Solicitors Indemnity Fund

Template response: SRA future of SIF and PSYROC consultation

We've developed a short template response to help members respond to the Solicitors Regulation Authority's (SRA) consultation on the future of the Solicitors Indemnity Fund and post six-year run-off cover.

The SRA has signalled its desire to close the Solicitors Indemnity Fund (SIF) and remove any regulatory requirement for solicitors to maintain post six-year run-off cover (PSYROC).

This would:

  • end the current arrangements, which protect consumers from long-term risks relating to legal services, especially in areas like conveyancing, wills and probate, and childhood personal injury
  • remove important safeguards to their rights established by parliament and maintained by the courts

Our view

We're concerned that any decision by the SRA to close the SIF and terminate PSYROC as a regulatory arrangement would not address the practical alternatives suggested by the analysts who provided their expert report.

It would also be bad for consumers, whose interests the SRA is under a statutory duty to promote and protect.

We believe the SRA’s regulatory objectives and the regulatory principles would be better served through a continuation of the SIF, funded through a compulsory annual levy on law firms.

Get involved

We strongly encourage members, firms and local law societies to respond to the consultation.

The consultation closes on Tuesday 15 February 2022. 

Find out more about the consultation on the future of SIF and PSYROC

Share your views with the SRA

Background

In its consultation document, the Solicitors Regulation Authority (SRA) has signalled its desire to close the Solicitors Indemnity Fund (SIF) and remove any regulatory requirement for solicitors to maintain post six-year run-off cover (PSYROC).

This would end the current arrangements, which protect consumers from long-term risks relating to legal services, especially in areas like conveyancing, wills and probate, and childhood personal injury, and remove important safeguards to their rights established by parliament and maintained by the courts under the Limitation Act 1980.

It is not the SIF, or the regulatory requirement for PSYROC, which create liability for late-arising claims; the Limitation Act 1980 establishes statutory rights of protection that consumers have a legitimate expectation to exercise.

Around 11% of post-closure claims arise more than six years after a firm has ceased to operate (and mandatory run-off cover has expired).

The availability of PSYROC is important for consumers with long-tail claims, because seeking recompense through other means (such as through litigation) is considerably more costly and difficult after a long delay.

Our view

We are concerned that any decision by the SRA to close the SIF and terminate PSYROC as a regulatory arrangement would not address the practical alternatives suggested by the analysts who provided their expert report.

It would also be bad for consumers, whose interests the SRA is under a statutory duty to promote and protect.

We believe the SRA's regulatory objectives and the regulatory principles would be better served through a continuation of the SIF, funded through a compulsory annual levy on law firms. The proper application of the SRA's own decision-making framework would support this course of action, which is also supported by the profession.

The SRA's approach to the consultation

Based on an application of its decision-making framework, the SRA should have given proper consideration to each of the following options and their likely outcomes:

  1. continuing the current regulatory arrangements (maintaining SIF without the injection of new funds)
  2. continuing the current regulatory arrangements with adaptions (maintaining SIF, funded by an annual levy on the profession)
  3. terminating the current arrangements (closing the SIF and making no further arrangements for the regulatory provision of PSYROC)

The SRA has only systematically analysed Option 1, correctly concluding that it would not be viable to maintain the SIF without the injection of new funds.

In our view, it did not give proper consideration, based on the regulatory objectives and principles, to Option 2 (the clear consumer benefits of maintaining the SIF, funded by a proportionate levy on the profession) or Option 3 (the likely consumer detriment of closing the SIF without any realistic alternative means for the provision of PSYROC).

The SRA's expert report suggests there are around 31 successful claims from the SIF each year, with an average value of £36,400. The SRA characterises this sum as "modest", although it is more than the median annual pay for a full-time employee in England and Wales.

In the absence of PSYROC, claimants may have to resort to litigation against the principals of closed firms in order to receive compensation. But this process would be costly and time consuming, and may not result in restitution.

This is why we believe a levy on firms to maintain the SIF would be a proportionate response to provide ongoing protection for consumers.

Conclusions

Having considered the alternatives, we consider that the only option that would adequately meet the regulatory objectives and principles is a continuation of the SIF funded through a levy on firms.

The SRA's own experts estimate that the annual cost of such a levy would be £240 per firm.

This cost would be targeted, because only consumers who purchase legal services from regulated entities can access PSYROC, and proportionate, because smaller firms would pay more as a percentage of turnover, but consumers who purchase their services are more likely to have long-tail claims.

The profession consider £240 to be a reasonable price to pay in order to:

  • protect and promote the public interest
  • support the constitutional principle of the rule of law
  • improve access to justice
  • protect and promote the interests of consumers of legal services
  • promote competition in the provision of legal services
  • encourage an independent, strong, diverse and effective legal profession
  • promote and maintain adherence to the professional principles
  • ensure compliance with the regulatory principles that require regulatory activities to be transparent, accountable, proportionate and consistent

Closing the SIF without making any arrangements for the ongoing provision of SIF on a regulatory basis would create uncertainty for consumers who might want to pursue long-tail claims, and it would be a perverse decision for the regulator to remove an important consumer protection when the profession is willing to pay for it.

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