SRA abandons indemnity cover cut this year after LSB warning

Print This Post

19 August 2014


Chris Kenny

Kenny: “general absence of data” in all the submissions

The Legal Services Board (LSB) has extended the time it has given itself to decide on the proposed cut in the minimum indemnity cover limit for law firms from 10 October this year to 17 August 2015.

The SRA responded by announcing that the change “will not now come into effect before October 2014”.

The LSB’s decision came in a warning notice issued to the Law Society, informing the society that it was “considering whether to refuse in part” plans by the Solicitors Regulation Authority (SRA) to cut the limit from £2m to £500,000.

The main reason given by the LSB in the notice, served under the Legal Services Act, was that the move “could be prejudicial to the regulatory objective of protecting and promoting the interests of consumers”.

In a letter to Paul Philip, chief executive of the SRA, Chris Kenny, chief executive of the LSB, said there was a “clear policy need” to examine whether the appropriate balance was being struck between client protection and additional costs to the industry.

Mr Kenny welcomed the SRA’s decision earlier this month to announce a call for evidence on its indemnity reforms.

“The LSB considers that the SRA is right to examine all the options, rather than operating on the assumption that the current position is necessarily the right basis from which only incremental change may be needed.

“It should not be taken as read that the current arrangements are underpinned by a very strong evidence base, as opposed to simply being the result of custom and practice.

“In that respect we note the general absence of data in the submissions made to the LSB by other stakeholders, as well as in the application itself.”

Mr Kenny added that there was “limited evidence” that costs savings would be achieved and the potential impact on the Compensation Fund had not been fully explored.

He said that the LSB needed further evidence by 5 September this year, to determine the application by the end of that month.

Charles Plant, chairman of the SRA, said the regulator was “obviously disappointed” that the LSB had issued the warning notice.

“The immediate impact is that the changes we have proposed in relation to reductions in mandatory cover cannot now take effect in October this year,” he said.

“In principle, I think this is the wrong decision and we remain convinced of the case for changing the arrangements for professional indemnity insurance, in order to deliver benefits for solicitors and consumers alike. We will, therefore, continue to develop our proposals on this issue.”

 

Tags: , ,



Leave a comment

* Denotes required field

All comments will be moderated before posting. Please see our Terms and Conditions

Legal Futures Blog

GDPR and the rise of ‘datanapping’ – the new threat to the pockets of law firms

Nigel Wright

You’ve heard about ransomware – a hacker infiltrates your IT systems, locking them down until you pay a ransom. Some studies now estimate that over 50% of businesses have experienced this type of attack in the last year, and it’s particularly prevalent within the legal sector. Previously, firms could protect themselves by having a solid disaster recovery plan in place to ensure they can get back up and running in the event of a disruption. However, the General Data Protection Regulation (GDPR) – the new EU-wide regime which comes in effect on 25 May 2018, irrespective of Brexit – means that this approach alone is no longer adequate and security measures must be strengthened to prevent attacks.

April 21st, 2017