The Solicitors Regulation Authority (SRA) has agreed to a request from the Solicitors Indemnity Fund (SIF) to underwrite its potential liabilities in continuing to operate by providing a £6m undertaking.
Following pressure from the Law Society, the SRA agreed to the latest of a series of extensions in the life of the SIF in April this year, postponing closure by another year to September 2023, while it considers long-term options.
The SIF protects solicitors against claims made after the six-year run-off period following closure of a law firm. It was first meant to close in 2017 but has been repeatedly delayed over concerns that firm owners faced an uphill struggle to find alternative cover.
In the “unlikely event” that there was any shortfall at the SIF, the SRA said it would rely on its own reserves and then recoup the costs from the profession – this would amount to a flat charge of £624 per law firm if the full £6m was called on, although other models, such as varying the contribution based on turnover, could be adopted.
The decision to delay closure to next year was subject to the SRA receiving confirmation from SIF Ltd that this would be affordable, without the need to levy the profession to fund it.
The minutes of last month’s SRA board meeting said the chair of SIF, John Young, confirmed that without a full actuarial assessment – which would be costly and not completed before September at the earliest – the company could not confirm the affordability of a further 12-month extension without “an agreement to underwrite potential liabilities”, up to a maximum of £6m.
The SIF suggested an extension of a current £4m undertaking provided by the Law Society.
The Law Society offered to jointly fund the undertaking. The minutes recorded: “After thorough consideration the board agreed that although this offer was welcome, it would be both right and simplest for us to provide an undertaking for the entire amount requested by SIF Ltd.
“This was because, in addition to having responsibility for indemnity and insurance, including any extension to SIF provision of post six-year run-off cover and the application required to put it in place, we would also be responsible for collecting any indemnity contribution from the profession, if it were to be needed, regardless of the provider of the undertaking.”
The board agreed that the SRA would provide the undertaking and submit the application to the Legal Services Board for approval of the 12-month extension in the life of the SIF.