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Thursday, 27 November 2014

 

LSB publishes its SRA PII application decision

The Legal Services Board (LSB) today published its decision on the Solicitors Regulation Authority (SRA) application, which proposed changes to regulatory arrangements relating to professional indemnity insurance (PII) cover.

The LSB has decided to grant the application, in part, in accordance with the Legal Services Act 2007[1]:

- to approve the parts of the application relating to the introduction of a new outcome in the SRA’s Code of Conduct 2011 which requires firms to assess and purchase an appropriate level of professional indemnity insurance and further technical amendments to the SRA’s regulatory arrangements including amendments to the SRA Glossary
- to refuse the part of the application which proposed a reduction in the minimum level of PII cover from the current level of £2 million (£3 million for incorporated firms and LLPs) to £500,000.

Legal Services Board Chief Executive, Chris Kenny, said:

"We welcome the SRA’s decision to comprehensively review financial protection arrangements and expect that it will reflect the outcome of this application in its further work. What matters is that firms have the right incentives to assess their risks accurately and so ensure that consumers are protected. It is not clear to the Board that a minimum level of cover necessarily has a place in achieving that and we were certainly not persuaded by the evidence put forward for the figures proposed."

[1] See notes for editors point 3.

 

ENDS

For further information, please contact LSB Communications Manager Vincent McGovern or by calling 020 7271 0068.

Notes for editors:

  1. On 15 July 2014 the Legal Services Board (LSB) received an application from the Solicitors Regulation Authority (SRA) for approval of changes to regulatory arrangements relating to professional indemnity insurance (PII) cover. The application set out two principal changes:
    - the introduction of a new outcome in the SRA Code of Conduct 2011 for SRA regulated firms (including sole-practitioners and partnerships) to assess and purchase an appropriate level of PII cover, and
    - the reduction in the minimum amount of PII cover for SRA regulated firms (including sole-practitioners and partnerships) from £2 million (£3 million if a firm is incorporated) for any one claim to £500,000.

  2. The initial decision period of 28 days was extended on 6 August 2014. In accordance with the requirements of the Legal Services Act 2007 (the Act) a warning notice was issued to the Law Society on 18 August 2014. This had the effect of extending the decision period by anything up to 12 months.

  3. As required by the Act this application was assessed against the criteria for refusal in paragraph 25 (3) of Schedule 4 which allows for the application to be granted in whole or in part (paragraph 25 (2) of Schedule 4).

  4. To refuse an application, the LSB Board must be satisfied that the application meets one or more of the refusal criteria.

  5. The proposal of a new outcome to the SRA’s Code of Conduct did not satisfy any of the refusal criteria. Neither did the further technical amendments relating to the SRA’s Professional Indemnity Insurance Minimum Terms and Conditions, the introduction of an international trade sanctions exclusion or alterations to some of the definitions in the SRA Handbook Glossary.

  6. The change relating to the proposal to reduce the minimum level of PII cover from the current level of £2 million (£3 million for incorporated firms) to £500,000 did satisfy the refusal criteria as set out in the Act.

  7. The full details of and reasoning behind the LSB’s decision in relation to this application can be found here.

  8. The Act created the LSB as a new regulator with responsibility for overseeing the regulation of legal services in England and Wales. The new regulatory regime became active on 1 January 2010.

  9. The LSB oversees nine approved regulators, which in turn regulate individual legal practitioners. The approved regulators, designated under Part 1 of Schedule 4 of the 2007 Act, are the Law Society, the Bar Council, the Master of the Faculties, the Chartered Institute of Legal Executives, the Council for Licensed Conveyancers, the Chartered Institute of Patent Attorneys, the Institute of Trade Mark Attorneys, the Association of Costs Lawyers and the Institute of Chartered Accountants in England and Wales.

    In addition, the Institute of Chartered Accountants of Scotland and the Association of Chartered Certified Accountants are listed as approved regulators in relation only to reserved probate activities.

  10. As at 1 April 2014, the legal profession comprised 138,243 solicitors, 326 alternative business structures, 15,279 barristers, 7,927 chartered legal executives and 5,404 other individuals operating in other areas of the legal profession such as conveyancing. The sector was valued at £29.2 billion in 2013 (total turnover).