, according to Directive 2006/43/EC on Auditing Services, it suffices for educational qualifications that a natural person "holds a university entrance or equivalent level",37 then completes a course of theoretical instruction, has undergone practical training and passed an examination of professional competence of university at the final or equivalent examination level. This must be organised or recognised by the Member State concerned. Directive 2006/43/EC also allows alternative educational qualification routes through long-term practical experience. A Member State may approve a person to become an auditor if he or she can show either: that they have engaged in professional activities which have enabled him or her to acquire sufficient experience in the fields of finance, law and accountancy, for at least 15 years and passed an examination of professional competence, or that he or she has engaged in professional activities in those fields for seven years and has, in addition, undergone practical training and passed an examination of professional competence.38

A broad range of university degrees is considered for fulfilling the requirement on academic qualifications to register as a certified accountant with the professional association.39 However, an exhaustive list of specific routes of academic qualifications represents a barrier to competition, especially when combined with reserved activities and mandatory registration. This limits the number of professionals who can carry out specific acts, excluding well-qualified professionals who might still have the appropriate professional experience to perform those tasks. A different academic background might also bring innovation to the services traditionally provided by these professionals.

Before the introduction of the bylaws in 2015, to become a customs broker there was no requirement for a university degree; secondary school level (12 years of schooling) was deemed sufficient as an academic qualification. To require such an academic qualification as compulsory excludes other well-qualified professionals who may have the experience and professional skills to perform the activities in question.

Recommendations

The university degree requirement for financial professions should be opened to include those with different academic backgrounds and adequate professional experience to perform those tasks. These alternative routes would follow transparent, proportional and non-discriminatory criteria set in advance, and give access to the training applicable to other candidates. In some cases the alternative routes would be applied through a conversion course or postgraduate studies. Those candidates should undergo the same on-the-job training or professional exams as others.

In the case of auditors, alternative routes of educational qualifications through long-term practical experience should be established in line with Art. 11 of Directive 2006/43/EC on auditing services.

Concerning the university degree requirement for customs brokers, we recommend to revoke the need of a university degree in order for candidates to register as a customs broker.

Benefits

The implementation of these recommendations will bring into the market new entrants, with different backgrounds and different professional approaches, resulting in improved market dynamics and new innovative services, rewarding consumers in terms of lower prices.

Description of the barriers

Engineers must hold a qualifying degree in engineering to register in the professional association.40 Instead, technical engineers can hold an engineering degree or a bachelor’s degree in engineering to register in their professional association.41

The bylaws of the architects’ professional association establish that professionals registered with that professional association must hold a degree in architecture.42

Harm to competition

In Portugal, the engineer profession is split into 12 different specialisations43 and 16 specialisations for technical engineers.44 Although all engineering academic degrees are accepted to become an engineer or technical engineer, they provide access to different specialisations and consequently to different engineering activities (see Section 3.4. on reserved activities).

Unlike engineers and technical engineers, there are no official specialisations in the undergraduate degree in architecture.45

The bachelor's degree used by technical engineers was discontinued with reforms to Portuguese education,46 following the Bologna Process. Hence, since 2005, all graduates can only obtain a qualifying engineering degree. As such, in the medium term, there will be no academic major differences between the two professionals (i.e. engineers and technical engineers). We confirm this common trend in other EU Member States (See GROW/E-5, 2015).47

Recommendations

The technical professional associations should work with the legislator to set a transparent, proportional and non-discriminatory process for identification of alternative routes to obtain the strictly necessary or adequate qualifications for the exercise of a technical profession.

The specific technical profession should be open to professionals with different academic backgrounds. These alternative routes would promote vertical conversions (e.g. migration from an engineering university background to an architecture degree) and would be applied through a conversion course or postgraduate studies. Those candidates should undergo the same on-the-job training or professional exams as others. These alternative routes would also apply to engineers and technical engineers for horizontal conversions (in the case of migration among different engineers’ specialisations and different technical engineers).

Benefits

The implementation of these recommendations will bring into the market new entrants, with different backgrounds and different professional approaches, resulting in improved market dynamics and new innovative services, rewarding consumers in terms of lower prices.

Description of the barriers

To be registered in the professional association of nutritionists it is necessary to hold a four-year academic degree in nutritional sciences, dietetics or dietetics and nutrition.48 49

The professional association of pharmacists’ bylaws require an academic degree in pharmacy, pharmaceutical science or a master’s in pharmaceutical science.50

Both provisions are confirmed by Draft-Law 34/XIII pending in parliament.51 52

Harm to competition

The requirement of academic qualifications is argued to be established on the grounds of quality standards for the exercise of these profession, which have a strong technical content.

According to stakeholders, these three types of academic degrees are the only ones which provide the technical expertise required for the practice of the profession, considering the current programmes from national institutions of higher education. There are currently in Portugal other academic degrees with similar titles, but according to stakeholders, they do not match the minimum requirements of quality and educational standards for the exercise of the profession of nutritionist.

The condition for holding a specific academic degree to be a member of the professional association is an access requirement that excludes other graduates from the performance of the activities reserved for this group of professionals.

There may be other scientific professionals who hold adequate professional and academic skills enabling them to practise at least some of the reserved acts. This could be the case, for example, of a nurse wishing to act as a nutritionist, or a chemists wishing to act as a pharmacist.

Furthermore, the list of academic degrees accepted by the nutritionists’ professional association may exclude professionals who have a certain number of years of professional experience, but do not have a four-year academic degree, but only a three-year (bacharelato). The transitional regime to include those professionals in the professional association has already expired.

Among the EU28, 24 Member States regulate the profession of nutritionist and dietician, including Portugal. Iceland, Liechtenstein, Norway and Switzerland also regulate the profession. The profession is not regulated in Belgium, Croatia, Estonia or Romania. Regulation may consist of protecting at least one of the professional titles (nutritionist or dietician) and/or reserved activities.53

Among the EU28, nine Member States report that regulation of the profession of pharmacist includes the protection of the professional title (or titles) and reserved activities; in nine Member States there are reserved activities but the title is not protected; in two Member States the title is protected without reserved activities; in two Member States there are multiple types of regulation and five Member States have not submitted information. Within the European Free Trade Association (EFTA) countries, Iceland has reserved activities and protected title; Norway has only a protected title and Liechtenstein and Switzerland did not submit information.54

Recommendations

The professional associations should work with the legislator to set up a transparent, proportional and non-discriminatory process for the identification of alternative routes for obtaining the strictly necessary or adequate qualifications for the exercise of the profession of nutritionist or pharmacist.

Such routes would apply to professionals with a different university background, through a "conversion" course or postgraduate studies, meeting all the necessary requirements to exercise the profession.

Benefits

The implementation of these recommendations will bring into the market individuals with different backgrounds and different professional approaches, resulting in improved market dynamics and new innovative services, rewarding consumers in terms of lower prices.

