Removing financial institutions from compulsory professional indemnity insurance (PII) cover will cause “serious detriment to clients and solicitors” if it is forced through this year as planned, mortgage lenders have warned.
Responding to the Solicitors Regulation Authority’s (SRA) consultation on client financial protection arrangements , which ended this week, the Council of Mortgage Lenders (CML) said there is now “insufficient time” to put the policy into effect by October, as the SRA proposes, regardless of the consultation’s outcome.
The CML, whose 109 members hold 94% of UK mortgage assets, said that if the SRA is intent on excluding lenders from PII cover, it should work with the parties affected – solicitors, lenders and insurers – to “agree a practical timetable for implementation”.
Overall, the proposal would hurt lenders, the conveyancing profession and consumers, the CML said. It called for stronger regulation and a root and branch review of conveyancing.
Echoing a damning response by the Law Society , the CML argues that lenders will further restrict membership of conveyancing panels if the policy is adopted. This would be “likely to have a detrimental impact on consumers of both financial institutions and solicitors”. Conveyancing costs would rise through dual representation and consumers’ choice of solicitor would be reduced.
The CML said it is “neither desirable [nor] appropriate to remove the current regulatory protection for any one type of client. All clients should enjoy the same level of regulatory protection”.
Removing lenders from the minimum terms and conditions (MTC) of PII would create “a number of ‘gaps’ in client protection which a lender client cannot reasonably protect themselves against”, the CML continued.
While lenders accept the need for reform of client protection arrangements, it should be accompanied by “far tighter regulatory controls and a more targeted approach to the underlying causes of problems that exist in the conveyancing profession”, the CML said.
The CML complained that the proposal to remove lenders from PII cover “does not address underlying issues that exist within the conveyancing profession”, which is responsible for a “disproportionate” number of claims under existing arrangements. A “fundamental review of conveyancing” is required, it added.
Amid a long list of suggestions, the CML advocates that:
- Clearly defined MTC for PII, “such as minimum levels of cover dependent on the type of work conducted by firms”, should be introduced;
- Before any changes to PII cover are made, an “industry-wide system” should ensure “up-to-date information about firms’ PII cover is available to clients”;
- The assigned risks pool should cease to provide cover for those solicitor firms unable to find it in the open market, with measures to ensure that clients are adequately protected;
- The solicitors’ compensation fund be turned “into a true guarantee fund funded by the profession”;
- The ability of insurers “to avoid cover, via techniques of aggregation and tainting”, be prevented to ensure clients are protected from loss; and
- “Non-payment of premiums, material non-disclosure, misrepresentation and fraud” should be properly dealt with by the SRA through better risk management by firms.