The following article has been extracted from The Law Society Gazette:
As it seeks to boost its appeal as a regulator of law firms, the Council for Licensed Conveyancers has insisted to critics including the Law Society that proposals to change its professional indemnity insurance arrangements are ‘evidence-based and robust’.
Publishing a summary of responses to its snap consultation, the CLC said it is preparing to submit an application to the Legal Services Board in time for PII renewals on 30 June.
The Law Society, however, said it ‘would not support a system that allows SRA-regulated firms to switch regulator where the result is a dilution in the financial protections afforded to clients of the SRA-regulated firm’.
The Society did not have any particular views on proposals to ditch the CLC’s master policy in favour of an open market in which participating insurers would undertake to provide six-year run-off cover to closing firms at no cost. But it described as ‘significant’ the risk that regulated firms wishing to close could switch to CLC regulation ‘in order to avoid a run-off premium’.
The Society warned: ‘The CLC can have little indication of to what extent this might occur, and what liabilities previously regulated firms may bring.
‘Conveyancing is one of the work areas of highest risk and can give rise to high-value claims. It is therefore imperative that consumers are adequately protected by way of an appropriate level of insurance cover if something goes wrong. For this reason, the lack of equivalence of SRA and proposed CLC [minimum terms and conditions] PII cover is a cause for concern.’
The CLC’s summary paper states that ‘separate processes’ are in place to identify those practices seeking to transfer ‘for this purpose’.
The limit on claims in the six-year run-off period under the CLC plans will be £2m in aggregate. The CLC says brokers to its master policy have confirmed that, since 2011, aggregate claims paid have not exceeded £100,000 per practice.
The Society said there was ‘insufficient’ basis for ‘extrapolating’ the £100,000 figure.
‘Rather, it is possible that the number and value of claims will rise to the extent that a £2m limit on claims in aggregate over six years will not be sufficient. Solicitors’ clients should not receive a lower level of cover because their provider has switched regulator,’ it added.
CLC chief executive Sheila Kumar said the level of cover proposed in relation to run-off was based on evidence of claims in past years and is set at a ‘prudent’ level of £2m in aggregate, ‘which is more than sufficient based on past claim levels’.
She said the regulator believed its proposals are ’proportionate, protect consumers, and support innovation and growth in the legal sector’.
Responding to the Legal Services Consumer Panel’s concerns about how regulators will deal with mixed-practice firms, the CLC summary paper states that only the conveyancing and probate operations of a mixed-practice firm would be able to transfer to CLC regulation.
Noting the panel’s suggestion that approved regulators collaborate to prevent gaps or loopholes arising in run-off coverage, the CLC says it has ‘already identified this risk and will work with the SRA to agree appropriate mitigating steps’.
It adds: ‘Further, any practice applying to be regulated by the CLC will need to satisfy the CLC that it had appropriately mitigated any such risk. This may be continuing to provide such services under a different regulatory regime or by taking out run-off insurance for that part of the practice.’
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