Law firms are being put off switching regulators by the cost of retaining six years of run-off cover, a legal regulator has said.
CILEx Regulation, established by the Chartered Institute of Legal Executives, said current PII rules would increase insurance costs by more than 50% for entities thinking of a change.
Solicitors Regulation Authority-regulated firms must have six years of run-off cover in the event of closure and the same rule applies if they switch regulator.
In a report published today based on interviews with insurers and law firms, CILEx Regulation said the rules should be scrapped to allow organisations to have more than one choice of regulator.
CILEx Regulation chair, Sam Younger (pictured) said: ‘We have had several law firms wanting to switch from their current regulator to CILEx Regulation, but are unable to because of the prohibitive run-off costs.
‘This is a rule made by the regulators, and it prevents legal businesses choosing the regulator that is right for their business model, their specialism, and their consumers.
He added that insurers had told the organisation that firms intending to switch would have to pay 52.5% more in premiums over six years; in effect ruling out a change for most firms.
CILEx Regulation became a regulator of businesses offering reserved legal activities in January this year, and has developed a single proposal form for lawyers considering a change.
One of the firms interviewed for its report, Kent practice Stilwell and Singleton Solicitors, suggested that the cost of moving regulator prohibited any transfer.
A spokesman said: ‘Disappointingly we had to make the difficult decision to opt against transfer due to the financial burden of run-off, which is currently acting as a mechanism to constrain the free movement of legal entities between regulators. We would transfer regulator immediately if the unnecessary financial burdens were removed.’
The report has been submitted to the oversight regulator, the Legal Services Board, to support a request for a review of the run-off cover rules.