High street law firms have been under pressure for many years. A mixture of low fees, poor market conditions and an overabundance of bureaucracy and red tape have made life very difficult for most.
The pressures that have haunted them in the past could be about to get a whole lot worse. The Solicitors Regulatory Authority (SRA) launched four consultations at the beginning of May, giving busy lawyers only six weeks to digest and comment on the contents.
The four consultations were:
1. To introduce changes to minimum compulsory professional indemnity cover:
This consultation contains five proposals intended to reduce the regulatory burden, provide targeted regulation and increase competition. The proposals are intended to assist small law firms in providing the right level of protection to their clients without incurring additional expense that drives up their costs and thus the prices to consumers.
Possible result: To reduce the amount of PII cover from £2m to £500k and reducing the run off period from six years to three years.
2. To review compensation arrangements:
The SRA is reviewing the arrangements it has in place to compensate consumers of legal services when they suffer financial loss due to dishonesty, failure to account or civil liability of uninsured practitioners.
Possible result: Businesses with annual turnovers of over £2m, including mortgage lenders, would no longer be able to claim on solicitors' compulsory indemnity insurance.
3. To introduce changes to reporting accounting requirements:
The SRA is considering the removal of the mandatory requirement that firms must submit an annual accountant's report to the SRA
Possible result: The removal of the important obligation that all firms holding client money must submit an independent annual accountant's report.
4. To reform the licensing of Multi-disciplinary practices:
The SRA are proposing to reform the way that it licenses multi-disciplinary practices.
Possible result: To allow new entities (Alternative Business Structures etc.) to provide legal services.
Why should any of this worry the public or estate agents Well one of the reasons is because the Council of Mortgage Lenders has said:
It is possible it could result in lenders moving to smaller panels of law firms who are able to obtain PII cover which suits the lenders' needs, and this may affect the business of sole practitioners and small firms.
It may also create higher levels of separate representation, which could have the consequence of causing time-consuming replicated work and additional costs to both borrower and lender. Lenders may also consider using alternative providers of conveyancing services where they perceive there to be greater protection for them as clients.
This is a very serious matter which, if handled badly by the SRA, could not only adversely affect conveyancers and estate agents, but buyers and sellers, by reducing the number of conveyancing firms and creating an even slower conveyancing process.
In a decision made last week, the SRA approved some of the proposed changes. Those changes are now subject to Legal Services Board approval:
https://www.sra.org.uk/sra/news/press/board-approves-reform-changes-july-2014.page
Do you think these proposals are a good or bad thing
*Rob Hailstone is founder of the Bold Legal Group
Comments
Nice article, Rob. Pros and cons very clearly explained. Are the proposals a good or bad thing Overall it's got to be bad. Two points if I may.
500k won't cover a growing number of transactions nowadays so any law firm opting for cover of only 500k/3 year run off is effectively putting themselves at a competitive disadvantage. And it's unlikely that the firms with the lesser cover will be paying substantially lower premiums, so there's no real cost advantage for them to pass on to the client as an incentive to use them. As you indicate, lenders panels will naturally be made up of law firms/conveyancers with the greatest cover. So less choice for us, the public and lenders.
And as for the SRA relaxing it's reporting accounting regulations with the possible result that important obligations regarding the holding by solicitors of client money may in future be dispensed with, well this can only be a joke. The law profession is in a crisis caused by feckless and downright dishonest solicitors. Those behind Alexander Lawyers LLP (In Liquidation) were able to somehow keep alive an insolvent zombie practice year after year with them hiding the ever increasing debts from the firms accountants. This was done in the face of current SRA Rule 32 requirements which is to supply independently audited accounts. Independent accounts are currently the only check on a firms honesty and the state of its accounts. So now the SRA want to relax even further this most basic protection for creditors and the public which is not at present properly enforced anyway If anything the rules should be tightened up and made more demanding.