The Solicitors Regulation Authority (SRA) is to change its indemnity insurance rules to make it easier for law firms to switch regulator, it announced yesterday.
In a bid to encourage competition, the SRA will ditch the requirement that firms switching to another approved regulator have to buy run-off cover.
Under the change, the new regulator will be solely responsible for making sure there is adequate indemnity insurance available for future claims, including claims for work carried out or started before the switch.
This would provide a “clean break between regulatory regimes”, as well as clarity for consumers, and remove the potential for overlapping cover.
The SRA said it was working with the other regulators to agree a protocol and put in place a framework to share information when firms want to switch, so as to maintain client protection.
The change is subject to approval by the Legal Services Board (LSB), but the SRA hopes to have it in place for the coming indemnity year.
In the original SRA consultation a year ago, the regulator put forward formalising a waiver policy from the minimum terms and conditions of insurance for firms wanting to switch, but it has concluded that “a better approach” was to amend the terms so that run-off cover is not automatically triggered when a firm switches.
SRA policy director Crispin Passmore said: “The current approach makes it difficult for firms to be able to switch to the regulator they feel is right for their business. This change would give firms that choice, encouraging a modern, competitive market that provides affordable and accessible services for the public and businesses.
“We recognise that although such a change could have benefits for consumers, there are potential risks around protections for clients. We are therefore working closely with the other legal regulators on a switching protocol.”
The change was in part prompted by the fact that some law firms wanted to switch to the Council for Licensed Conveyancers (CLC).
In a statement, it said: “The CLC is pleased that the SRA has decided to remove a barrier that has prevented lawyers from exercising their right to choose the most appropriate regulator for their business…
“We are already working with a number of firms who have been waiting for this announcement from the SRA. Any other firm considering moving into the CLC’s regime for specialist conveyancing and probate lawyers should contact us as soon as they begin to think about the possibility.”
The change also reflects an underlying feature of the Legal Services Act 2007 that promotes competition between regulators.
In the consultation, the SRA said: “We are conscious of the risk that competition between regulators may indirectly lead to outcomes that are not in the public or consumer interest.
“That might happen, for example, if regulators were to reduce consumer protection or avoid disciplinary or enforcement action below an optimal level, simply to attract and retain a larger number of firms.
“However, the LSB approves each regulator’s regulatory arrangements. Thus we can be confident that each regulator’s arrangements, including their arrangements for professional indemnity insurance, are appropriate.”