The Solicitors Regulation Authority (SRA) plans to change its indemnity insurance rules to make it easier for firms to switch their regulator, encouraging competition in the market while still offering protection for the public.
Under the current agreement, firms moving to another legal service regulator have to obtain six-years’ run-off cover for its professional indemnity insurance. Other regulators have their own indemnity insurance requirements, so firms can find themselves needing to have dual cover in place, which can be a barrier to switching.
The SRA has decided that run-off cover should not necessarily be triggered when a firm switches to another approved regulator. The new regulator will then be solely responsible for making sure there is adequate indemnity insurance available for future claims for financial loss. This includes claims for prior work carried out, or in progress, before the switch. To make sure clients remain protected the SRA is working with approved regulators to agree a protocol that sets this out and puts in place a framework to share information when a firm wants to move to another regulator.
The SRA consulted on removing this requirement last year. The change still needs to be agreed by the Legal Services Board. The SRA is aiming for the change to be in place in time to be included in the agreements we have with participating insurers for the period starting on the 1 October.
Crispin Passmore, SRA Executive Director, Policy, said: “There was overall support for our proposals to remove the obligation for run-off cover if a firm switches regulator.
“The current approach makes it difficult for firms to be able to switch to the regulator they feel is right for their business. This change would give firms that choice, encouraging a modern, competitive market that provides affordable and accessible services for the public and businesses.
“We recognise that although such a change could have benefits for consumers, there are potential risks around protections for clients. We are therefore working closely with the other legal regulators on a switching protocol. This is to make sure consumers remain protected and the new regulator has all the information they need to establish the transferring firm has adequate cover including for past activities. The way we are proceeding provides a clear, straightforward approach to making sure appropriate consumer protections are in place.”