The Law Society and Legal Services Consumer Panel have joined forces to oppose the Solicitors Regulation Authority’s (SRA) plan to close the Solicitors Indemnity Fund (SIF).
The unprecedented joint statement argues for retaining the SIF through an annual levy of £16 per solicitor or £240 per firm.
The SIF pays out on negligence claims made against solicitors after the six-year run-off period following closure of a law firm.
It was due to close in 2017, but the SRA extended the deadline three times, most recently last June, after warnings that the owners of law firms faced an uphill struggle to find alternative cover. It is now due to close in September.
A consultation issued last November said it “had become clear that the level of consumer protection” offered by prolonging the life of SIF or replacing it with an alternative model would be “very small”, making it likely that it would be “disproportionate for us to deliver, through a regulatory scheme”.
Actuaries estimated that, if SIF closed this year, an average of 45 post-six-year claims would be notified at an average cost of £36,800 each in 2023, falling to only 31 from 2029.
It was not the job of the SRA to help retired solicitors sleep easy, officials have said.
In its response to the consultation, the Law Society said the SRA has not shown how closing the SIF would have any benefit to consumers, either in terms of reducing the price of legal services or increasing consumer choice.
Clients with legitimate claims would be unable to find redress, damaging the reputation of the profession, while “thousands of solicitors will be exposed to the risk of long-tail claims”.
While it conceded that the risk of a successful claim was low, “the impact for the individual solicitors found personally liable for claims of tens or maybe even hundreds of thousands of pounds, could be substantial”.
The Law Society said the SRA’s own analysis showed there was “a viable long-term model” for the continuation of the SIF through “a very modest levy” estimated at £16 per solicitor or £240 per firm each year.
It described as “misleading” the suggestion that the Law Society could provide a similar level of consumer protection through a newly created fund.
The panel’s response said the SIF should not be closed, especially while there were still assets within it, until alternative arrangements were made that would give consumers similar protection.
It argued that the SRA has not given “due regard to the statutory objectives of promoting and protecting the interests of consumers, the public or access to justice”.
The response continued: “Where these are mentioned, the analysis is staggeringly subjective and distorted to support the SRA’s preferred position.
“Equally perturbing is the prominence throughout the consultation document on the costs of maintaining [post-six-years cover], without a fair and balanced analysis of the benefits or even the hardship that would ensue if this protection were removed.
“This is perhaps the aspect of the consultation that the panel finds most objectionable; the lack of empathy or understanding that behind every ‘low value’ claim, irrespective of the numbers, are real human stories of financial loss directly attributable to a solicitor’s negligence.”
The panel pointed to SRA’s data showing that around 11% of post-closure claims arose more than six years after a firm ceased to operate.
It said it was “convinced” that solicitors would pay a modest sum to retain the SIF.
Law Society president I Stephanie Boyce said: “It is a sign of how seriously concerned we all are by the SRA’s proposal that the body representing the interests of consumers of legal service is joining forces with the body representing the providers of those services to take on the statutory regulator.
“Our profession is happy to pay for SIF. Any knock-on cost to consumers will have negligible or no impact on the price of legal services – but even if they were, the increases would be tiny, measured in the 10s of pence.
Sarah Chambers, chair of the Legal Services Consumer Panel, said: “It is true that the administration costs of this fund seem remarkably high given the number and level of claims paid out.
“Nevertheless, we remain very concerned that the proposal to close the fund may be taken forward without proper consideration of the impact on consumers of ‘unknown’ mistakes made many years ago, and of how protection could be maintained through continuing the fund or replacing it with an alternative which offers a similar level of protection. The SRA should think again.”