SRA consumer protection for post six-year negligence – Law Society response
The Solicitors Regulation Authority (SRA) held a further consultation on the future of the Solicitors Indemnity Fund (SIF) and post six-year run-off cover (PSYROC).
The consultation sought views on the SRA’s decision to:
- maintain consumer protection for post six-year negligence as an SRA regulatory arrangement providing the same level of cover as the SIF, and
- provide this protection through an indemnity scheme operating under the direct control of the SRA
In our response to the SRA’s previous discussion paper, we restated our belief that PSYROC provides necessary protections for consumers of legal services and solicitors alike.
We also set out three criteria that any new PSYROC scheme would have to satisfy in order for us to accept it as an adequate and appropriate replacement for the existing SIF.
The new scheme should:
- provide indemnity as permitted by section 37 of the Solicitors Act 1974 and be an indemnification arrangement as defined in section 21(2) of the Legal Services Act 2007
- be ringfenced for the specific purpose of giving indemnity protection and dealing effectively with PSYROC claims against former principals or employees of ceased SRA-regulated entities
- provide the same access to, and scope of, indemnity as SIF
Having reviewed the SRA’s proposals, we are broadly satisfied that they meet these criteria, and we will offer them our support.
However, there are some technical points still to be resolved in the revised rules, and we will maintain a dialogue with the SRA around:
- the establishment of the new scheme
- transition arrangements
- transparency and reporting requirements
- the use of claims data to improve the management of long-tail risks
- the winding-up of SIF Ltd (the company that currently administers SIF)
What this means for clients
Following its previous full consultation on the future of SIF and PSYROC, which closed in February 2022, the SRA accepted that the removal of long-term protections could have significant negative consequences for the individual consumers affected.
The new proposals will ensure consumer interests are protected.
The SRA’s recent discussion paper considered the possibility of excluding large corporate clients or claimant costs, but in the proposals set out in the latest consultation document the SRA has decided not to go down this route.
We previously voiced our opposition to any reduction in the scope of cover for consumers, from what is currently provided by the SIF.
We are satisfied that the new scheme should provide the same protections.
What this means for solicitors
Some of the options under consideration in the previous discussion paper could have resulted in the removal of protections that solicitors enjoy under the current scheme.
However, we argued that this would have negative consequences for competition in the market for legal services, and for access to justice, and asserted that the full range of protections that solicitors are provided under SIF should be preserved in any new scheme.
The SRA appears to have accepted these arguments, as the new proposals are intended to replicate the same access to, and scope of, indemnity as SIF.
This means that solicitors that worked in firms that closed without a successor practice will continue to benefit from the protection of an indemnification scheme, once their mandatory six-year run-off cover has ended.
This should come as a relief to members, and former members, who will no longer need to worry about the possibility of being held personally liable for late arising claims.
The consultation closes on 3 January 2023.
The SRA will consider responses and may amend its proposals in line with suggestions.
However, we expect that the end result will be a scheme similar to the one set out in its consultation document.
When the consultation is complete, the SRA is expected to make a rule change application to the oversight regulator for the legal sector, the Legal Services Board (LSB).
This is necessary because without any change to the current rules, SIF will close to new claims at the end of September 2023, and there will be no alternative indemnification scheme to replace it.
If we have any outstanding concerns following the current consultation, we will raise these with the LSB when it considers the rule change application.