Description of the barriers

1. Lawyers

To qualify for the profession of lawyer, candidates must successfully complete an internship that can last between 16 and 18 months.58 The internship includes two stages, a theoretical stage of 6 months and a practical stage of up to 12 months, and includes the final exam evaluated by qualified lawyers. Candidates may apply twice a year. The internship fees amount to EUR 1 500.59 Additionally, trainees must contribute to the lawyers’ pension scheme, paid during the second stage of the internship.60

2. Notaries

To qualify as a notary, candidates must complete an internship of 18 months with two stages, theoretical (6 months) and practical (12 months). The duration of each phase may be reduced by half and the internship reduced to nine months in several cases, e.g., the trainee has a PhD in law, is a judge or district attorney or a lawyer registered with the lawyers’ professional association for at least five years.61 Candidates may apply once a year.62 To conclude the internship, a trainee is not subject to a final exam, but must rather submit a final report, together with a declaration submitted by the supervisor on the trainee's aptitude.63 The internship fees amount to EUR 750.64

3. Solicitors

To qualify as a solicitor, candidates must complete an internship of 12 to 18 months and includes two phases, theoretical and practical, and includes a national final exam evaluated by peers.65 Certain categories of legal professionals, e. g, lawyers, notaries, judges and enforcement agents, may be exempted from the internship or the final exam, if they demonstrate that they have professional experience of three years in the last five years, and their CV is considered suitable by a committee of the professional association.66 Candidates may apply once a year. The internship fees amount to EUR 969.67

4. Enforcement agents

To qualify as a enforcement agent candidates must complete an internship of 18 months with two stages, theoretical and practical, and includes an exam evaluated by an external entity, independent of the professional association.68 The periodicity and the quota to attend an internship is determined by the professional association considering the “effective need of enforcement agents for an efficient functioning of the judicial system” taking into account the opinion of the Commission for the Follow Up of Justice Assistants (CAAJ)69. The internship fees amount to EUR 1 530.70

Harm to competition

With the exception of enforcement agents, for whom there is an external entity independent of the professional association that evaluates the internships,71 in all the remaining legal professions this evaluation is carried out by peers from the professional association. This may give rise to a conflict of interest that may not ensure the required independence of the evaluators and result in fewer candidates joining the professions. In turn, this may have a negative impact on competition in the delivery of legal services in the market.

The actual duration of the internship to become a lawyer results from a recent Deliberation of the lawyers’ professional association dated 11 December 2017.72 It already includes the final exam which guarantees that the internship will not exceed 18 months, in line with the maximum duration set under the framework law, Art. 8(2) of Law 2/2013. Stakeholders reported that internships before the Deliberation adopted in December 2017, often lasted longer than the statutory duration, in some cases up to two years. The inclusion of subjects that are part of any university law degree curriculum during the first six months of internship rendered the theoretical training period longer than necessary.

The (almost) complete absence of the e-learning option covering the theoretical training period of any internship may extend the duration of this training beyond what is necessary. Moreover, it also increases the cost of providing face-to-face tutoring, hence, the internship fees. Additionally, it increases the opportunity costs a trainee must bear in attending those training courses in person.

If internship fees are too high for candidates, that might lead to fewer candidates joining the internship process and, therefore, resulting in a lower number of suppliers of legal services competing in the market.

Recommendations

The final evaluation of the lawyers, notaries and solicitors internship should be conducted by a board, independent of the professional association, which may include members of the latter but must also include professionals of recognised merit, such as law professors and magistrates, among others.

For all the legal professions, we recommend that the theoretical training should provide an e-learning option. This could lead to a reduction in internship fees, as well as reducing the opportunity costs of having to attend those training courses in person.

We recommend that subjects that are part of any required university curriculum (such as a law degree, a suggested conversion or a postgraduate course) should not be included in the theoretical training offered during the first six months of the internship. This would have a beneficial impact on the duration of the whole internship in cases such as that of lawyers.

All internship fees should be proportional and reflect the true costs of organising and providing the internships, following transparent and clear criteria that must be made public by the professional association.

Description of the barriers

1. Economists

The bylaws of the professional association of economists73 requires the completion of a professional internship, when mandatory. The internship is not mandatory if candidates graduated before 26 April 1999, or if they hold a master’s or PhD degree relevant to their application as a specialist.74 The duration of the internship cannot be longer than 18 months, but if the candidate has a postgraduate diploma relevant to the area, the duration of the internship can be no longer than 12 months.75 To complete the internship, there is no final exam; however, the candidate’s supervisor must submit a final report evaluating the candidate. This report will be reviewed by a permanent commission of the professional association that will decide on the candidate’s membership of the professional association.76 However, since there are no reserved activities for economists, we consider that there is no barrier to competition.

2. Auditors

To become an auditor, an applicant must pass an entry exam and then complete a practical internship of at least three years.

The entry exam77 is both written and oral and covers areas such as law, economy, maths, management and accountancy. Under national provisions, there are no exemptions, either with regard to the theoretical examinations or to the practical knowledge, in case applicants hold an academic qualification in one of the required subjects.78 This examination takes place at least once a year.79 The fee is around EUR 1 430.80 By contrast, Directive 2006/43/EC on Auditing Services is less stringent, allowing Member States to grant exemptions, a prerogative not used by Portugal.81

The practical internship of at least three years, must include a minimum of 700 hours per year of activities within the scope of functions of public interest provided for in the Statutes of the professional association,82 and amount to EUR 2 310.83 This period may be reduced by the internship committee to a minimum of one to two years, for trainees who have exercised relevant functions for at least five years in the public or private sector. The internship itself may be waived for trainees who have exercised relevant functions for at least 10 years in the public or private sector.84 Directive 2006/43/EC confirms, as a rule, the minimum duration of three years for the practical training, and also allows for exemptions from this training.85 Hence, with regard to the practical internship, the national provisions are not more restrictive than EU law, and therefore, we consider that there are no barriers to competition in this matter.

3. Certified accountants

Certified accountants must also complete an internship of up to 18 months with a minimum of 800 hours,86 after which they take a final exam, organised and evaluated by their peers.87 The internship fee amounts to EUR 400.88

4. Customs brokers

Access to the profession of customs broker depends on completion of an internship which is equivalent to a postgraduate degree, which lasts six months.89 Candidates may or may not be accepted for the internship. The decision is taken by a committee headed by the president of the professional association and includes other members of recognised merit who can be external to the professional association.90 This same committee is responsible for setting and grading the final exam.91 The total cost of this internship is EUR 3 200.92

Harm to competition

With the exception of customs brokers, whose internships are evaluated by an independent body, for auditors and certified accountants the internship evaluation is carried out by peers from the professional association. This may give rise to a conflict of interest that may not ensure the required independence of the evaluators and may also result in fewer candidates joining the professions. This, in turn, can have a negative impact on competition in the delivery of financial services in the market.

The (almost) complete absence of an e-learning option covering the theoretical training period of any internship may extend the duration of this training beyond what is necessary. It also increases the cost of providing face-to-face tutoring, hence, the internship fees. In addition, it increases the opportunity costs a trainee must bear of having to attend those training courses in person. The professional association of certified accountants already offers training courses on line.93

Additionally, if internship fees are too high for candidates, this might lead to fewer candidates joining the internship process, resulting in fewer suppliers of legal services competing in the market.

The fact that national provisions do not include an exemption mechanism for the auditors’ entry exam poses a barrier to competition. In fact, and by contrast, Directive 2006/43/EC on Auditing Services allows Member States to exempt candidates from subjects in the test of their theoretical knowledge when they can provides evidence of university or equivalent examinations or hold a university degree or equivalent qualification in one or more of those subjects. Candidates are also exempt from the test if they have received practical training in those same subjects attested by an examination or diploma recognised by the state.94 In turn, restricting competition may have a negative impact on suppliers available in the market, on prices and on the diversity and innovation of the services provided.

