CLC presses ahead with ‘polluter pays’ rule for ombudsman costs

Kumar: Ensuring regulation is proportionate

The Council for Licensed Conveyancers (CLC) is pressing ahead with its plan to introduce a ‘polluter pays’ element to how it recovers the cost of the Legal Ombudsman (LeO) from those it regulates.

Following a consultation, it has submitted to the Legal Services Board an application to recharge some of the cost of LeO that it has to pay based on how many complaints each law firm generates, rather than spread the cost across the profession.

The cost of LeO (£14.5m this year) is recovered from all of the legal regulators in proportion to the number of cases arising from their regulated communities.

The CLC wants to remove this cost from firms’ annual practice fees, which are calculated as a percentage of turnover, reducing practice fees by an average of 23% across all practices.

In the first move of its kind among legal regulators, he LeO levy will then be collected separately in two parts: a basic availability fee that all firms will pay in recognition of the importance of LeO to consumer protection, and a usage fee based on the number of cases from a firm that have been accepted for review by LeO.

Though CLC firms generate small numbers of complaints – an average of 256 cases over each of the last three years, only about 4% of the total handled by LeO – the charge from LeO amounts to 23% of the CLC’s total expenditure and LeO’s cost per case continues to increase.

The CLC said nearly half of the practices it regulated did not generate any complaints which were referred to LeO and many more have an average level of complaints. Their costs will generally remain the same or fall.

Responses to the consultation expressed some concern that the approach would encourage firms simply to settle disputes rather than address underlying issues – “although this is already an issue as LeO also charges firms case fees for complaints it handles”, the CLC said.

“Equally, it can be argued that the user pays approach encourages firms to deal swiftly and appropriately with complaints.”

The regulator said it would ensure that problems were not being hidden as part of its monitoring and inspection regime.

Separately, the CLC is also submitting to the LSB for approval a new clause in the minimum terms and conditions for regulated firms’ professional indemnity insurance to clarify the extent to which cyber-related losses are covered.

This follows a consultation responding to directions from both the Prudential Regulation Authority and Lloyd’s of London to manage ‘silent’ risk by being explicit on whether coverage is provided for losses caused by cyber events. The Solicitors Regulation Authority has consulted recently on the same issue.

The CLC said the new clause, which will take effect from 1 October if approved, was not intended to increase the coverage provided. “Rather, it expressly spells out the cover for cyber-related losses that the existing policy was already understood to offer. As a result, it should not affect consumer protection nor insurance premiums.”

The range of cyber-related risks covered by the clause include problems with accessing systems; “unauthorised, malicious or criminal” acts; the receipt or transmission of malware, malicious code or similar; and internet failures.

CLC chief executive Sheila Kumar said: “It is vital that regulation is proportionate and both of these changes achieve this in their own ways.

“We believe that placing more of the cost of LeO on those who generate it will encourage those firms to address service issues and improve their complaints-handling procedures, both of which are vital to the client in the relatively small proportion of cases where issues occur.

“It will also be clearer to firms what they are paying to the CLC for the oversight we provide as a regulator and what is needed to fund LeO’s complaints handling activities.

“At a time of ever-increasing cyber-attacks on businesses of all types and sizes, the clarity brought by the new insurance clause will also help focus minds as to responsibilities.”

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