Financial protection review: the Law Society's position
The Law Society continues to support the abolition of the assigned risks pool (ARP) and introduction of the extended indemnity period (EIP), however, in our response to the FP2 Review, we raised a number of further issues for the SRA to consider and highlighted aspects of its proposed rule changes that did not implement the reform path set out in its 2011 policy statement. Read more about the 2011 policy statement. Some of these concerns were not adequately addressed in the SRA’s final response released in April 2012.
The Law Society supports:
- the removal of the ARP and introduction of a 90 day period that comprises of an EIP and cessation period. If a firm is unable to obtain a policy of insurance at the end of the 90 days, it must close. This is consistent with the proposal put forward by the Law Society in the first stage consultation. As a result of our response to the second stage consultation, the SRA now agrees that the entire period must be backdated to the end of the original policy. We maintain that the EIP requires efficient enforcement action by the SRA to avoid firms operating without insurance. We have supported amendments to the authorisation rules to facilitate this and we look forward to seeing the detailed rules that the SRA is expected to release later this year.
- the maintenance of insurance coverage throughout the EIP and cessation period even if work is conducted in breach of the requirement to only perform work in connection with existing instructions throughout the indemnity period. We have successfully convinced the SRA that its proposed changes would have resulted in potential client detriment and additional risk to the Compensation Fund. As a compromise, the SRA will allow insurers to obtain reimbursement from solicitors who conduct work contrary to the rules.
- the SRA's decision to not introduce a notice period prior to the EIP. We considered this proposal was not practicable. However, we note that the removal of the single renewal date from 1 October 2013 will result in greater flexibility in policy length, which may allow insurers and solicitors to work through issues without necessarily triggering the provisions of the EIP.
- the introduction of a requirement that insurers are transparent about their credit ratings (or lack of rating) for the 2012 renewal. We will be providing additional support to our members about what ratings do (and do not) mean in our 2012 Guide to Insurers & Brokers.
The Law Society does not support:
- the SRA's failure to introduce mandatory acceptance periods despite the majority of respondents being in favour of this proposal
- the SRA not addressing the cost issue of the EIP premium
- The transfer of the existing 'side-arrangement' from the ARP to the Compensation Fund, whereby coverage is provided to uninsured firms that have not applied or are not eligible to enter the ARP.
We called for the Legal Services Board (LSB) to reject these changes until there is a full review of the Compensation Fund and scope of coverage.
Extension to scope of 'side arrangements' partially reversed
At the May board meeting where detailed changes to the rules were approved the SRA partially reversed its plans to extend the scope of the 'side arrangements' to non-authorised SRA firms, in response to our lobbying. While this is an improvement from its initial proposals and consistent with the intention expressed in the SRA's 2011 Policy Statement, it still does not address the overarching concerns that we raised with the LSB about the adequacy of the SRA's consultation process. The issue of whether this is an appropriate role to be placed on the Compensation Fund is of fundamental importance and the Law Society remains opposed to this transfer. Read more
Read more about the Law Society's call to reject the changes to the Compensation Fund