Recommendations

1. Auditors

For auditors and certified accountants, the final evaluation of the internship should be conducted by a board, independent of the professional association, which may include members of the latter, but must also include professionals, such us university professors and other people of recognised merit.

For auditors and customs brokers we recommend that the theoretical training should be opened to e-learning. This could lead to a reduction in internship fees, as well as the reduced opportunity costs of having to attend these training courses.

For auditors, certified accountants and customs brokers internship fees should be proportional and reflect the true costs of organising and providing the internships, following transparent and clear criteria that must be made public.

The national legislation should follow Directive 2006/43/EC on Auditing Services, exempting candidate for auditor from certain subjects in the test of theoretical knowledge when they can provide evidence of university or equivalent examinations or if they hold a university degree or equivalent qualification in one or more of those subjects. Candidate should also be exempt from the exam for entry into the profession if they have received practical training in those same subjects attested by an examination or diploma recognised by the state.95

Description of the barriers

1. Architects

To qualify for the profession of architect, an applicant must attend an internship of 12 months, which has no formal final exam.96 In order to became a member of the professional association its regional directive council (CDR) must validate the candidate’s internship report which needs to be previously validated by the internship supervisor.97 The internship fee amounts to EUR 200.98

2. Engineers

The internship for engineers can last from 6 to 12 months for individuals holding a master’s degree99 and between 18 and 24 months for individuals holding an undergraduate university degree.100 The internship concludes with a final exam organised and evaluated by peers.101 However, certain candidates may be exempted from the internship, as follows: a university graduate in any engineering specialisation with at least six years of experience in engineering, and a master’s degree in any engineering specialisation with at least five years of experience in engineering.102 The internship fee is EUR 115.103 In addition, trainees are obliged to contribute to the membership fees as trainee members of the professional association.104

3. Technical engineers

The internship for technical engineers can last up to 18 months for individuals holding a post-Bologna Process university degree or a bachelor’s degree,105 and up to 6 months, if they hold a pre-Bologna Process university degree or a master’s degree.106 The internship concludes with an evaluation of the internship by the supervisor and then by the national directive council (CDN) of the professional association.107 Technical engineers do not take a final exam at the end of the internship. However, all university graduates in technical engineering who have at least five years of experience in engineering are exempted from the internship.108 The internship fee is EUR 150.109

Harm to competition

The internship process is controlled by members of each professional association, following the rules established and implemented by the same professional association. This intra-professional association procedure raises concerns over the independence of the current internship processes, including the different candidates’ evaluation procedures.

Additionally, if internship fees are too high for candidates, this might lead to fewer candidates joining the internship process, thus resulting in a lower number of suppliers of legal services competing in the market.

The internship for engineers can last up to 24 months. Apart from exceeding the maximum of 18 months as established in Law 2/2013, it places a heavy burden on candidates in opportunity costs associated with those 24 months. A long and expensive internship process may discourage candidates from enrolling. In turn, this will reduce the number of professionals able to compete in the market, leading to higher prices, lower diversity and innovation and, ultimately, lower consumer welfare.

Recommendations

Engineers’ internships should be reduced to 18 months or less as established in the framework Law 2/2013.110

For all technical and scientific professions, the final evaluation of the internship should be conducted by a board, independent of the professional association (see our comments in Section 3.1.1 on a supervisory board), which may include members of the latter, but must also include professionals such as university professors and other people of recognised merit.

For all technical and scientific professions, internship fees should be proportional and reflect the true costs of organising and providing the internships, following transparent and clear criteria that must be made public.

Description of the barriers

Candidates to access the profession of nutritionist must follow two internships: one academic and one professional.

The first is included in the four-year academic degree in nutritional sciences, dietetics or dietetics and nutrition in a higher education institution,111 typically in the last semester.

The professional internship lasts six months,112 has a final evaluation period and concludes with an oral final exam.113 114 In case of failure in the oral presentation, interns must do another six months of internship and in case of failure in the ethics exam they can repeat it in 30 days.115 116 The bylaws of the professional association of nutritionists entered into force in January 2011.117 All professionals exercising the activity before 2012 for more than one year were exempted from this access requirement, but all candidates who apply for registration after that period need to comply with this requirement. The internship fee amounts to EUR 240.118

University graduates in pharmacy are not required to take an internship. They can register with the pharmacists’ professional association immediately after graduation and begin to carry out their activity. The attribution of the title of specialist depends on completing an internship and passing an examination at the end of the internship. However, since there are no reserved activities for pharmacists with specialisation, we consider that there is no barrier to competition.119

Harm to competition

The unnecessary duplication of internships for a candidate nutritionist creates fewer incentives for applicants to access the activity. Even if the internships apparently are of two kinds, they both aim to provide practical training and to prepare candidates to be autonomous in their activity.

The effective need and purpose of the professional internship required by the bylaws of the professional association of nutritionists was not demonstrated. This need is even more questionable in case of an existing duplication, i.e., when candidates had already attended an internship programme during the execution of their academic training. This also delays entry of new suppliers into the market.

Moreover, the monopoly of the professional association in the organisation of professional internships is potentially harmful to newcomers, as already qualified nutritionists essentially decide who their future competitors will be, and can restrict or grant access to the profession, seemingly at will. Professionals also tend to have fewer incentives to charge lower prices to consumers or indeed to increase the quality of the services provided.

Access requirements must be proportional and adequate to the policy objective of the regulation. Some recent economic studies published by the European Commission demonstrate that reforms implemented by EU Member States to abolish or reduce obstacles to the access of liberal professions led to job creation and lower prices for consumers, including in healthcare services.120

Recommendations

We recommend eliminating the duplication of internships imposed on candidates for nutritionists, and consider admitting only one, either the academic or the professional internship.

Internship fees should be proportional and reflect the true costs of organising and providing the internships, following transparent and clear criteria that must be made public.

Description of the barrier

The following activities are reserved exclusively for lawyers and solicitors:125

• exercise of the judicial mandate;

• provision of legal advice and consultation;

• drafting of contracts and the practice of preparatory acts aimed at the constitution, alteration or extinction of legal transactions, namely those practiced in conservatories and notary offices;

• negotiation aimed at collecting credits;

• exercise of the judicial mandate for the challenge of administrative or taxation acts.

  Notaries have exclusive powers to issue five types of documents such as wills, notarial certificates, and credits claims, and to carry out inventory processes.126

Harm to competition

The scope of reserved legal activities practised by the legal professions in Portugal is quite wide. It may unduly restrict competition from unauthorised legal providers and non-legal providers, potentially with lower cost, in which case the option to reserve activities may not be proportional to ensure consumer protection and to secure access to justice and legal advice. Given that the legal professions are already very restrictive, with tightly controlled entry, there seems little point in carving out the market for certain services. In this case, the scope of the reserved acts must be revised.

For comparison purposes it is worth mentioning that the 2007 Legal Services Act for England and Wales specifies six reserved legal activities that only ‟authorised persons” (or, in some cases, people supervised by an authorised person) can provide to the public for a fee. They are: (i) the exercise of a right of audience; (ii) the conduct of litigation; (iii) reserved instrument activities (undertaken when conveyancing property); (iv) probate activities; (v) notarial activities; and (vi) the administration of oath.127.

One of the main professional activities of lawyers and solicitors is to provide legal advice, understood as the provision of legal guidance on the interpretation and scope of the law to a client, often in written form.128 Other than lawyers, professionals holding a master’s degree or a Doctorate in Law can also offer legal advice provided they register with the Bar Association. Law professors can provide legal advice without being registered with the Bar Association.129 Legal experts (not working in professional firms) do not provide legal advice as defined above, but instead provide in-house counselling as company employee.

