Creative accounting, institutional inertia and failure to comply with legal obligations are among the charges leveled against the Solicitors Regulation Authority in the latest investigation into the proposed closure of the Solicitors Indemnity Fund. The figures to justify the decision “have been produced in such a way as to support the preferred position of the SRA”, Clive Sutton, honorary secretary of the Sole Practitioners Group (SPG), said on Saturday at the group’s annual conference.
Independent practitioners and small business owners would be particularly affected by the closure of the fund, which covers claims made against retired lawyers and businesses closed after the expiry of the six-year liquidation cover provided by commercial policies. PII.
The fund has been managed on an interim basis since 2000, first by the Law Society, then by the SRA, in the event that commercial insurers eventually step in. “Everyone now accepts that the insurance industry does not want to be involved in this coverage,” Sutton said. But despite this observation, the closure of the SIF is still planned, currently in 2023.
In his report to the group, Sutton said independent research commissioned by the SPG casts doubt on the SRA’s “disastrous predictions” that the £33million fund would disappear. Figures cited by the SRA ignore ‘significant’ investment income – £3.3m in 2021 – as well as the possibility that the profession could step in with ‘periodic levies’ if necessary, he said .
A study by Honeycomb Forensic Accountants found that this fund has operated “with virtually no depletion of its reserves for 10 years”. We see no reason why this can’t continue,” Sutton said. The latest annual report shows the fund had assets of £33,752,000 after an overall loss of £151,000 or 0.0044%.
The closure would also contravene the SRA’s statutory responsibility to protect the public.
The regulator now appears to be reconsidering its stance on the shutdown in the face of overwhelming opposition, Sutton said. An SRA consultation drew a record 300 responses, all of them opposed to the shutdown. ‘It seems the SRA was surprised at the response,’ he said, exploring what options to put to the council by the summer.
Speaking from the room, Robert Bourns, chairman of the Law Society’s board, refuted any suggestion that the Law Society had been slow to act on SIF, pointing out that earlier extensions were the result of interventions by Chancery Lane. Echoing that protecting the public through indemnification coverage is a legal responsibility, he lamented that the need for retired lawyers to rest easy “has sometimes been said with a sort of sneer”. The Society is “working very hard to resolve this matter,” he said.
The SRA was unable to attend the conference. However, in a pre-recorded video message, chairwoman Anna Bradley said the regulator had heard the group’s concerns and “is considering other options before coming back with conclusions.”
Sutton summed up: “The SPG urges the SRA to accept that protecting the public beyond six years is one of its responsibilities. The loss cannot be replaced by insurance and customers will suffer damage.
Dialogue on the issue must be based on “some assurance that the figures produced by the SRA are consistent with the actual position and are not inadvertently weighted towards the original preferred option”, he said.