Small law firms can look forward to a steep reduction in the mandatory insurance threshold and more relaxed rules on financial reporting under new proposals from the Solicitors Regulation Authority.
Last week the regulator unveiled a wide-ranging programme of reform to ease the compliance burden. Most changes are expected to be in place by 1 October.
As part of four separate consultations, the SRA proposes:
- Cutting mandatory indemnity insurance cover from £2m to £500,000 for small practices;
- Halving to three years the minimum run-off cover for closed firms;
- Removing the requirement that firms submit an annual accountant’s report; and
- Ending duplicate regulation for multi-disciplinary practices already regulated by another body.
SRA board chair Charles Plant (pictured) said the proposals will continue to offer consumer protection but ensure regulation is ‘proportionate and targeted’.
‘In the process we will remove unnecessary regulatory barriers and burdens,’ he added.
The PII plans were revealed on the same day as the SRA announced it would drop plans to ban unrated insurers from the solicitors market, following a consultation earlier this year.
The SRA is now proposing a reduction in the threshold for compulsory PII cover for individuals, small and medium-sized businesses with turnover up to £2m, charities with less than £2m income and trustees in charge of assets worth less than £2m.
While the minimum terms have been reduced, the regulator said there is ‘nothing to prevent’ firms choosing to obtain higher or broader levels of cover for clients, particularly commercial clients – or indeed for clients to agree insurance requirements with their law firm.
The removal of a mandatory accountant’s report is expected to save each small firm around £800 a year and larger firms several thousand pounds.
The SRA estimates that processing, storing and ultimately destroying accountants’ reports costs the organisation up to £200,000 a year.
Instead, the regulator said that compliance officers will have to sign a declaration they are satisfied that client accounts are being properly managed.
The Law Society welcomed the proposals but warned it is ‘critical that the SRA avoids any unintended consequences’.
Society chief executive Desmond Hudson said: ‘All firms, and small firms in particular, have had to weather very turbulent conditions in recent years. Easing the regulatory costs will help firms to focus on better servicing their clients.
‘We all want regulation that is effective, proportionate and affordable. Clients should have confidence that high standards are paramount but if matters do go wrong they can be assured of quick and fair redress.’