Reserving certain legal acts (e.g. drafting routine contracts for the purchase and sale of real estate) to lawyers and solicitors might also be unjustified. Specialised legal professionals (not registered as lawyers or solicitors), and entities for whom they work could be allowed to provide such legal advice to third parties. This could be done under due supervision of the professional association or the new supervisory body.

The recommended changes should be complemented by the elaboration of a professional conduct code applicable to all legal professions, along the lines of the England and Wales 2011 Solicitors Regulation Authority Code of Conduct.130 131. This code lays down outcomes-focused conduct requirements rather than certain behavioural characteristics such as honesty, loyalty, urbanity, probity and candour as is the case in e.g., the Bar Association Bylaws.132

Such changes will broaden the offer of legal services, facilitate access to legal advice and spur competition between providers, eventually leading to more innovative services and possibly also lower fees for some standard services.

Moreover, reserved acts mean that there is no scope for using digital applications (such as artificial intelligence) systems or providing legal advice through online or digital systems. In fact, the entity that would make an algorithm as a legal research tool for obtaining legal advice commercially available, would be practising a reserved act illegally, unless he were a lawyer. Legal advice is a reserved activity of lawyers and solicitors.133 The online market for services remains underdeveloped in Portugal, meaning that access to legal advice and services for low-income groups and small businesses might be limited.

Reserved acts for notaries have been significantly reduced since 2000 in the context of the Portuguese government’s administrative simplification programme. The remaining issuance of five types of documents and the exclusive power to carry out inventory are analysed in Section 4 under the regime of maximum and fixed fees.134

Recommendation

We recommend that the profession of lawyer should review all its reserved activities with a view to opening the exercise of them to the other legal professions under due supervision of the work performed. We also recommend opening the market of legal advice to professionals (i.e. legal experts) and entities for which they work that want to provide legal advice on a regular basis.

Description of the barrier

The law reserves exclusively for certified accountants the following accounting activities:135

• planning, organising and co-ordinating the accounting procedures of public or private entities which have or need to have organised accounting in accordance with the official accounting standardisation system;

• assuming responsibility for technical regularity in the accounting and tax matters of the entities referred to above;

• signing, together with the legal representative of the entities referred to above, the respective financial declarations and tax returns, proving quality, under the terms and conditions defined by the professional association, without prejudice to the competence and responsibilities of commercial law.

Harm to competition

The reserved activities of certified accountants exclude from the market of accounting activities other professionals, such as professionals with expertise in the same field but without registration or title of member of the Professional Association of Certified Accountants.

According to stakeholders, registered certified accountants are the only professionals with the necessary qualifications to perform such acts, taking into consideration the important role these professionals have in the tax system and management of SMEs. These reserved acts aim to reduce the negative effects stemming from information asymmetries between service providers and consumers, and to protect the public from unqualified practitioners.

Competition among professionals in accounting services can lead to a decrease in prices for at least the simpler accounting services. For instance, in the United Kingdom accountancy is a highly competitive sector, and even if the title is protected there are no reserved activities. In nine EU Member States (Cyprus, Denmark, Estonia, Finland, Lithuania, Latvia, Slovenia, Spain and Sweden) the profession is not regulated at all.

A narrower set of reserved activities for certified accountants would allow customers to choose between certified accountants and other professionals for accounting services, as recommended by the European Commission.136

Recommendations

The competent authorities should open the simpler activities given to certified accountants (e.g. signing financial declarations and tax returns) to other qualified professionals.

Description of barrier

Customs brokers have the exclusive right to:137

• represent economic operators before the tax and customs authority and other entities with direct or indirect intervention in carrying out the customs formalities for goods and their means of transport;

• practise acts and other formalities with customs implications for goods and their means of transport, and declarations relating to goods subject to excise duty;

• draw up, on behalf of and at the request of economic operators, applications, petitions and requests to obtain simplified regimes as foreseen in the law.

Harm to competition

This requirement excludes from the market other professionals who might be equally qualified or capable (such as freight forward) but are not entitled and, therefore, cannot perform those services.

In a context where access to information and administrative fiscal requirements are increasingly simpler and communicated over the Internet, the role of the customs broker can just as well be performed by other professionals who would have a wider professional activity and probably lower costs. The requirements to register within the professional association of customs brokers are payment of EUR 3 200,138 successful completion of a training, payment of an additional EUR 1 425,139 provision of a financial guarantee and holding professional insurance.

Portuguese law seems to move away from the free customs representation that results from the spirit of EU law. In this context, the EU Court of Justice declared in 1991 that, by preventing shipping and forwarding undertakings from making customs declarations in name and on behalf of another person as a regular part of their business activity, Portugal violated Council Regulation (EEC) Nº 3632/85 of 12 December 1985.140

Recommendations

Abolish the reserved activities for customs brokers.

Description of the relevant provisions

Only architects registered in the architects’ professional association can development or assess architectural studies, projects and plans.141 Only landscape architects may perform architectural landscape projects.142

Only engineers registered in the engineers’ professional association or technical engineers registered in the technical engineers’ professional association may carry out engineering projects.143

Additionally, each type of engineering project (among more than 90) requires their developers to hold a specific professional specialisation – electric, civil, mechanic, bridge, etc. – and, in some cases, a minimum number of years of experience such as 5, 10 or 13 years, depending on the nature of the activity.144

Harm to competition

The regime of reserved activities for architects, engineers and technical engineers restricts access to and the ability for other professionals to exercise the profession.

This type of restriction reduces the overall supply of professionals able to perform the necessary professional functions, which in turn will tend to drive up prices and reduce service diversity and incentives for innovation. Ultimately it restricts competition in the market and may lead to a decrease in consumer and social welfare, as clients (in this case mainly business and possibly public firms) value low prices, high diversity and innovative services and products.

Several reserved activities could potentially be performed by professionals who are currently excluded at possibly lower prices without jeopardising safety, quality, diversity or innovation. In other words, it is possible to offer a better combination of all these aspects valued by consumers and by clients.

Professional colleges of specialisations within the architects’ professional association may be created with functions of study, training and dissemination in the field of architecture and areas of particular scientific, technical, economic importance implying a specialisation of professional knowledge or practice. However, membership of one possible college does not differentiate one architect from all the others, namely and in particular, in relation to the possibility of practising any reserved act granted in exclusivity to the profession of architect.145 146

Note that when comparing the regulation of architects with some EU Member States, the major difference between Portugal and the comparator countries is in the reserved activities and mandatory registration. In fact, out of the seven countries mentioned only five have a mandatory registration regime and only four have legally reserved activities for architects (see Box 3.7).

The only Member States where the profession of technical engineer exists are Portugal and Spain. The requirements in both countries are very similar: in both countries technical engineers find their title protected and hold reserved activities.147

In Portugal, technical engineers are those who hold a lower academic qualification of a bachelor's degree148 (discontinued in 2005) or an engineering qualifying degree. Professionals graduated after 2005 are free to register with any of the professional associations of engineers, face the same requirements and are allowed to practise the same activities. Technical engineers who graduated before 2005 normally have to accumulate additional years of experience before being allowed to execute the same task, when compared with their engineer colleagues. This restriction seems outdated and his highly disproportionate.

