The Legal Services Board (LSB) has approved a rule change by the Solicitors Regulation Authority (SRA) which will make it easier for law firms to switch regulators.
In a move which is likely to see more firms leave the SRA than join it, the requirement that they must obtain six years of indemnity insurance run-off cover before switching to another regulator will be removed.
The LSB said that, under the new rule, run-off cover would not be needed where the firm’s new regulator had signed a bilateral protocol with the SRA.
The new regulator would be solely responsible for making sure there is adequate insurance available for future claims, including claims for work carried out or started before the switch.
The Council for Licensed Conveyancers has said that it was “working with a number of firms” that would make the switch under the new rules.
The LSB said in its decision approving the new rules that it welcomed “any changes which remove barriers to firms wishing to switch regulators”, provided there were safeguards for consumers.
The oversight regulator said the purpose of the change, according to the SRA, was to remove a potential barrier to firms switching regulators, since “requiring a firm to have dual insurance represents a significant disincentive” to switching.
It added that the SRA had confirmed that the rule change was not intended to change Compensation Fund arrangements, and the fund would consider an eligible claim if the event giving rise to the loss occurred when the firm was still regulated by the SRA.
The LSB concluded that “there is no evidence that the change would lead to significant consumer risk”.
It did, however, criticise the SRA for changing its approach during the application process.
When the plans were launched in July this year, the SRA included in its application a draft protocol for a proposed multilateral agreement with other regulators.
The LSB said that while it was considering the application, the SRA altered its approach and said this would not be feasible; it would instead seek bilateral agreements with individual regulators.
The LSB said this meant it had to consider the application “on a new basis” and ask the SRA for additional information.
“We expect an application to be complete and, unless there are valid reasons, there should be no changes to critical elements part way through the LSB’s assessment.
“We urge the SRA (indeed all regulators) to ensure that before submitting an application, all key elements, whether or not they are regulatory arrangements (and in particular mechanisms that are intended to mitigate risk to consumers), are settled.”