Guarantee Fund: a reply

As an important consumer protection and key feature of the regulatory system for solicitors, the Scottish Solicitors’ Guarantee Fund will continue to play a role following any reform of the legal services marketplace. It is of particular benefit to smaller firms, both in terms of their funding model and also to help protect their position in the property marketplace. However, until the Legal Services (Scotland) Bill is enacted in the Scottish Parliament, a degree of uncertainty exists over exactly how it will operate. My colleague Ranald Lindsay raised some interesting questions about its future on this Forum on Monday (24 May).

A brief reminder about the fund itself might be useful. The fund was set up to protect those who have lost money because of the dishonesty of a solicitor or a member of the solicitor’s staff should that solicitor not be able to redress the loss of the client. It is important to be aware that the fund is one of last resort and indeed most cases of loss as a result of theft result either in a claim on the firm’s insurance policy or the firm repaying the loss to the client direct. If however all of the partners were party to the theft (and insurance therefore becomes unavailable) and after their personal estates are fully utilised, any balance of the loss, less contributory negligence will be referred to the Guarantee Fund. Claims for compensation are thoroughly investigated and a decision made on any grants payable, though even then awards are discretionary. I repeat importantly, it is a fund of last resort, which means it can only compensate those who have exhausted all other options of recovery.

By statute, the fund’s liability is unlimited, though in practice, a year ago the Society agreed to intimate to potential claimants that by using its discretion, it would only consider claims to a maximum value of £1.25 million on individual claims. This is detailed in the guidelines governing the scheme. At last month’s Council meeting it was agreed that discussions should take place with the Scottish Government about enshrining that cap in legislation, and also whether licensed legal services providers should be allowed access to the fund on paying an appropriate contribution. The benefit of these proposals would be to cap the statutory liability and by doing so introduce a greater flexibility on future Guarantee Fund contributions. If the fund is protected from a catastrophic claim, there is no need for the profession to fund it for one. The Society will update the profession of any developments when a final decision is reached.

A comprehensive review of the accounts rules is also about to take place. The purpose is to simplify the rules and deal with any overlaps. After consultation with the profession, we are planning to bring proposed rule changes to next year’s AGM.

The Society is well aware of the issues that affect the Guarantee Fund now and in the future. The Guarantee Fund Committee and the Council are working to ensure that risks are managed, best practice enhanced and changes well managed. As convener of the committee, I will continue to report any issues and progress to members.