In Portugal the engineer profession is split in 12 different specialisations149 and 16 specialisations for technical engineers150. Although all academic engineering degrees are allowed to become an engineer or a technical engineer, they provide different specialisations and consequently have their own reserved activities. For example, a civil engineer can exercise certain activities which cannot be practised by a mechanical engineer, and so on.

The existence of these different specialisations further segments the market for engineering services, creating harm to competition as it reduces the number of suppliers available in each of the specific markets. Reducing the reserved activities of the different specialisations of engineering or technical engineering will mitigate the harm as it would increase the number of suppliers competing for different services.

This report pays special attention to the legislation concerning professions involved in the construction sector as this is heavily regulated. Considering the significant share of civil engineers among engineers in Portugal (almost 50%), they are used here as benchmarking for the engineering profession.

There is only one type of civil engineer in Portugal. They are allowed to perform their activities in any area of civil engineering. In many other EU Member States, such as Bulgaria, Croatia, Italy, Poland, Spain and the United Kingdom, there are several classes of civil engineers, for example, a construction and civil engineer (able to build roads, bridges and railways) alongside a civil and environmental engineer, or even a consulting engineer. (See Box 3.8).

Professional experience can play an important role in the practical preparation of a professional. Acquisition of such experience may be difficult to assess, and requiring a minimum number of years of experience to perform a specific task may be a simpler way of ensuring that professionals are fully capable of carrying out that task.

However, the number of years of experience or of registration in a professional association does not necessarily imply that the person in question masters all the skills required. In addition, it automatically excludes younger qualified professionals from the market, although they may have more recent qualifications and more relevant experience for the project in question. Therefore, the requirement analysed leads to a reduction in the supply of professionals available to perform certain functions and, consequently, to an increase in prices.

According to EC (2015), professional experience is required in many EU Member States depending on the academic qualification and type of activities. For instance, in Denmark and Lithuania the legislator requires between three and five years of experience for activities within structures of significance. In Slovenia between three and ten years are required depending on the level of qualification. In Poland between one-and-a-half and four years are required, depending on the level of qualifications, the chosen profession and the level of responsibility and full or restricted capacity.

Recent studies have concluded that appropriate quality standards can improve efficiency in markets for professional services. The aim of the regulation should be to ensure that the outcome (a building standard, for instance) is of the desired quality, rather than trying to restrict those allowed to work on the building (see Box 3.9 on Denmark).

Recommendation and benefits of implementation

We recommend that reserved activities should be opened to other professions from the same broad technical group. The aim of the regulation should be to ensure the quality of the output provided rather than to limit those who can perform such tasks. In particular, this may concern (list is not exhaustive and can be broadened): (i) tasks reserved for particular technical professions (i.e. architects, engineers or technical engineers), (ii) tasks reserved for specific specialisations within a profession (e.g. civil engineers, environmental engineers), and (iii) tasks reserved for professionals with a certain minimum number of years of experience.

We also recommend that the corresponding professional association reviews their qualification criteria in order to broaden membership to different kinds of engineers and other technical professionals. Finally, the technical professional associations should work with the appropriate authorities to review legislation to allow for a more output-focused legislative environment in the construction sector, better building standards and quality requirements, to allow for a broader qualification of engineers to work on building sites.

Description of the barrier

Only pharmacists can perform the 12 acts defined in the law as “pharmaceutical acts” (e.g. development and preparation of pharmaceutical forms of medicines; registration, manufacture and control of medicinal products for human medicine and medical devices).151 Others acts requiring specialisation in any fields of intervention of a pharmacist might also be considered a “pharmaceutical act”.152

Harm to competition

On the one hand, the existence of reserved activities in the field of pharmacists aims to protect patients from possible misapplication of pharmaceutical acts by non-qualified suppliers and enforces more effective responsibility over professionals.

On the other hand, the establishment of reserves of activities restricts competition. It segments the market and provides exclusive rights to a certain group of suppliers. These provisions might result in higher prices to consumers, as fewer professionals are available to provide the same services. The prices of health services are of special importance for society as they have a direct impact on social welfare and relate to essential needs of the population.153

According to stakeholders, the legislator used Directive 2005/36/EC that lists the pharmaceutical acts for the purpose of the automatic recognition of the qualifications of foreigners, as a benchmark to grant exclusive rights to pharmacists in the national territory (See Box 3.10).154 Such an analogy might not always be justified. For instance, one of the specific reserved acts "harvesting of biological products, execution and interpretation of clinical analyses and determination of serum levels” is performed by several health professionals (medical pathologists and pharmacists specially qualified in clinical analyses) and should not be a reserved task.155

The Standing Committee of European Doctors, the Pharmaceutical Group of the European Union and the Council of European Dentists156 have called on the European Commission to take into account the need for professional regulation for patient safety and, in a joint statement published by European dentists and pharmacists, they asked the Commission to exclude health professions from the future proportionality test for new regulation that is being discussed by the Council and the Commission.157

The healthcare sector is excluded from the application of Services Directive 2006/123/EC. However, the need to regulate health professions must not lead to an excess of overly restrictive rules which lead to an anticompetitive legal environment among operators. Regulations should remain proportional and adequate to their purpose.

Recommendation

The legislator must revisit the scope of reserved activities for pharmacists, and remove from the provision (Art. 75 of Law 131/2015) any reference to the disposal of “medical devices” and para. g), k), l) and m), provided no conflict of interests arise that would jeopardise ethical principles.

Description of the barriers

Professional firms must have at least two professional partners belonging to the same profession (with the exception of those incorporated as sole-proprietor firms).161

The majority of social capital (above 50%) with voting rights (or, just the majority of voting rights, if applicable) must be owned by professionals or firms of such professionals who are members of the same professional association.162

Additionally, an individual or firm cannot be a professional partner in more than one professional firm.163

Restrictions in the legal professions bylaws

Only lawyers or other law firms, including from other EU countries, can be partners or associates in a law firm, which must be registered with the bar association.164 165 All voting rights in a law firm are thus in the hands of lawyers or other law firms through their participation in the law firm’s sharing capital. Co-ownership or co-partnership with other professionals who are not lawyers are ruled out.166

All partners in a notary's professional firm are notaries, and each firm cannot have more than three partners.167 Only notaries with a licence to install a notarial office in the same municipality can form a partnership to install a notarial firm.168 Additionally, a notary who is a partner in a notarial society cannot exercise his profession as an individual notary.169

The bylaws of the professional association of solicitors and enforcement agents allow the creation of professional firms of solicitors, or of enforcement agents, or professional firms of solicitors and enforcement agents.170 These firms can include both equity and non-equity partners.

Restrictions in the financial professions bylaws

The majority of capital (i.e., above 50%) with voting rights (or, just the majority of voting rights, if applicable) of professional firms of economists must be owned by professionals or companies of such professionals, constituted by national law or other forms of associative organisation of professionals equated to economists and established in other EU/EEA Member States, provided the majority of capital and voting rights is held by those professionals.171

Certified accountants can exercise their profession in a collective way through two types of firms: professional firms of certified accountants and firms that supply accounting services. Barriers to competition are identified only in the case of professional firms of certified accountants.

