Fund will assume risks of ABSs, says MoJ
The solicitors’ compensation fund will take on the risks of alternative business structures indefinitely following the shelving of plans for a separate fund, the Gazette can reveal.
The Ministry of Justice this week laid an order before parliament to retain the current fund for all legal services providers following a summer consultation with the profession. The original terms of the 2007 Legal Services Act included a ‘sunset’ clause for the fund that would cover ABS firms only until 31 December 2012.
Some solicitors had raised concerns about extending the scheme, which compensates clients who have suffered at the hands of law firms, to cover new entrants where the risks are unknown. But the government said it had acted on the advice of the Legal Services Board in deciding to allow the Solicitors Regulation Authority (pictured) to run the compensation fund for ABSs for an indefinite period.
A separate scheme for clients of ABSs is not likely to take shape for at least two years, if it happens at all.
The consultation, which closed in July this year, prompted lengthy debate between regulators and the Law Society. The SRA had argued that the small number of SRA-regulated ABS firms – which currently stands at 32 – meant it would be impractical for them to fund a viable compensation scheme.
It called for the time limit to be lifted until there was more information about the number of ABS firms and the risks they posed.
The Law Society had called for a new sunset date of 31 December 2014 to give the SRA time to review compensation arrangements. Its consultation response added that it was possible that, in due course, experience will show it is ‘inappropriate’ for a single compensation fund to cover both types of firm.
Comments
Legal Services Board
The government acted on advice from the Legal Services Board? That seems very unlikely - the LSB does not give "advice" to the government. In any event, why would the LSB be well-placed to advise on this issue?
Whar amazes me is that ABSs were allowed to come into existence without there being any scheme in place - or any plan for a scheme after the expiry of the "sunset period" in December 2012. Is the upshot going to be an increase in practising certificate fees? A detailed comment from the Society would surely have been a useful addition to this article.
This is very much as
This is very much as predicted by many-including you I believe.
The profession at large will bear the cost of the ABS experiment.
So basically venture capital
So basically venture capital is allowed to enter the market, undercut everyone else on price using non-lawyers and software to replace proper legal advice... and then actual lawyers have to pay for the risks associated with that?
Preposterous.
Could to see our Law Society
Could to see our Law Society fighting against this.
Oh wait. They have high level meetings with the Co-Op / Irwin Mitchell, etc. don't they? So in fact this is part of their plan.
(should have been "Good" to
(should have been "Good" to see our Law Society fighting against this)
The current outrageous
The current outrageous increases in the Comp Fund are clearly a way of 'fattening the calf' before the flood of claims arises from dodgy fraudsters who are allowed to take control of law firms and then plunder mortgage advances and then wire them off to dodgy places overseas...
We should all refuse to cough up any more to fund this ludicrous experiment in prostituting our profession...
Although it takes the SRA 5
Although it takes the SRA 5 months to renew practising certificates; and 24 months to update the roll, I could confidently guess that their response time to somebody failing to pay their compensation fund fee would be measured in hours and result in intervention and striking off.
not even
Another argument continuing the line of those from above would be that not even the American Bar Assoc. agrees with ABSs...
On ABSs and the profession:
Well ABSs would hire people part of the profession one would think. The difference is that it may provide a greater array of services alongside legal ones. And the compensation fund relates to legal services presumably and would not cover for example when an ABS which incorporates an engineering side - i.e. construction and a planning related legal side would be negligent in the engineering process.
On:So basically venture capital is allowed to enter the market, undercut everyone else on price using non-lawyers and software to replace proper legal advice... and then actual lawyers have to pay for the risks associated with that?
So far all the negatives from the above - i.e. unreasoanble price cutting, making use of paralegals and non-lawyers for assignments which are supposed to be dealt with by lawyers and legal advice generated by software - e.g. some PI practices were all things of fiction? But now ABSs are making those a reality. Come on!
Please do the ABSs and global warming subject next...
NEXT!
Black Swan
Dan
Have you ever read "Black Swan" by Nassim Nicholas Taleb?
Human greed knows no bounds and can take many forms, some criminal.
No matter how you dress it up the supine acceptance by the Law Society of the exposure of the Compensation Fund, to a potentially ruinous call on the Fund following a claim which is inflated by the fallout of a dishonest ABS, is simply an outrage.
