The Law Society has described the Solicitors Regulation Authority (SRA) consultations proposing wide-ranging regulatory reforms as combining helpful proposals with changes which are concerning for solicitors and consumers.
In its response to the SRA consultation, which include radical changes to solicitors' indemnity insurance, the compensation fund, multi-disciplinary practices and accountants reports, the Law Society emphasised the likely impact of the proposals on the solicitors' profession.
Law Society chief executive Desmond Hudson said:
'The implications of what the SRA is planning and the possible consequences of those plans are only just beginning to be realised. Our discussions with our members and stakeholders reveal that none of us appear to have been approached in advance by the SRA in formulating these proposals or options.
'We consider that six weeks is too short a time period to consult on and assess the consequences of such far reaching changes. To use the example of PII from the very many consultation proposals, firms, insurers and brokers will simply have insufficient time to adjust their businesses in time for 1 October implementation which could mean that no cover will be provided for lenders in residential house transactions. Yet these changes could see the immediate removal from panels of hundreds of firms.'
On 7 May the SRA published four consultation documents proposing wide-ranging reforms to be introduced on 1 October. These promise greater access for socially disadvantaged consumers excluded from legal services and cost savings for firms through easing regulatory burdens.
They include lowering the level of insurance cover that firms must have coupled with a new obligation on the firm to show the SRA that it still has sufficient cover to protect clients.
Desmond Hudson highlighted the Law Society's concerns:
'Unfortunately, the announcement has raised expectations among some firms that they will benefit from cuts in premiums and less reporting obligations. The reality of the proposals may be different; under the threat of regulatory sanctions, firms will have to demonstrate that they have purchased sufficient insurance above the new lower limits to cover risks which are currently covered in their policies. For some firms, removing the need to submit an accountant's report will be a saving, albeit the COLP or COFA will have to certify compliance. Many firms will have to continue to produce the report as a requirement for their clients, COFA and PII insurers or their bankers.
'The lending institutions have already made clear that if the removal of client protections proposals go ahead, lenders will act swiftly to minimise their exposure to risk. This could mean a substantial reduction in the number of firms which act on their panels and introducing greater controls on those they retain or even moving work away from 'high street' firms.
'More time needs to be given to allow the market to produce new insurance products and to educate firms and consumers who, if these proposals go ahead, will find themselves facing greater exposure to risk , particularly of historical claims which might no longer be covered. Is it right to expect consumers instructing a firm, for example in the buying or selling their home, now to have to consider whether their solicitor's insurance policy limits might be exceeded should something go wrong and the consumer needs to make a claim in the future?
'We are also concerned at what would seem to be the absence of analysis, evidence and data to underpin the SRA's assumption of expected benefits. There has, so far as we can determine, been no impact assessment nor equality and diversity impact assessment to date.'
Desmond Hudson concluded:
'Our view is that these proposals are too hastily conceived and possibly highly risky. We do, however, welcome the SRA's desire for better and targeted regulation and we look forward to working with them to rationalise and minimise the regulatory burden for smaller firms.'
Read our full responses to the consultations:
Notes to editors
The SRA's proposals:
Minimum terms and conditions
- reduce mandatory cover to £500k
- introduce a cap for insurers in any one year by an aggregate limit on claims - £1.5 or £5m
- limit compulsory cover for claims requirements to individuals, small enterprises, charities and trusts (removing large financial institutions and lenders)
- reduce the run-off cover to three years
- introduce a new regulatory requirement that each firm assess the level of PII cover that is appropriate for its work
- announce changes for early August for this year's renewals
- financial institutions will be removed from eligibility to claim against the fund
Changes to reporting accounting requirements
The SRA proposes to remove the requirement to submit an accountant's report and to replace it with a requirement for the COFA to sign a declaration that they are satisfied that the firm is managing its client account on accordance with SRA Accounts Rules.
Regulation of multi-disciplinary practice (MDPs)
The SRA proposes to relax its regulation of unreserved work within MDPs to encourage more entrants into the legal services market, particularly large accountancy firms. It will no longer regulate unreserved legal work carried out by a non-lawyer within an MDP where it is regulated by a 'suitable' regulator.
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