Proposals by the Solicitors Regulation Authority to maintain cover for claims against long retired solicitors have been broadly welcomed by the profession. However questions remain over the best model for preserving the Solicitors Indemnity Fund (SIF), which covers negligence claims brought more than six years after a firm has closed. 

Both the Law Society and the Sole Practitioners Group (SPG) today released responses to an SRA discussion paper published earlier this month on the future of SIF. The paper set out three options for maintaining the fund, which the SRA currently proposes to close in September 2023.  

Law Society president I. Stephanie Boyce welcomed the proposals, saying: 'We are pleased to see the SRA recognises that there is still a need for this type of cover to ensure consumers are protected. In principle, we could support an SRA-run consumer protection fund, but only if it provided the same like-for-like protection as SIF.'

Any new consumer protection fund would have to meet three key principles, Boyce said. 

  • It should continue to run as an indemnity scheme, which could be funded by a mandatory £240 annual levy on law firms. 
  • Any residual funds from SIF should be ring-fenced for the specific purpose of dealing with post six-year run-off claims.
  • Any new arrangement should provide the same scope of indemnity cover that is currently provided by SIF. 

In its response, the SPG also broadly welcomed the SRA's proposals. However it rules out the proposal for a 'discretionary arrangement similar to the compensation fund', predicting that 'the vast majority of your future consultees will be against any proposed compensation arrangement'.

Of the remaining options - retaining the current scheme, operated by SIF Ltd and an indemnity scheme within the SRA - it comes out broadly in favour of the first. This has the advantage of known costs, along with the profession's readiness to make good any future shortfall. The response reiterates the SPG's concern that the SRA's previous estimates of the cost of the scheme do not take into account investment income of at least £500,000 a year.

Of the in-house scheme, the SPG said that in practice this would be subcontracted out to a third party. It warned against amalgamation with the compensation fund in search of economies of scale, saying that the two schemes would be operated on completely separate principles. 'To link the two would cause potential confusion.'

Overall, the paper said, 'The profession has confidence in the existing arrangement which has given its clients and its members protection and would not wish to see a significant change for the sake of change based on an assumption that a new arrangement would be significantly preferable.'

The SRA has said it will make a decision on the future of SIF at its board meeting next month. 

Boyce called on the regulator to consult formally on any change. 'We look forward to working constructively with the SRA on the future of this important consumer protection,' she said.

 

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