This state of affairs has a real potential to empty the Fund and put the solvency of a critical comfort reserve in peril.
One more example ,if anymore were needed, of the comlete failure of the Law Society to protect the profession.
black swan
No did not read the Black Swan and to be honest I dont even watch Emmerdale or Coronation Street or watch any concerts of any of the former Girls Aloud members for that matter. I take my funny stories for blogs and bloggers sadly due to time constraints but I would point out that the such stories although as hard to believe as those found in books are actually and in a verifiable way real and contemporaneous.
But why not deal with the objective elements - i.e. what would the fund cover specifically rather then with potential subjects which may or may not be true such as insatiable greed, failure to protect, etc.?
How about more putting forward a meaningful argument and less reference to books?
Is that what you say in
Is that what you say in court-no reference to books?
Black Swan
Dan
You should read more .It will enhance your arguments.
This book predicted the Banking crisis.
re's
@ Anon
I would not use a book like Black Swan in Court, however if you would best of luck.
@ voldemort
Thanks but bringing a book into a discussion like this is not in itself an argument. Hopefully that is quite clear.
Dan You misunderstand the
Dan
You misunderstand the point being made here.
Never mind the weekend is almost upon us
Compensation Fund
Without a proper comment from the SRA or the Law Society, the whole debate is uninformed. I don't see how the Legal Services Board (or anyone else) could give any meaningful advice to the government without a detailed analysis of (i) how much is in the Fund, (ii) the value of claims which are already in the pipeline of the Fund, (iii) how much will be raised for the Fund from ABSs (through payment by ABSs of practising certificate fees), (iv) how much risk there is of ABSs giving rise to claims on the Fund, (v) the insurance arrangements of ABSs and (vi) the extent to which claims on the Fund would actually merit a payment from the Fund. So far as I am aware, none of this analysis have ever taken place.
If an ABS does conveyancing work using a mixture of solicitors and licensed conveyancers, why should a claim arising out of (for example) dishonesty on the part of a licensed conveyancer fall to be dealt with by the Solicitors Compensation Fund, rather to the Compensation Fund run by the Council of Licensed Conveyancers?
compensation
Compensation comes out from whatever fund an organisation contributes to. As I understand it a licensed conveyancer currently working in a solicitors practice would be covered by the Licensed Conveyancers Compensation Fund only if the organisation for which he works for makes contributions to the fund otherwise he will be covered by the Solicitors Compensation Fund.
If that is the case then why differentiate between licensed conveyancers working for solicitors and those working for ABSs?
Fund
That was my initial thought, but organisations don't contribute to compensation funds - individuals do. Solicitors contribute to the Solicitors Compensation Fund and licensed conveyancers contribute to the CLC Compensation Fund.
If an ABS is regulated by the SRA, the Solicitors Compensation Fund is the relevant one. Is it the case that, for an ABS regulated by the CLC, the CLC Compensation Fund is the relevant one? That is not what this article seems to be telling us.
funds
I am quite sure that both individuals and organisations contribute both to SRA's fund and also to CLC's.
So where a firm has both
So where a firm has both solicitors and LCs there's bound to be a ruck as to which one pays!
why?
Why would a firm contribute to more compensation funds so as to achieve something similar to double insurance?
"Have you ever bought two train tickets for the same journey whilst travelling alone?" - here I am citing from the Ugly Squirrell by Mascarpone just so I can keep up with my fellows quoting books.
Comp Fund
Having checked, Dan is right - solicitors within a firm contribute to the Compensation Fund and their firms also contribute. Similarly, it appears that an ABS which is regulated by the SRA makes a contribution separate from those made by the solicitors it employs: http://www.legalservicesboard.org.uk/what_we_do/consultations/open/pdf/lsb_section_70_consultation_sra_compensation_fund_13_06_2012.pdf
Presumably therefore if a
Presumably therefore if a solicitor employed by a "non solicitor" (e.g Licensed Conveyancer) ABS runs off with clients money, that ABS will be entitled to claim on the solicitor Compensation Fund, rather than its own compensation fund?
So in fact it will be better for the ABS to employ solicitors to have access to the solicitors compensation fund?
