The chair of the Legal Services Consumer Panel has strongly attacked the Solicitors Regulation Authority (SRA) for changing its insurance requirements for freelance solicitors without giving a reason.
Sarah Chambers said allowing freelance solicitors to provide unreserved services without the need for indemnity insurance would “lower consumer protection and exacerbate confusion”.
The SRA’s plans to introduce freelance solicitors, and allow solicitors to practise from unregulated firms, are scheduled to go live with its new Standards & Regulations in November.
The SRA decided last year that, in response to concerns, freelance solicitors would need “adequate and appropriate” indemnity insurance whether or not they were doing reserved work.
Ms Chambers said the SRA justified this approach by saying it would “reduce the potential for consumer confusion”, avoid situations where “some cases are covered by an insurance obligation and some not” and prevent arguments by insurers over what constituted reserved activities.
But she complained that the SRA’s rule change application, currently being considered by the Legal Services Board (LSB), had reversed this position.
“We now find ourselves reiterating the arguments which the SRA conceded. To vary protection dependent on whether a freelance solicitor is doing reserved and/or non-reserved work will lead to consumer confusion and unjustifiable discrepancy in protection.
“It will lead to potential for arguments about what is reserved and non-reserved by insurance companies, as well as add more complexity to an already complex landscape.
“Worse still, the SRA has failed to submit any evidence to justify its reversal of position. For all these reasons the panel urges the LSB to reject this aspect of the application.”
Ms Chambers said it was “vital” that freelance solicitors were adequately insured, whether or not they were providing reserved services.
“There is simply no rationale for this inconsistent treatment of unreserved legal activities by solicitors depending on whether they undertake reserved activities.
“We know that consumers have very little awareness of the difference between regulated and unregulated providers, let alone the varying protections that come with different service providers.”
Ms Chambers said the SRA had not “defined or explained” what it meant by the ‘adequate and appropriate’ indemnity insurance required by freelance solicitors providing reserved activities.
“There needs to be a clear definition and explanation of what ‘adequate and appropriate’ means, especially when the SRA is also proposing that if providers do not meet the obligation under this vague description, the risk would be transferred to the consumer, who will be unable to access the Compensation Fund. The panel strongly disagrees with this transfer of risk.”
Ms Chambers argued that it was the SRA’s duty as regulator to ensure that all solicitors had appropriate indemnity insurance, and where a solicitor failed to secure adequate insurance, the consumer should not bear the risk.
The proposed insurance arrangements have already been strongly criticised by the Law Society while Paul Bennett, a law firm regulation expert, said last week he did not know any insurer interested in backing freelance solicitors.