Future client financial protection arrangements
The purpose of this consultation is to enable the Solicitors Regulation Authority to seek views on specific proposals for amendments to its client financial protection arrangements from October 2011 and on further changes being considered for implementation from October 2012 onwards. These proposals follow on from the independent review of the current client financial protection arrangements undertaken for the SRA by Charles River Associates.
The key changes proposed for October 2011 are:
- to remove the restriction of the single renewal date. Firms would have freedom to renew their PII cover at any time they wished;
- to permit the exclusion of cover for claims arising from work done for financial institutions from the minimum terms and conditions. This would mean cover for work undertaken for financial institutions conducted on or after 1 October 2011 would not be a regulatory requirement, although firms and insurers would be free to arrange cover if they wished;
- to limit the amount of time a firm can stay in the ARP to six months, and to require firms entering the ARP to create and implement a robust and credible plan, to be reviewed by the SRA, that will either address the underlying reasons why cover was not obtained on the open market so that open-market cover can then be obtained, or will enable the firm to close in an orderly fashion within the six-month period;
- to clarify the requirements on insurers to provide information to the SRA regarding firms that fail to pay their premiums or that insurers believe may have misrepresented information, enabling the regulator to deal promptly with risks.
Options for discussion for October 2012 or beyond include:
- permitting additional exclusions of corporate clients from the minimum terms and conditions, over and above the proposed exclusion of financial institutions;
- changing the role of the ARP, possibly by ending its role as a provider of policies of qualifying insurance completely, and so limiting its role to the provider of client protection to firms that do not have PII. This would mean any firm that failed to obtain insurance from the open market would be required to close;
- altering the way in which the ARP shortfall is funded by considering either a direct levy on the profession or a levy as a percentage of insurance premiums;
- considering whether the functions of the ARP that remain and those of the Compensation Fund could be combined into the Compensation Fund;
- considering whether insurers should be able to cancel policies for non-payment of premiums or for fraud or misrepresentation in information provided by the firm to the insurer (in which case financial protection for clients would be provided by the Compensation Fund or the ARP);
- considering changes to the mechanism for funding the Compensation Fund.
The consultation can be fund on the SRA web site at www.sra.org.uk/sra/consultations/client-financial-protection-arrangements.page