The Council of Licensed Conveyancers (CLC) has announced its intention to apply to the Legal Services Board (LSB) to approve the introduction of a solicitor-style open market indemnity scheme.
However, the move – announced yesterday with the results of the council’s recent consultation – has triggered warnings that law firms may switch regulator from the Solicitors Regulation Authority (SRA) to the CLC for the wrong reasons.
Under the reforms, minimum terms and conditions for the indemnity scheme would be set out in a participating insurers’ agreement, including, for the first time, run-off cover for a period of six years.
The CLC said that, following discussions with insurers, a cap would be introduced limiting run-off cover to £2m in aggregate. If this was exceeded, applications would have to be made for grants from the Compensation Fund.
The CLC described the level of run-off cover as “prudent”, and said it was based on analysis of “past claims over many years”.
Launching the reforms earlier this month, CLC chief executive said the new scheme could “make a reality” of the theoretical freedom of law firms to switch regulator.
However, responding to the CLC’s consultation, the Legal Services Consumer Panel warned that if larger SRA firms switched to the CLC, “the figures used to assess the appropriateness of the proposed run-off cap may change” and there should be a review two years after the changes. The CLC said it has agreed to the review.
The panel also warned that approved regulators should work together to ensure that “gaps or loopholes in run-off coverage” did not result from mixed SRA firms, which offered services other than conveyancing and probate, switching to the CLC.
The CLC said it had “already identified this risk and will work with the SRA to agree appropriate mitigating steps”.
The Council of Mortgage Lenders (CML) “asked for assurance of the measures which the CLC will have in place to identify firms who may be looking to move regulators due to poor performance/monitoring or disciplinary issues with their former regulator”.
The CLC said no licence would be issued to a practice “until evidence of insurance is produced and until the CLC is satisfied with the standards of that practice”.
The Law Society warned of a “significant risk” in SRA firms wishing to close switching to CLC regulation in order to avoid the SRA run-off premium.
The CLC replied that it had identified this risk, as had insurers, and “separate processes are in place to identify those practices seeking to transfer for this purpose”.
Ms Kumar said two current insurers of CLC firms had already signed up to the participating insurers agreement.
“These changes meet our objectives of enhancing consumer protection, supporting innovation and growth of businesses in the legal sector, and reducing the regulatory compliance burden and we hope that the Legal Services Board will confirm their approval in time for CLC practices to benefit from them in this summer’s PII renewal round.”