SRA launches consultation on SIF fund
Controversy has surrounded the post six-year run off cover scheme provided through the SIF for a number of years
The Solicitors Regulation Authority (SRA) has launched a consultation on options for the future of post six-year run off cover (PSYROC) and the Solicitors Indemnity Fund (SIF). Interested parties have 12 weeks to submit their views, until the consultation closes on 15 February 2022.
PSYROC is additional cover for firms that close without a successor practice, in addition to the six-year run-off cover provided by professional indemnity insurance. PSYROC has been provided through SIF, which is a mutual indemnity scheme itself, since 2000.
Controversy has surrounded the SIF in recent years after the SRA announced it would not continue to support the scheme indefinitely.
The SRA has extended the scheme on three separate occasions to continue the provision of PSYROC through the SIF, due to concerns about its affordability without any additional funding. The latest extension was to allow more time to consider longer-term options.
The SRA said that after “careful consideration of the evidence”, it is consulting on whether its regulatory arrangements should include PSYROC as a consumer protection. It may be that this approach is the only way the SRA could justify retention of the cover, thereby indirectly continuing to support solicitors, as “it works in the public interest and is constrained by law from acting outside its public interest regulatory remit or for the purpose of supporting or protecting members of the profession”.
The consultation sets out a range of options for the future of the SIF, including:
· No future provision of PSYROC
· The continuation of the provision of PSYROC with new funding arrangements and through different models
· Arranging PSYROC through insurance on the open market.
The SRA’s preferred option is not to continue the provision of on-going PSYROC because it believes “the costs compared to the volume and value of claims are unlikely to be a proportionate or efficient way of delivering consumer protection”.
It said forecasts show the number of consumers likely to benefit each year in the period 2023 – 2033 would be around 31, with the average value of claims paid out, including defence costs, at £34,600. The requirement for ongoing funding from the profession is estimated as being up to £2.4m a year, which it said is likely to be passed on to consumers.
The consultation also asks what should happen with the remaining reserves of the SIF if it no longer provides PSYROC. It said the transfer of residual funds to the Law Society would benefit the profession.
Chair of the SRA Board, Anna Bradley, said: “We appreciate that this is a controversial issue for some within the profession and indeed that there are a variety of views.
“As the regulator, we have to consider the right arrangements for the future, with a sharp focus on the interests of consumers and our other regulatory objectives. Our analysis, in the light of detailed evidence, shows that establishing or maintaining a regulatory scheme to deliver ongoing post six-year run-off cover is unlikely to be proportionate in light of the level of consumer protection it provides.
“We have set out our thinking and a range of options in our consultation and I encourage everyone to give us their views on the best way forward. Our Board will carefully consider the feedback we receive before making a decision.”
Law Society of England and Wales president, I. Stephanie Boyce, commented: “The SRA has today outlined its intention to make the marketplace less safe for consumers by getting rid of PSYROC and SIF.
“Solicitors want consumers to be protected and one of the things on which the profession prides itself is that it offers a service from highly trained professionals who are adequately and appropriately insured for the rare occasions something goes wrong.
“The removal of PSYROC and SIF will have a huge impact on the consumers affected. The average successful claim is over £34,000, which is a large amount of money for most people. The consumers who will suffer will employ solicitors on a reasonable assumption that they would have comprehensive protection if something went wrong.
“The SRA is suggesting that this comprehensive protection is removed, but it is yet to demonstrate that the removal of PSYROC will have any material impact on the cost of legal services or lead to any improvement in the market for legal services.
“Solicitors strive to provide the best service – but they also want the best consumer protections. It is our belief that retaining SIF would be in the best interests of consumers and the profession alike.”