Choose the right regulator for your conveyancing or probate practice

Article co-written by Claire Richardson of the CLC and Scott Thorne of Howden

Many people running law firms don’t realise they might be able to choose the regulatory regime that offers the best fit for their firm.

It may seem like a novel idea, but it was made possible by the Legal Services Act 2007 and several enterprising firms have already taken that step.

Why would you move your practice from one legal services regulator to another?

Mostly because not all regulators of legal services are the same. For example, the Bar Standards Board (BSB) regulates advocacy services delivered by Barristers, and the Costs Lawyers Standards Board (CLSB) covers those lawyers whose clients are generally other lawyers. Others, such as the Chartered Institute of Legal Executives (CILEx) Regulation and the Solicitors Regulation Authority (SRA) regulate individuals and firms delivering a very wide range of legal services.

Tailored regulation for specialists in conveyancing and probate

The Council for Licensed Conveyancers (CLC) was established to drive innovation and greater choice for consumers of conveyancing services. Later, probate was added to the work that the CLC regulate.

Very importantly, CLC regulation is itself sufficient to access the conveyancing market, and there is no need to meet any additional requirements such as membership of the Law Society’s Conveyancing Quality Scheme (CQS). The CLC’s regulation and the regulated community’s specialisation deliver the confidence and security that clients and lenders expect.

The CLC is an outcomes-focused regulator and the practices it regulates can develop their own ways to deliver conveyancing and probate services that meet the regulatory requirements and develop thriving businesses that respond to their clients’ needs and preferences. As a regulator of specialists, they have a strong focus on the risks that are relevant to those specialisations and can concentrate on managing those, through similarly-focused regulatory work.

Close engagement and clear advice to maintain compliance

The CLC has developed a highly-effective model of regulation, aimed at preventing client harm rather than waiting for it to crystallise and then dealing with the consequences. 

This ‘managed compliance’ approach is tailored to the needs of specialist conveyancers and probate lawyers who are committed to delivering high quality legal advice and client service.

A key aspect of managed compliance is that the CLC maintains close engagement with each practice and provides a nominated contact in the form of a Regulatory Supervision Manager or Officer (RSM/RSO).

Firms can contact their RSM/RSO easily and they answer questions promptly and comprehensively. The CLC aims to provide clear guidance that gives you confidence to move forwards with your plans.

What’s the process for switching regulator?

It begins with a conversation with the CLC’s licensing team who will talk to you about what you want to achieve and explain the checks they will carry out. They will then work with you closely throughout the process to support you in developing your plan.

The CLC will need to be satisfied that you can meet their regulatory standards before they grant you a licence. There is of course an annual licence fee to pay, and you will need to secure Professional Indemnity Insurance that meets the CLC’s requirements.

There’s much more detail on the CLC website.

The CLC will be very happy to hear from you about moving your conveyancing or probate practice into CLC regulation. Contact [email protected] to start a conversation.

What are the ramifications for your Professional Indemnity (PI)?

Choosing the right model: Switch vs. Hive-Off

Conveyancing or probate practices transferring regulator may be ‘switching’, which means moving an entire conveyancing and/or probate business from one regulator to another, or ‘hiving-off’ which means taking the conveyancing or probate practice out of a wider business. When considering restructuring your legal practice and choosing between the "Switch" and "Hive-Off" models, early engagement with your broker is absolutely crucial. There's no universal solution, and the best approach depends on your firm's specific circumstances, the type of work you undertake, and your professional indemnity (PI) insurance arrangements. Navigating these complexities requires expert guidance, and your broker can help you assess the implications of each model for your practice.

It is worth noting that the traditional ‘Hive-Off’ model typically requires the firm to put in place some legal and operational separation between the SRA and CLC firms to comply with the different legal frameworks of each regulator. It’s best to speak with the CLC and your broker to discuss these requirements as they will also need to be taken into consideration when choosing your preferred model   

Hive-Off Model

The ‘Hive-Off’ model often presents a more straightforward transition from a PI perspective.  This is because the past liability of the practice typically remains with the existing regulated entity, or it can be transferred to your new CLC entity. This transfer is generally smoother as the firm's work is exclusively within the CLC's regulatory scope – primarily conveyancing, wills, and probate. However, despite a simpler PI process, entities must still satisfy CLC requirements and secure confirmation from insurers regarding assumption of past liability. 

