Guarantee Fund: negotiations continue

The process of revising the Legal Services (Scotland) Bill is now well underway, with amendments issued last week and the Justice Committee beginning its discussions on the proposed changes on Tuesday 8 June.

The Society has already made representations to the Government about the future operation of the Scottish Solicitors' Guarantee Fund, which currently reimburses clients who have suffered monetary loss because of the dishonesty of a solicitor or their staff, if the circumstances are not covered by professional indemnity insurance under the Master Policy. 

In discussions with Scottish ministers, we have highlighted the Council's position, which was outlined in our recent consultation, that the fund should only be opened up to include licensed legal services providers (LPs) regulated by the Society. That would give the Society as an approved regulator control over the regulatory scheme, including practice rules, and the process for inspecting LPs to ensure compliance with the accounts rules that apply to all those who contribute to the fund.

However, the Government's amendments include a proposal to either require the regulators of new LPs to create their own equivalent compensation fund or to allow all providers, including those not regulated by the Society, to access the Guarantee Fund. The Society strongly objects to the second proposal for the following reasons.

One of the reasons that the fund works so well is that contributors are all principals in practice and members of the same profession, so have an identifiable risk profile. Any future LPs regulated by the Society would also have an identifiable risk profile. It is problematic to suggest that those not regulated by the Society would have a similarly known risk profile, certainly at this stage when it is not known what other regulators may apply for approval and whether the licensing scheme inspection system they imposed would match the Society's.

The key to ensuring the fund's continued efficient operation is the inspection regime that underpins the accounts rules. An equivalent inspection regime - and not simply a rulebook - would have to be operated by the regulator to allay anxieties about any enhanced risk, though new regulators might have difficulties matching the Society's high standards.

Also, the fund has considerable reserves built up over the years from the contributions of solicitors which has to date been on the understanding that the fund benefits current and future members of the profession and their clients. While we can accept that others should be able to access the scheme, we think it should only be for those regulated by the Society, to ensure that the fund continues to operate fairly for those who need it.

The Society is continuing these discussions with ministers and we must await their decision on the future of the fund. The Society does however support a further amendment from the Government suggesting a £1.25 million cap on individual claims, which is in line with practice elsewhere in the UK and Ireland. The Society will continue to press hard for reform that is in the interests of solicitors and their clients.