“Bizarre” move to keep ABSs within compensation fund indefinitely gets green light

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4 December 2012

Grant: artificial deadline might not be in interests of consumers and practitioners

The Solicitors Regulation Authority (SRA) is to keep alternative business structures (ABSs) within the coverage of the Law Society’s compensation fund indefinitely, although the move was described as “bizarre” by the shadow minister for justice.

The SRA board last week approved new rules for the fund after Parliament agreed to remove a sunset clause in the Legal Services Act that would have ended the inclusion of ABSs at the end of 2012. This was inserted last year pending an SRA review of compensation arrangements.

The SRA explained that its review’s reporting date has been postponed until October 2014 in order to gather “robust” information on compensation needs arising from ABSs. SRA executive director Richard Collins told the board that the review is a “very large task” but the SRA is now well into it, while the rule changes give the SRA power to cope with whatever results.

In a consultation earlier this year, the Law Society argued for a further sunset clause and urged that the appropriateness of a single fund covering both types of firm should be formally reviewed within two years.

Adjudicating, the Legal Services Board (LSB) accepted the SRA’s argument. It said: “The LSB has some sympathy with the Law Society’s position that the current sunset clause should be replaced with another longer one.

“However, to try to avoid a situation where there is insufficient information to make sensible long-term provision for compensation arrangements, on balance, we consider that the change should not be time bound.”

In a recent House of Commons debate, which culminated in the change being agreed, shadow justice minister Andy Slaughter acknowledged the need to extend the society’s compensation arrangements to ABSs and agreed it would take time for the SRA to review the process.

But he said it was “rather bizarre” that despite the sunset clause having failed to encourage the SRA to get on with its review, “the government propose that we simply allow nature to take its course with the SRA continuing at whatever speed it likes, however glacial that may be”.

He described the LSB’s position as “gobbledegook” and backed the society’s view, adding: “The penalty for failure, in this case, is to be let off. That does not seem to be a good motto for the Ministry of Justice. What guarantee will there now be that a review by the SRA will be timeous or conducted at all?”

Justice minister Helen Grant said: “The position appears to be that the SRA admits, with the benefit of hindsight, that the sunset clause was probably set too early for a review of such a complex arrangement…

“It is felt that a new sunset clause could impose an artificial deadline that might not be in the interests of consumers and practitioners… It is important that we allow the existing arrangements to continue without any time restrictions until the SRA has completed the review.”


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