The CMA has said that it will be looking at the consumer protection available in respect of legal services as part of it market study. It’s a complex and tricky picture covering complaints, insurance and the protection of client funds and the different professions and providers have very different approaches.
The SRA has been grappling with the issue of consumer protection for a couple of years now and have found it difficult. It’s one of the few areas where it’s found the Legal Services Board difficult to convince about the effect of reform. Part of their difficulty is that the protections available to consumers are pretty comprehensive and it is quite difficult to change one aspect of them without causing damage further down the line and risking headlines about widows and orphans left penniless because the protections aren’t good enough.
Solicitors are required to be insured under the minimum terms and conditions (MTC) set out by the SRA. Those require a minimum level of cover of £2m and for the insurers to be bound by a number of conditions which would not apply in normal insurance contracts (for example, firms are covered even if there has been non-disclosure, a partner has been dishonest and there are strict rules about aggregating claims).
All this has had an impact on smaller firms who find the cost of insurance a major cost of doing business and, indeed, during the hard market of 2010-2012 many firms found both obtaining and paying for insurance a struggle. There was a perception that it was insurers, rather than the SRA who were actually dictating who was an was not in practice.
In 2014, the SRA proposed a number of changes to the market – a reduction in the minimum cover and some other changes aimed at making insurance more affordable. They were very heavily criticised and the SRA are now considering the position and likely to consult further in 2016.
Several hundred billion pounds probably go through solicitors’ client accounts each year. And the costs to the profession of policing them go into tens of millions. This is partly through the payments to the Compensation Fund, partly through the costs of the SRA for monitoring and investigating dishonesty and partly the costs of compliance with outdated rules.
These arrangements, however, provide pretty much guaranteed protection for consumers if there’s any dishonesty and an important last resort.
The LSB is interested in this. It notes the risks and the costs and that there are alternative ways of holding money which may not create such risks. It’s also, perhaps an issue that the solicitors’ arrangements are so gold-plated that they represented a very difficult goal for new entrants to meet.
Equally, the solicitors’ arrangements tend to meet the needs of clients. I wonder how many would hold client money if it were not a particular important feature of what they do.
Self-employed barristers are required to be insured by the Bar Mutual Indemnity Fund – a mutual that operates on similar terms to the solicitors’ MTCs, though with a lower minimum level.
Barristers are simply not permitted to handle client money – therefore there is no need for accounts rules or a Compensation Fund. This hampers them in undertaking work on a direct access basis – if a client needs evidence gathered or experts instructed, he or she has to pay directly. In recent years, the Bar Council has developed a model called BarCo which provides a third party escrow account to deal with such transactions. It’s not clear whether this would be suitable for the wider needs of solicitors.
Licensed conveyancers have a Compensation Fund and must be insured either with the Master Fund operated by the CLC or be insured in a scheme with similar levels of protection.
CILEx Regulation has provided insurance rules and compensation fund arrangements for entities that it will authorise. There are no formal requirements for individual CILEx members because they are usually employed in solicitors’ firms.
There’s no requirement for unregulated providers to hold insurance or have compensation arrangements. Many, of course, will be insured but it’s hard to see how they could readily mimic the SRA’s compensation fund. It’s an issue that could well interest the CMA.
The Legal Ombudsman took over from the various professional bodies’ arrangements to deal with complaints of poor service. It will also award compensation for poor service and there’s a fine line between that and compensation for negligence.
LeO has its problems at the moment. It’s notable that it decided not to become an approved ADR body for the purposes of the EU ADR Directive – some in the profession might ask why they pay £17m a year in order to support a body that can’t manage to achieve that.
It has two other issues to look at: how far it can go in looking at the unregulated sector; and whether it should look at complaints from people other than the client.
I’ll be looking at all of these topics as they arise.C