A temporary reprieve

Between November 2021 and February 2022, the SRA undertook its much-anticipated public consultation on the future of post six-year run-off cover (“PSYROC”). This article looks at its key conclusions and what it means for the future of the Solicitors Indemnity Fund (“SIF”).

The pre-consultation position

SIF, managed by SIF Ltd, provides cover to firms that cease without a successor, once their mandatory cover, provided by their last insurer, has expired.

In our previous articles, we explored the history of SIF and the importance of PSYROC where primary limitation periods are extended.

Initially due to run until 30 September 2017, the provision of PSYROC had already been extended three times , most recently to cover claims notified until 30 September 2022, but the status quo was under threat. The SIF surplus, used to fund PSYROC, is finite. SIF Ltd had indicated that a further extension of its scheme would not be prudent without additional funding, which led to the launch of the SRA consultation.

What was proposed?

The SRA’s consultation paper nailed its colours to the mast. It made clear the SRA’s preferred option not to continue its involvement with PSYROC. Its rationale was superficially simple: the costs of PSYROC are disproportionate to the volume and value of claims.

Our last article expressed concern that the analysis underpinning the SRA’s proposal did not stand up to scrutiny and we identified the areas where its impact upon consumers had not been properly investigated. Many respondents agreed with us….

What was the response?

The response was overwhelming. As anticipated, there was a high level of engagement, with the SRA receiving 333 responses — 270 submitted by individual respondents and 63 from organisations. The SRA also engaged with around 3,200 people during the consultation via meetings, events and webinars.

Almost all respondents expressed negative views about the SRA’s original analysis. In particular, the Law Society did not pull any punches, stating, “…a subjective and unbalanced or imbalanced, analysis has been produced…”. The Legal Services Consumer Panel was also strongly critical of the SRA’s reasoning behind its preferred option,

“...the Panel finds the data wanting and beneath the standards we would expect from a modern regulator. The SRA has not given due regard to the statutory objectives of promoting and protecting the interests of consumers, the public or access to justice. Where these are mentioned, the analysis is staggeringly subjective...”

Drilling down to the detail, some respondents, particularly from the insurance sector, cast doubt upon the consultation paper’s prediction that future claims, made more than six years after a firm’s cessation, would remain low. They cited recent increases in claims involving wills, trusts and probate. There was also concern that the upwards spiral of property costs and the increasing level of property purchases could drive more claims.

Nearly all consultation respondents took the view that the cost of maintaining PSYROC was proportionate to the benefits received by affected consumers. As one individual solicitor observed, ”…I agree the [claim] sums paid are low. However, given that the average income in the UK was £31,285 in 2021 the level of claims is still life-changing for the average person if the claim cannot be met.” This sentiment was echoed in a number of the responses, which also pointed out that for most consumers, their home will be their most significant asset and the absence of available redress for historical conveyancing errors would be potentially life-changing.

Concerns were also expressed that the SRA’s proposals undermined the encouragement of a strong, diverse and effective profession. The Black Solicitors Network warned against the erosion of access to justice, “...any proposal that entirely removes PSYROC and makes it more difficult for small general practise firms and solicitors to survive and thrive.”
Notably, the possibility of an open market replacement for SIF was dismissed by the Association of British Insurers, “...an insurance market solution to provide PSYROC beyond September 2022 is not a viable option.”

Ultimately and unsurprisingly, the option favoured by most respondents was to maintain PSYROC through SIF, while exploring scope to reduce its operating costs. The majority of respondents were opposed to targeting this towards certain types of legal services and supported the imposition of a modest levy to fund the scheme.

What next?

The SRA Board considered the outcome of the consultation and next steps at a meeting on 5 April 2022. It noted “...significant new insights and information...” in a couple of areas: the profession’s willingness to fund PSYROC via a modest compulsory levy, which would likely not be passed on to consumers and concerns that the SRA’s initial analysis underplayed the impact of its proposals on consumers.

The consultation response records,

“The Board recognised the strength of the feedback that consumer protection in this area should not be removed but still had serious concerns that the current costs of running the SIF are higher than they should be for the benefit delivered.”

We are told that the Board has not made a decision on the future of PSYROC at this stage. Instead, it has asked for further policy work to be done, to explore options for providing consumer protection in a more proportionate way. The consultation response mentions the following, possible options:

• ongoing PSYROC through the SIF, exploring funding arrangements and costs reductions; or
• alternative arrangements for a new consumer protection fund or a modification to the SRA Compensation Fund.

The Board will consider the results of the work at the end of the summer, with a further public consultation to take place in the event that a new arrangement is proposed.

In the meantime, SIF has a stay of execution. The Board has agreed to seek a further extension of SIF to September 2023, which will be subject to formal confirmation from the Legal Services Board. However, before that can occur, the SRA will also need to obtain formal confirmation from SIF Ltd that this extension is affordable without a levy.

The profession has done what it can for now to safeguard consumers and practitioners alike. We must now wait and see what the summer brings….