The Solicitors Regulation Authority (SRA) has rejected a proposal by the Law Society to extend the additional indemnity run-off cover provided by the Solicitors Indemnity Fund (SIF) for a further three years until 2023.
Clients of firms which close without any successor practice to take on the burden of their indemnity insurance, have until September this year been protected by additional run-off period of three years beyond the compulsory six.
However, the SRA’s board decided last week that it would not be “prudent” to extend this additional run-off cover provided by SIF beyond the existing cut-off date of 30 September 2020.
A spokesman for the SRA said: “There are a range of factors to take into account. The regulatory position is already clear – we require run-off cover for only six years.
“We have previously consulted on reducing this, but our board decided on consultation that this should not be taken forward until further analysis had been undertaken and any cuts more fully considered.”
Instead, the spokesman said the board decided to delay any decision about extending the run-off period until 2021 or 2022, or until its consultation early next year on the minimum professional indemnity terms and conditions.
“A call for evidence has now taken place and discussions with stakeholders are underway. A consultation on reform of PII minimum terms and conditions is planned for spring 2015,” he said.
“At that point a more holistic view can be taken that strikes a proportionate balance between consumer interest, costs and access to legal services.”
In a paper for the board meeting, the SRA explained that SIF currently provided cover “without time limit” for firms that closed, without a successor practice, before 31 August 2000.
“SIF has set aside sufficient reserves to meet current and future expected liabilities in respect of this cover,” the regulator said. “This part of SIF’s function should be concluded for all practical purposes by around 2017.”
Firms which shut after 1 September 2000 have also been provided with three years additional cover by SIF, but the current end date is 30 September 2020.
“The current end date means that the SIF cover will not be available to existing or future firms that close without successor,” the regulator said.
The Law Society’s ruling council decided in favour of an extension of additional cover for a further three years in December last year, with a cut-off date of 30 September 2023. The board paper stated that a formal request was made in February this year.
Consulting actuaries were called in by SRA, who reported that there was “sufficient surplus for an extension of only one year, to 2021”.
However, the regulator argued there was an “opportunity cost” even to this, and the SIF surplus might be needed to fund transitional arrangements should it go ahead with indemnity reforms, due to be consulted on early next year.