Professional firms of certified accountants are subject to various requirements. Their sole corporate objective is the delivery of the activities reserved for certified accountants, as defined in their bylaws.172 At least 51% of the social capital and voting rights in these professional firms must be owned by certified accountants.173 All partners of a professional firm of certified accountants who exercise this profession must be active members of their professional association.174 Professional firms of certified accountants can hold social capital in another professional firm of the same kind.175

The bylaws of auditors require that a majority of the share capital and voting rights in an audit firm must always belong to statutory auditors, audit firms, or auditors or audit firms from other EU Member States, and the remaining sharing capital can be held by any natural or legal person.176 However, the rules imposed by the Directive on Auditing (Directive 2006/43/EC)177 are less stringent as they only require that a majority of the voting rights in an audit firm must be held by other audit firms, approved in any EU Member State, or by natural persons who satisfy the requirements for access to the profession of auditor. This directive does not seem to allow Members States to impose additional requirements on ownership/shareholding such as requiring that a majority of the sharing capital be owned by professionals or audit, constituted under national law.178

According to the bylaws for customs brokers, the majority of capital with voting rights in a professional firm of customs brokers must be owned by these professionals179.

Restrictions in the technical and scientific professions bylaws

Architects can exercise their profession in a collective way in two types of firms: professional firms of architects and firms that supply architectural services. Barriers to competition are identified only in the case of professional firms of architects.

Professional firms of architects are subject to stringent requirements. Only architects, firms of architects registered within the professional association of architects, and associative organisations from other EU countries made up of professionals considered equivalent to architects under Portuguese law, can be partners in a professional firm of architects.180 In contrast, EU associative organisations, when partners of a Portuguese professional firm of architects, are only required to guarantee that the majority of their capital or voting rights is owned by those professionals.181 Moreover, in a professional firm of architects, the majority of social capital or of voting rights (whenever voting rights are not proportional to capital shares) have to be owned by "professional partners",182 that is, partners who own sharing capital and exercise within the firm activities that are included in this firm’s corporate objective.183 These professional partners (i.e., architects, firms of architects, and associative organisations from other EU countries equated to firms of architects) are bound by an exclusivity rule: they can only be "professional partners" in a unique professional firm of architects registered with the Portuguese professional association of architects, and provided they are not professional partners in any associative organisation from other EU countries equated to a professional firm of architects.184

Firms that supply architectural services185 assume the form of commercial firms, and must include in their corporate objectives the delivery of architectural services, although the delivery of these services does not have to constitute their main corporate objective. These firms must register with the professional association of architects, but not as members of the association. They must include an architect as the professional responsible for the acts that are reserved for architects:186 elaboration or evaluation of studies, projects and architectural plans, as well as the other acts foreseen in special legislation.187 We conclude that these firms do not exhibit barriers to competition concerning ownership/shareholding/partnership.

The bylaws of engineers and of technical engineers are similar. They require that the majority of capital (i.e., above 50%) and voting rights188 of a professional firm of engineers or of technical engineers are owned by these same professionals, or other professional firms of engineers or of technical engineers, created under national law and registered as a member of their respective professional associations, or other forms of associative organisation of professionals equated to engineers or technical engineers, respectively, established in other EU/EEA Member States (provided the majority of capital and voting rights in these organisations are held by those professionals189).

Restrictions in the health professions bylaws

The only way that nutritionists can exercise their profession in a collective way is through professional firms constituted uniquely of nutritionists.190 These firms can only have as partners nutritionists established in Portugal, other professional firms of nutritionists registered as members of the professional association of nutritionists, and other forms of associative organisations of professionals equated to nutritionists and established in other EU/EEA Member States, provided the majority of capital and voting rights are held by those professionals.191 The majority of the social capital with voting rights, or the majority of voting rights, as the case may be, must be owned by the professional society’s professional partners (i.e., the partners who own sharing capital and exercise within the professional firm, activities that are included in this firm’s corporate objective).192

Collective entities that deliver nutritionist services and are not professional firms do not have to register with the professional association of nutritionists. However, a nutritionist exercising a professional activity in such a collective entity must be a member of the professional association of nutritionists.193 Those collective entities do not present specific barriers to competition.

Pharmacists can exercise their profession in a collective way in a professional firm of pharmacists. Professional firms of pharmacists can only have as partners pharmacists established in Portugal, other professional firms of pharmacists registered as members of the professional association of pharmacists, and other forms of associative organisation of professionals equated to pharmacists and established in other EU/EEA Member States, provided the majority of capital and voting rights are held by those professionals.194 The majority of the social capital with voting rights, or the majority of voting rights, as the case may be, must be owned by the professional society’s professional partners (i.e., the partners who own sharing capital and exercise within the professional firm, activities that are included in this firm’s corporate objective).195 Apart from exercising their own activities of a pharmacist, a professional firm of pharmacists may also exercise other professional activities provided they are not incompatible with their own activities of a pharmacist and there is no impediment from the pharmacists’ bylaws.196

Collective entities that deliver pharmacist services and are not professional firms, do not have to register with the professional association of pharmacists. However, a pharmacist exercising this professional activity in such a collective entity must be a member of the professional association of pharmacists.197 No barriers to competition are identified for these collective entities.

Harm to competition

Professional legal firms (lawyers, notaries, solicitors and enforcement agents) follow the “professional partnership” model,198 enforced by a “prescriptive regulation model” – see Chapter 2 – under which (i) only professionals regulated by the same professional association can own the firm – i.e., professional partners own 100% of the sharing capital or all the voting rights – and where (ii) the professional firm places the pursuit of the public interest above commercial interests. These professional partners can be individual professionals, professional firms or associative organisation of professionals established in other EU/EEA Member States. The professional partnership model is the only model allowed for the legal professions. Non-professionals can only work as employees (or as consultants) of the professional firm and are barred from participating in the relevant decision-making processes.

According to some stakeholders and literature on this subject,199 such restrictions aim to guarantee professional independence, autonomy, adherence to professional ethical rules and the pursuit of the public interest (e.g., the good administration of justice). According to them, opening the partnership to people outside the profession could: (a) threaten the autonomy and independence of legal professionals; (b) threaten lawyer-client privilege; (c) give rise to conflicts of interest between the different partners within a same legal firm that would risk the pursuit of the social goal binding the legal professional firm, because non-professional partners would not be bound by the same professional obligations, as they are not members of the professional association.

Professional firms of notaries are subject to additional restrictions. A notary without a notarial office licence cannot be a partner in a firm. This restriction bars all notaries on the waiting list for a notarial office licence ̶ 44 notaries in total at the last count ̶ from becoming partners in a professional firm. Each firm cannot have more than three partners, and all partners have to hold licences in the same municipality. This is even more relevant as the number of municipalities with only one licence represents around 70% of all notarial licences. These restrictions clearly limit the creation of professional firms of notaries and might explain why there are so few of them (there are currently only two professional firms of notaries, and one of them is a sole proprietor firm). If these restrictions aim to respond to concerns about market power, they would be better dealt with through competition law.

To open up a professional firm to external ownership means to open the firm up to more investment, by allowing access to a wider pool of capital. External ownership, partial or total, means capital ownership by non-professionals, ownership of voting rights, or both.

This opening will enable professional firms to satisfy a greater pool of consumers and reap the benefits of a larger scale of operations. For younger professionals, not yet well established in their profession, it would also mean more opportunities to set up their own professional firm and compete in the market.

This will generate a greater ability by professional firms to compete in the single market and internationally. It would also improve risk management among the owners of a professional firm, hence, lowering operational costs and possibly lowering prices charged to consumers for the different professional services being delivered in the market.

