The Law Society said it had “no objection in principle” to replacing the Solicitors Indemnity Fund (SIF) with an in-house alternative run by the Solicitors Regulation Authority (SRA).
However, the company was strongly opposed to the SRA’s suggestion that companies, charities or trusts with income or assets of more than £2million should not be able to make claims on the successor to SIF.
He warned that this could lead mortgage lenders to allow not just small law firms to be on their panels.
The SIF protects notaries against claims made after the six-year liquidation period following the closure of a law firm. It was originally due to close in 2017, but has been repeatedly delayed due to fears the owners of the business faced an uphill struggle to find alternative cover.
The SRA finally acknowledged earlier this month that there was “some evidence” of risks to “a small number of consumers” if the task of protecting lawyers against claims made after the six-year period was left to the Free market.
Instead, the regulator said “a new consumer protection arrangement within the SRA” would likely be the most cost-effective solution when SIF finally closes in September 2023.
Responding to the working paper, the Law Society, which argued for retaining SIF, said the “main focus” must be on maintaining coverage after six years, with the “full range of consumer protections ” currently provided.
“Therefore, society has no objection in principle to supporting a compensation fund managed by the SRA, provided the scheme is established with transparent governance to provide the same level and scope of protection as currently exists. provided by the SIF.”
If the SRA produced “strong evidence” that an in-house alternative could provide the same protection at a lower cost, that would be “so much the better”.
The SRA’s discussion paper offered options on rule changes to limit claims to any future SIF or replacement SIF.
One would be to block claims from companies, charities or trusts with income or assets in excess of £2million, using an approach similar to that taken by the SRA Compensation Fund. Another would be to trail the compensation fund by no longer covering claimants’ costs.
The Law Society was strongly opposed to both. He warned that the former “could negatively affect the behavior of large corporate clients with undesirable consequences for the broader legal services market”.
For example, mortgage lender panels “could deny access to all but large businesses that are deemed to be at acceptable risk of closure without a replacement practice.”
If this were to happen, small and medium-sized law firms “could be forced out of conveyancing work”, limiting access to legal services, undermining competition and discouraging an independent, strong and diverse legal profession – regulatory objectives that the SRA is required to follow.
Regarding costs, Chancery Lane said it “would not support any changes or exclusions that might deter those with valid claims from seeking compensation”, given the “particular issues consumers face in pursuing late claims and the potential for higher initial costs.”
I Stephanie Boyce, President of the Law Society, said: ‘In principle, we could support a consumer protection fund run by the SRA, but only if it offered the same identical protection as the SIF.’
Ms Boyce said any replacement for SIF must continue to operate as a compensation scheme, funded by a compulsory levy on businesses.
She said the SRA’s analysis suggested it would cost around £240 per business per year, “which need not have any effect on the price of legal services for consumers”.
Ms Boyce said any residual SIF funds should be “closed” for claims after six years.
“Consumers are confident that their lawyer is adequately and appropriately insured and that they will be compensated for any losses in the rare event that something goes wrong. It is essential that trust is maintained. »