The Solicitors Regulation Authority (SRA) has resisted pressure from the Law Society to impose a levy on the profession “as soon as possible” to raise funds for the Solicitors Indemnity Fund (SIF), it has emerged.
The new version of the SIF, which will be operated in-house by the SRA from 1 October, will also not name the law firms whose negligence leads to claims.
The SIF covers solicitors against claims made after the six-year period of run-off cover ends. Having originally proposed an open market solution, the SRA decided last year not to abolish the SIF and instead bring it in-house.
The Legal Services Board (LSB) yesterday approved the new SIF arrangements, which allow the SRA to levy the profession to make contributions to the fund from time to time.
Its decision notice said the Law Society “continued to strongly encourage the SRA to introduce a levy on the profession as soon as possible” to fund the new SIF.
But the regulator believed the fund’s existing assets were “sufficient to cover anticipated claim payments and running costs for the foreseeable future”.
The SRA said it had not “estimated the likely profile of any future levy on the profession” but would “consult on the structure and mechanics of any future levy before imposing it”.
The LSB said it expected the SRA to apply to it for approval of any levy, just as it did for the Compensation Fund.
The SRA said an external analysis carried out last year by Willis Towers Watson had estimated that, once it was up and running, the new scheme could achieve annual costs savings on claims of between £300,000 and £400,000, and non-claims costs savings of over £120,000. The LSB described these as “significant”.
During the consultation process, the SRA changed its mind on taking over from the Law Society the final say on what to do with any residual surplus on termination of the fund; the idea of returning any money to the profession has been mooted.
The LSB said: “Should the circumstance arise, we expect the SRA to fully consider the appropriateness of redirecting funds intended ultimately for consumer protection to the profession.”
The oversight regulator said it had asked the SRA if it would consider publishing the names of the law firms whose negligence led to successful claims.
“The SRA replied, explaining that it did not consider that publishing the names of firms or solicitors involved in a successful SIF claim would contribute to the regulatory objectives. It explained that negligence alone is not a conduct issue.”
However, the LSB said the SRA had given a commitment to “at a minimum” publish annual reports with data about claims and the cost of providing cover.
The LSB went on: “We encourage the SRA to consider the ways in which data from the SIF could be used to inform how future claims may be reduced.”
Lubna Shuja, president of the Law Society, commented: “The decision will come as a huge relief to solicitors and their clients. It provides assurance that those rare negligence claims that may come to light long after the errors were made, will still benefit from the established SIF protections.
“We are disappointed that the LSB has not required the SRA to implement a compulsory levy on the profession, which we believe would have been the best way to ensure the ongoing viability of the fund.”