The Solicitors Regulation Authority’s (SRA) plans to cut the level of compensation paid to victims of dishonest solicitors have been slammed by the Law Society and Legal Services Consumer Panel (LSCP).
The SRA wants to cut the maximum award payment from £2 million to £500,000 in an attempt to cut the burgeoning cost of the compensation fund to the profession. The fund pays grants to people who have suffered due to a solicitor’s dishonesty or a loss of client money not covered by insurance.
The LSCP says the SRA should be focused on tackling misconduct by solicitors, rather than reducing compensation.
“It is an abdication of responsibility to attempt to reduce compensation payment to consumers who have suffered financial loss as a result of misconduct or dishonesty. And it would be a double injustice to be penalised by the very regulator who failed to prevent the wrongdoing,” said Sarah Chambers, chair of the LSCP.
The Law Society accepted the number of claims above the proposed £500,000 cap would be low, but said people who have been defrauded by their solicitor should be eligible to apply for compensation as a matter of principle.
Both bodies were critical of the SRA’s decision to cover the cost of interventions to shut down firms from the fund. Between 2012 and 2016, the cost of interventions to the fund rose from just over 2% to almost 28%, while grants to consumers fell from over 80% to just under 55%.
“The SRA is in a difficult position because the cost of the compensation fund is soaring and it is under pressure to reduce the burden on the profession,” said James Burgoyne, Director – Claims & Technical, Brunel Professions. “Most risks are covered by professional indemnity insurance which provides a valuable safety net to consumers – but the fund is intended to support those cases where insurance will not respond. It is notable that £25.6m was collected as levies from the profession for 2018/2019, and yet it was only £2.1m less than a decade before. There have been calls for more data on the awards being given and denied. This seems sensible to assess where the money is actually being spent.”
A factor in lack of response by insurance is insolvency of the insurer. It is Brunel Profession’s view that a reduction in the breadth of the SRA Minimum Terms & Conditions of professional indemnity insurance would encourage more insurers into the Solicitors PII market, which would mitigate the instances and effects of insurer insolvency. This would potentially benefit the compensation fund.
The Law Society and Legal Services Consumer Panel have published their responses to the SRA’s consultation on their websites. Reports about the Panel’s criticism have been published by Legal Futures and the Law Society Gazette. Legal Futures has also reported on the Law Society’s response.
Brunel Professions is a leading provider of PII insurance broking to the legal profession. To find out more call Mark Sommariva on 0203 475 3275.