Surely the problem here is
Surely the problem here is that there is no "one size fits all" ABS? That's the point of them surely. If Bloggs and Co Solicitors in Tring set up an ABS so their practice manager can become an owner-manager that's one thing. But if Overseas Lawyer Inc. sets up an ABS and absconds with a heap of client cash, why should Bloggs and Co or the rest of us contribute?
The whole point of the Compensation Fund (or so I thought) was to protect the brand of Solicitor in the eyes of the public so fraudster solicitors don't drag us down into the mire. By contrast we'd be happy if Overseas Lawyer Inc. failed with no redress as it may send their would-be clients back to the self-insuring compensation-funded Solicitors' system.
I wonder if what they pay in will be loaded for "higher risk" ABSs-whatever they will turn out to be....
Woolly thinking at the SRA
Anon above hits the nail on the head. There is a world of difference (turnover for a start) between a solicitors firm becoming an ABS to do things in a slightly different way, and massive corporates wanting half the market. If the massives go bust, then it's unrealistic to expect the little guys to pay the price. After all, no one expected mortgage brokers in Bodmin to pay to bail the banks out - and they were all regulated by the SRA.
The simple answer is that the SRA should require corporate ABS's to have their own insurance against client money going missing. There are no fundamental problems with insurance in that the company is insuring against the risk of staff taking money. If insurers are reluctant to provide cover, or charge a lot for the cover, then the SRA need only to ask itself, why should the profession provide cover, when insurers won't do it?
different types of mirrors
Why is not the same difference applied between a small firm of solicitors - or solicitor to more more in tone with the subject - and a big firm of solicitors? I can see that we come back to professional standards which some cannot accept that can be maintained by ABSs while they are preserved seemingly by traditional law firms.
There is no other debate such as that of size of corporation in my opinion but it is fun to see how some would take any argument contrary to the idea of ABS and treat it as if it was a nail properly hit on the head.
Dan I can cant see the
Dan
I can cant see the mirrors for the smoke
The same difference is
The same difference is applied between a large firm and a sole practitioner-as previously said, it is the eternal problem of the employed professional.
The difficulty with the ABS is that, unlike a partnership, the "owners" of the ABS can cash in and run without personal liability. It is the personal liability for their professional obligations which makes partners pause and think.
Counter Intuitive
Anon and Patrick are right.
Prior to the 2007 Act there was a single profession funding the Compensation Fund.
There was a notional professional consensus that if some solicitors were dishonest then the profession as a whole was honour bound to put this right.
With the advent of the ABS it is possible that by virtue of massive outside capitalisation an ABS might take on a volume of work with the highest possible risk profile, such as the sale of a bank or some large shipping contracts.
If a claim arose "Barings style" not involving negligence, the consequences could be horrendous for the fund.
There is an accepted risk averse culture within a well run professional firm, but as yet an untested internal risk culture with the arrival of this new alien structure with its ineveitable pressures to generate the largest possible return for an outside investor, a principle which considered so unacceptable by our professional colleagues in the USA.
Already we are told that there will be "light touch" regulation in the case of an ABS, which seems counter intuitive.
This debate, like the issue of bias in favour of the ABS, must not like the leaves now falling from our trees be allowed to fade.
MEMBERSHIP OF THE LAW SOCIETY
Now you know why a few years ago The Law Society wanted to open up its membership to non solicitors. Fortunately some members of the board forced it to open up the decision to members who clearly decided against the idea.
Now you know why the Law Society is set against separate representation in conveyancing/mortgage forcing us to lick the boots of lenders
Now you know why a few years ago it backed down after it protested publically about legal aid cuts, following the (then) government threat to remove its statutory status..
Obviously it loves the big institutions and is in thrall to the government of the day, not what is in the best interests of its individual members.
It does not represent our interests so what do we do? Nothing. Inertia on our part is exactly why most of us stay with the same greedy banks, the same utility company. The fault is our if we continue to be members.Who has the time and resources to start a new solicitors union?
Deborah Watch this space
Deborah
Watch this space
Surely the membership can
Surely the membership can call an extraordinary general meeting and pass a motion of no confidence in the President, Council and Chief Executive?
Certainly a good plan Perhps
Certainly a good plan
Perhps your suggestion first followed by a more radical approach