These effects would apply to all professional firms across all 13 professions. But their impact would be felt more strongly in the legal professions (lawyers, notaries, and solicitors and enforcement agents), as the “professional partnership model” is the only professional organisational form allowed.

The removal of barriers to external ownership of law firms has taken place in England and Wales with the adoption in 2007 of the Legal Services Act, but also in the Australian state of New South Wales in 2001, as well as in Singapore, Denmark, Italy and Spain,200 although more modestly in these latter four countries.

Moreover, as pointed out among others by Stephen (2016), Hadfield (2008, 2017), and Hadfield and Rhode (2016), the traditional law firm model with partnerships restricted to lawyers, together with the fact that lawyers are educated according to the same standard model and train and work almost exclusively with other lawyers, has contributed to a lack of innovation in the provision of legal services (e.g., a poor supply of online legal services). It may also have contributed to driving a wedge between what the profession delivers and what firms and households demand from the suppliers of legal services. To open up legal firms to external ownership can be a vehicle for introducing innovation to the benefit of the firms’ clients.201 This argument emphasises the importance of bringing in investors with an innovator’s mindset that will introduce and push for “game changing innovations” better able to respond to the legal needs of firms and households that depend on the legal infrastructure to carry out their economic activities.202

Ultimately, all these restrictions on ownership, shareholding and partnership for professional firms, are detrimental to firms across the entire economy, especially SMEs, and households, as their relaxation can be expected to lead to an increase in their welfare.

Recommendations

Ownership/partnership of all professional firms should be opened to other professionals and non-professionals. We also recommend that other professionals and non-professionals be allowed to hold a majority of a professional firm’s social capital, together with a majority of voting rights.

The number of partners in a notarial firm should be opened and not limited to any maximum number. Notaries without a notarial licence should be allowed to become partners in a professional firm of notaries.

The ownership/partnership of auditors’ professional firms should be opened to other professionals and non-professionals. While the majority of voting rights must be held by auditors (see Directive 2006/43/EC) the majority of the capital can be held by non-auditors.

Description of the barriers

The professional firms must have at least one manager or administrator that is a member of or is registered with the professional association that defines the firm's main corporate objective. In case registration in the professional association is optional, that manager must comply with the requirements for access to the profession in the national territory.203 204

1. Restrictions in the legal professions bylaws

The bar association bylaws require all members of management to be professionals (lawyers).205 Managers have to be established in Portugal, registered as lawyers or simply registered with the bar association using their own home country title.206

The bylaws of solicitors and enforcement agents require that all members of management are professionals.207 The administration/management of a firm of enforcement agents must include enforcement agents only.208

2. Restrictions in the financial professions bylaws

The managers of professional companies of economists constituted by national law must be professionals of the respective professional association.209 The criteria for other forms of associative organisations of like-minded professionals established in other EU/EEA Member States, who hold the professional title, seem less excessive, needing only to ensure that at least one manager or administrator is a professional.210

The bylaws of certified accountants require that the managers or administrators of such professional companies represent the majority of capital (expressly provided that it should be at least 51%) with voting rights, owned by professionals or companies of such professionals, constituted under national law, who have the required professional title.211

The Portuguese rules on management for auditing firms foresee that the majority of the managers are auditors or auditing firms.212 Those rules are aligned with the Directive on Auditing213 that also requires that the majority of the members of the administrative or management body of an auditing firm must themselves be auditing firms or auditors.

For customs brokers, the bylaws require that at least one member of the management or administrative entity of the professional firm must be a customs broker with an active membership in the professional association.214

3. Restrictions in the technical and scientific professions bylaws

The management of a professional firm of architects must be done by architects.215 But firms that supply “architectural services” exhibit no barriers to competition concerning their management.

The bylaws of engineers require that all members of management of a professional firm of engineers must be engineers.216 This is also the case for the bylaws of technical engineers.217

4. Restrictions in the health professions bylaws

All members in the management of a professional firm of nutritionists must be nutritionists.218 This is also the case for the bylaws of pharmacists.219

Harm to competition from these rules

Requiring that professionals from the same profession must be exclusively or part of the management of professional firms is highly restrictive on the ability to conduct business effectively and efficiently.

A reason invoked to impose such restrictions is that only when the management is controlled by professional partners can it assure that the sole or main corporate objective of the professional firm will be pursued and that the autonomy of the professionals is maintained.220

However, Framework Law 2/2013 actually only requires that one of the managers or administrators of a professional firm be a member of the professional association.221

Historically, corporations separated their ownership from management starting in the early 20^th century. One of the main reasons was to professionalise management in increasingly competitive markets. Conflicts between owners (the principals) and managers (the agents) has been the subject of extensive literature, and various payment schemes have been adopted to align managers’ interests as close as possible to the owners’ interests.222

Hence, notwithstanding the fact that we deal with professional firms, there is no reasons for all managers to be owners or partners – as Law 2/2013 makes clear. Professional management, which ultimately answers to the owners of the professional firm, may be an option preferable for the professional partners themselves.

The existing rules severely limit the ability of professionals to seek out for themselves the optimal structure of their firms or groupings, including the ability to achieve economies of scope by providing joint services with other professionals.

Recommendations

We recommend that professional firms’ management should include, if they decide so, only non-professionals members, except in the case of Auditing firms.

Description of the barriers

1. Restrictions in the legal professions bylaws

Multidisciplinary practice is not allowed in Legal firms, as those firms have a single and exclusive corporate objective:

• law firms: the exercise of legal advocacy;225

• solicitors and enforcement agents firms: the practice of solicitor and enforcement agents acts;226

• notarial firms: notarial practice.227

Even if legal professionals (except notaries) can share a legal office this does not mean that they can engage in a multidisciplinary practice.228

Even if enforcement agents who are also solicitors or lawyers can participate in professional solicitors' firms or in professional law firms, they do so in their capacity of solicitor or lawyer, which means that they cannot act with different titles, which also affects multidisciplinary practice.229

2. Restrictions in the financial professions bylaws

The bylaws of certified accountants require that professional firms have as their exclusive social objective the activity performed by certified accountants. This means that multidisciplinary activity is not allowed for professional firms of certified accountants.230

By contrast, economist,231 auditor232 and customs broker233 firms can carry out multidisciplinary activities, as long as individual incompatibilities and impediments are respected.234

3. Restrictions in the technical and scientific professions bylaws

The corporate objective of professional firms of engineers,235 technical engineers236 and architects237 allows these professional firms to carry out other activities, as long as individual incompatibilities and impediments are respected.238

The regime for architects rules out the practice of activities whenever these are regulated by other professional associations that prevent the creation of professional firms that include architects or that deliver architects' own acts.239

In 2017, there was only one active professional firm of architects in Portugal. This is due to the possibility that architects can practise their trade within firms that supply architectural services.

The corporate objective of professional firms of engineers is the exercise of engineering activities, as defined by what a professional engineer does, notwithstanding that engineers with different specialisations have different reserved engineering activities.240 However, professional firms of engineers can also engage in other activities, provided that they are not incompatible with the profession of engineer and do not meet any impediments laid down by their bylaws.241 Identical restrictions apply to professional firms of technical engineers.242

4. Restrictions in the health professions bylaws

The corporate objective of professional firms of nutritionists is the exercise of nutritionist activities.243 However, professional firms of nutritionists can also engage in other activities, provided that they are not incompatible with the profession of nutritionist nor do they meet any incompatibility or impediments laid down by their bylaws.244 Identical restrictions apply to professional firms of pharmacists.245

Harm to competition

To rule out multidisciplinary activity in the same professional firm, between potentially complementary service providers, harms competition and can be detrimental to consumer welfare. In fact, this restriction does not allow for the full exploration of economies of scope that come with the offer of different services by a same “service delivery unit” that shares infrastructure and human capital. It foregoes gains from specialisation and service quality that would result from the interaction between a wider range of professionals. This also means foregoing the advantages of branding. It also does not allow for the mitigation of the double marginalisation (or double mark-up) problem that comes with multidisciplinary activities which can complement each other, by segmenting the services provided.

