Overview of SRA Regulatory Reform Consultations
During the summer, the Solicitor’s Regulation Authority (SRA) has been consulting on six specific aspects of regulatory reform. The SRA Board has now announced changes arising from four of these consultations. These changes are still subject to approval by the Legal Services Board but are expected to take effect from October 2014.
Other changes arising from the consultations will be finalised during the autumn, with a view to subsequent approval by the Legal Services Board.
We believe that the changes proposed by the SRA will give firms the opportunity to tailor their regulatory responses more closely to the needs of their clients and their businesses. Business-like firms will welcome this. Other firms may find the new discretions challenging as they decide how to implement them.
Key Proposals for Proportionate Regulation
The consultations related to a number of proposals aimed at making the SRA’s regulatory approach more proportionate and reducing unnecessary burdens, including:
- changes to minimum compulsory professional indemnity cover;
- changing the arrangements to compensate consumers of legal services when they suffer financial loss due to dishonesty, failure to account or civil liability of uninsured practitioners;
- changes to reporting accounting requirements;
- changes to residual client balances;
- reforming the way multi–disciplinary practices (MDPs) are licensed; and
- stopping the annual Keeping of the Roll exercise.
The SRA reports that the majority of responses to their consultations agreed with the aim of reducing the burden of regulation. However, some disagreed with the SRA’s proposals. Where the SRA feel respondents have a valid point, they have either decided to take a fresh look at the proposals or to seek more information.
Summary of SRA Agreed Changes
The changes agreed by the SRA are:
Changes to Indemnity Insurance Cover
Minimum terms and conditions for indemnity insurance
George Bull
The SRA is introducing a requirement on all firms to ensure they have an appropriate level of indemnity insurance cover, but reducing the minimum level of compulsory cover to £500,000. These proposals will ensure consumers are better protected by, for the first time, requiring firms to ensure appropriate cover rather than simply relying on meeting the minimum requirements and, at the same time, ensure the very many firms undertaking primarily low value transactions are not forced to obtain higher levels of insurance than they and their clients require. The SRA emphasised the importance of firms being appropriately insured, particularly where work was being undertaken for vulnerable clients in high value cases; such as clinical negligence cases. The SRA would be taking targeted supervision work forward following the implementation of these changes focussed on such areas of practice. The other proposed changes to the indemnity insurance arrangements have been deferred until 2015 to allow for the completion of a wider review of indemnity insurance arrangements.
Residual balances
The SRA is increasing the amount that may be withdrawn from residual client balances and donated to charity without SRA approval from £50 to £500. Guidance on residual balances has been prepared to accompany this change and will be published on the SRA website in due course
Revisions to Accounting Requirements
Accounting requirements
The SRA decided to defer a decision on this proposal until its next meeting. The SRA recognised the need to ensure that, where firms choose to hold client money, appropriate safeguards are in place to assure the safety of that money. Further analysis of the consultation responses and consideration of options will be undertaken before the SRA reaches its decision.
New Eligibility Rules for Compensation Fund
Compensation Fund eligibility
The SRA decided to introduce eligibility criteria to only consider applications from individuals and small businesses, charities and trustees where turnover, annual income and trust value do not exceed £2 million respectively
What next?
The changes made by the SRA are still subject to Legal Services Board approval. If agreed to, the changes will be made in time for the 11th version of the Handbook, which is due to go live in October.
Decisions on the licensing of multi-disciplinary practices and stopping the Keeping of the Roll exercise as an annual event will be considered by the SRA in the autumn.