Switch Model

The "Switch" model can be more complex, especially when the firm has handled legal work outside the CLC's regulation. This is where the PI challenges arise.

 Here's a breakdown of the potential scenarios and issues to consider:

• Transferring all non-regulated work: One option might seem to be to transfer all non-regulated work to the new CLC entity. However, this requires agreement from both the existing and new insurers, as well as the CLC. Securing such a tri-party agreement can be difficult, and will not always be possible to achieve.  Certain insurers will not agree to cover work outside their typical risk profile. The CLC is also hesitant because if the firm does transfer the liability and the insurer who agrees to cover the past liability withdraws from the market, it limits the options available to the firm going forwards.
• Splitting liability: A more common approach involves splitting the liability. The firm transfers the liability for CLC-regulated work to the new CLC entity and negotiates a run-off policy for the remaining work under the previous regulator. This split requires careful negotiation and a clear delineation of responsibilities.  It's crucial to understand what constitutes "run-off" cover and its limitations. 
• Insurer appetite: Crucially, not all insurers are willing to accommodate this split-liability scenario. Some may insist that all previous work, regardless of its regulatory status, falls under the run-off policy with the existing insurer. This can create significant challenges and potentially increase costs.

Should I transfer liability?

There are several factors that you need to consider when deciding whether to transfer the liability to your new CLC entity.

Potential pros of transferring liability

Simplified structure:  In some cases, transferring liability to the new CLC entity can create a cleaner division of responsibilities and potentially simplify the firm's operational structure going forward. This is more likely in the "Hive-Off" model where the work is already exclusively within the CLC's remit.

Clarity of responsibility:  Transferring liability can, in theory, provide greater clarity about which entity is responsible for specific past work. This can be beneficial for risk management and claims handling purposes.

Run-off considerations:  For SRA-regulated entities, run-off premiums vary by insurer but typically average around three times the final year's premium. If all past liability is transferred to the new insurer, then a run-off policy should not be required.

However, if the firm has non-CLC regulated work which is not transferred to the new insurer, then a run-off policy is still needed for the remaining work. In these cases, transferring the CLC-regulated work may reduce the overall cost of run-off cover, as the policy would then only need to cover the firm's previous non-CLC-regulated work.

Cons of transferring liability

Complexity: Transferring liability, particularly when dealing with mixed regulatory work, introduces significant complexity. Negotiating with multiple insurers and regulators can be time-consuming and challenging.

Claims: Firms transitioning to a new regulatory body often seek a 'fresh start,' perhaps due to new ownership or a renewed focus on business growth. However, transferring the liability for past work means the firm remains exposed to claims arising from activities conducted while insured under the previous regulator. This can be particularly significant for firms under new ownership, as their PI policy could be called upon to cover claims for work completed before they took ownership. This exposure to pre-acquisition liabilities can impact future premiums, potentially making them more costly.

PI Premiums: As the firm will have the liability following it, this often means that the firm will face a similar premium to that which it was paying whilst under SRA regulation. 

‘Hive-Off’ generally offers a simpler PI transition, especially for firms dealing exclusively with CLC-regulated work. "Switch," however, can introduce complexities, particularly when the firm has handled work outside the CLC's regulatory scope. These complexities stem from the challenges of transferring liability, securing insurer agreement, and managing potential run-off policies.

While transferring liability might simplify the firm's structure and potentially reduce run-off costs, it also introduces complexities in negotiations with insurers and regulators. Furthermore, it can expose the firm, especially under new ownership, to claims for past work, potentially impacting future PI premiums. Careful consideration of these trade-offs, along with expert guidance, is essential.

Finally, there are a few minor differences between the SRA and CLC policy wordings to consider. You should speak to your broker about these differences, but the key distinction concerns run-off cover: SRA firms have a £2m or £3m limit of indemnity per claim, while the CLC provides £2m cover for the entire six-year period

If you have any questions regarding this article, please get in touch.