This means foregoing lower average costs in a multi-product firm, thereby leading to higher fees being charged to clients, while preventing clients from further benefits that could be gained from a more convenient "one-stop shop" for a wider range of professional services.

Ruling out multidisciplinary practices within a profession will reduce the scope for better risk management between different professional activities within the same professional firm, as they may be subject to non-identical demand volatility or uncertainty, i.e., reduction in the scope for internal risk spreading to be understood as the ability to transfer resources in response to fluctuations in demand. Professional firms with lower risks can achieve higher levels of efficiency, and provide better services and lower prices to consumers.

To offer a wider range of professional services means to be better prepared to face market uncertainties. Furthermore, opening up a professional firm to multidisciplinary activities is likely to ease the introduction of innovative products but also to spur innovation in the delivery of already existing products or ranges of products.246 247

1. Legal professions

The existing prohibition of multidisciplinary associations of law firms has already been questioned in literature and by some stakeholders in Portugal.248 249

In February 2013, after Law 2/2013 was officially adopted, the President of the Bar Association and the Bar General Council sent to the government a proposal for new bylaws.250 This proposal put forth three options for the new wording to be given to Chapter VI on "Societies of lawyers and other forms of association". All these three options contemplated the creation of multidisciplinary professional societies involving lawyers and non-lawyers as partners. Two of these options barred non-professionals from being partners in such multidisciplinary societies, but not other professionals. These options also differed on who could exercise control over the society, i.e., who could own the majority of shares and voting rights in the society.

A Proposal for a “Professional Statute for Lawyers”251 was also published during 2013. This proposal also contemplated the creation of multidisciplinary professional societies involving lawyers and non-lawyers. In its Art. 21, this proposal allowed for the creation of four types of professional societies: (a) societies composed only of lawyers; (b) societies composed of lawyers and other professionals; (c) societies composed of lawyers and non-professional societies; (d) societies composed of lawyers, other professionals and non-professionals. Moreover, and with regard to their legal form, societies of lawyers or with the participation of lawyers could take the form of civil or commercial companies. However, these alternative professional societies had to fulfil certain requirements such as adherence to the regime of reserved acts for lawyers and to the regime of incompatibilities and impediments established by law.

In the end the new Bar Association Bylaws, adopted by Law 145/2015, did not contemplate any of these proposals.

During the consultation period for Law 145/2015 (the Bar Association Bylaws), the Conselho Superior do Ministério Público raised doubts about such a multidisciplinary prohibition as being non-proportional to the pursued public objective and an illegitimate restraint on the constitutionally guaranteed principle of the free provision of services.252 It added that when law firms engage the services of other professionals, the upholding of professional secrecy and privilege does not seem to be a problem. It also noted that the law already opens the possibility for law firms and other lawyers’ associations established in other EU Member States to provide legal services in Portugal. Law 145/2015 would be prohibiting multidisciplinary activity in Portuguese law firms, while law firms from other EU Member States could be providing their services in Portugal at the same time.

The Conselho Superior do Ministério Público regarded this situation as paradoxical and untenable. In fact, multidisciplinary activity is allowed not only in Spain but also in other jurisdictions such as England and Wales, Scotland, Canada, France and Germany.253 254 255 A recent example shows the interest that exists in Portugal for the delivery of integrated services, where the legal dimension is joined by other dimensions.256 Other country experiences also show the benefits of multidisciplinary practices.257

In Spain, the exercise of the law in a multi-professional collaboration regime is allowed. Lawyers may associate in a multi-professional collaboration with other liberal professionals, provided they are not incompatible as professionals, under any lawful organisational form. Such collaborations must fulfil certain requirements such as: (i) the purpose of the grouping is to provide joint services, among which legal services must necessarily be included and complement those of the other professions; (ii) the activity that will be carried out does not affect the correct exercise of advocacy.258

Both the Law Society of Upper Canada and the Barreau du Québec allow lawyers to form partnerships with non-lawyers, under certain conditions and appropriate regulation. For instance, lawyers can split, share or divide clients’ fees with non-lawyers; lawyers can enter into arrangements with non-lawyers regarding sharing fees or revenues generated by the practice of law; and law corporations can carry out activities other than that of providing legal services.

Since 2001, the state of New South Wales (NSW) in Australia allows the creation of “incorporated legal practices” (ILP, defined as a corporation that engages in legal practice in NSW, whether or not it also provides services that are not legal services) which could also include multidisciplinary practices. A legal service provider may become an ILP and provide legal services either alone or alongside other legal service providers who may, or may not be, “legal practitioners”. In this case, at least one legal practitioner director must be appointed. A legal practitioner director is defined as a director of an ILP who must be an Australian legal practitioner holding an unrestricted practice certificate. The legal practitioner director is generally responsible for the management of the legal services provided by the law firm.

In the case of the State of Queensland, and as mentioned by this state’s Legal Services Commission, The Legal Profession Act 2007 ‟allows law firms[…] to form multi-disciplinary partnerships (MDPs) or to form companies and to trade as incorporated legal practices (ILPs)”.259

Since the introduction of ABSs in the legal professions in England and Wales, some ex-post evaluation work has been carried out. As of December 2017, there were more than 1 000 ABSs in England and Wales, representing about 7% of all regulated law firms in England & Wales.

According to the findings by the LSB, published in July 2016 and looking more narrowly at the Solicitors Regulation Authority (SRA) regulated legal service providers, the LSB survey of ABSs indicated that they made greater use of technology to deliver services than other firms.260

As mentioned in the Competition and Markets Authority (CMA) (2016) Final Report on Legal Services, in its July 2016 Report on innovation in the legal services in England and Wales, the Enterprise Research Centre (ERC) estimated that, all other things being equal, ABSs are 13% to 15% more likely to introduce new legal services. Moreover, the ERC found that the major effect on innovation in legal services has been to extend the range of services, improve their quality and attract new clients.261 In particular, the most innovative group of providers were the unregulated group.

Allowing multidisciplinary practices will enable different forms of business models to emerge within the market, to cater for different types of market players whether innovative start-ups, one-person cabinets or traditional law firms. The interaction of many different players in the market will make the sector more dynamic, more innovative and offer a broader range of services, thereby allowing for better, cheaper and easier access to justice.

Finally, and as established in the Bar Association Bylaws, the prohibition of fee-sharing between lawyers and other professionals, except other lawyers, law interns or solicitors,262 introduces a further restriction on the implementation of multidisciplinary practice within a professional law firm.

Recommendations

The prohibition of multidisciplinary practice in professional firms should be removed, particularly in the case of the four legal professions, where the “professional partnership model” is the only model allowed for the practice of the profession in a collective way.

Also, in view of this recommendation, we recommend the removal of the prohibition of fee-sharing between lawyers and other professionals, legal or non-legal, in law firms.