Lenders hit out at SRA over compensation
Conveyancing: drop in lender confidence
The country’s mortgage lenders have hit out at the Solicitors Regulation Authority (SRA) for not being transparent in the way it runs its compensation fund, leading to a perception that lenders are being made to carry the can for solicitors’ wrongdoing.
In its response to the Ministry of Justice’s legal regulation review, the Council of Mortgage Lenders (CML) said recent experiences of attempting to obtain compensation via the SRA “has proven a difficult process for lenders, in a number of ways”.
The CML said members report that “they have been held to a far more stringent set of standards when claiming from the compensation fund than they would have been held to under their own regulator, and as a result, very few of the claims they have made have been successful”.
It continued that while the discretionary nature of the fund is well understood by lenders, as is the notion of contributory negligence, “a lack of transparency around the decisions has led to the perception that lenders are, in some cases, being unfairly viewed as contributing to losses which are sustained primarily through the legal service provider”.
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The CML said lenders have also had difficulty in obtaining compensation via indemnity insurance where negligence is involved. “Often claims will be aggregated by a professional indemnity insurer, particularly for solicitor’s indemnity insurance, so as to reach liability limits quickly, which risks leaving the lender out of pocket.”
By contrast, the CML said that “anecdotally” there has been much less concern from lenders about the Council for Licensed Conveyancers’ arrangements, but acknowledged that this to an extent reflects the smaller size of that part of the profession.
The body – whose members account for around 95% of UK residential mortgage lending – said that even before these concerns had arisen, “cyclical boom and bust cycles have exposed weaknesses in legal compensation arrangements, and in particular, professional indemnity insurance”.
The CML was warm about the idea of a single set of compensation arrangements for the entire legal sector – which is being championed by the Legal Services Consumer Panel – which it said “maximised efficiency [and] may provide a better protection against cyclical issues which have historically created issues, particularly with insurance models
The SRA is currently undertaking a major review of compensation arrangements, and the CML said the combination of this and the government review “has the potential for even more divergence within the legal services market”.
It added that where differences in approach and practice occur between different regulatory bodies, there needs to be better explanation of the reasons.
The CML complained that even lenders can find the “plethora of legal regulators” confusing, and have “a limited understanding of the role that… the Legal Services Board plays, from a client perspective”.
It said the credit crunch and “subsequent uncovering of significant solicitor fraud in England and Wales” has led to a drop in lender confidence about the regulation and standards of legal service providers generally.
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