Post Six Year Run-Off Cover (PSYROC) – An Update
09 May 2022
The SRA has heard us……but we need to keep turning up the volume.
Since 2007 PSYROC has provided protection for clients of around 9000 law firms that have closed with no successor practice in place and reached the end of their 6-year run-off cover.
In March 2022 the SRA announced that it would extend PSYROC until 30 September 2023. This is the fourth extension of PSYROC, which was originally due to cease on 30 September 2017.
The extension was announced following the SRA’s consultation on PSYROC arrangements which ran from 23 November 2021 to 15 February 2022. The SRA received 333 formal responses. This is a high response rate in comparison to other PII-related consultations. For example:
- 2020 consultation on “Prioritising Payments from the Compensation Fund” – 15 responses
- 2021 consultation on “Professional Indemnity Insurance: Affirmative Cyber Cover in PII Policies” – 31 responses
At Howden we have always maintained that numbers are important when it comes to consultations and we published Howden’s consultation response ahead of the deadline in order to encourage and assist others to respond. There is no doubt that the volume and force of the responses received have caused the SRA to go back to the drawing board and reconsider this issue. Their summary of the consultation, including quotes from many of those who responded, demonstrates the level of concern and the depth of feeling regarding this issue. It is available here and is well worth reading.
The decision of the SRA Board and their next steps is succinctly summarised in this extract from their response:
The Board recognised the strength of feedback that consumer protection in this area should not be removed, but still had serious concerns that the current costs of running the SIF are higher than they should be for the benefit delivered. The Board has not made a decision on the future of PSYROC at this stage, but has asked for further policy work to be done to assess what level of protection is appropriate for those consumers who are most impacted by problems that come to light long after a firm closes, and whether there are options for providing consumer protection in a more proportionate way. These potential options may include:
ongoing PSYROC through the SIF, exploring funding arrangements and modifications to the existing model to reduce operating costs and overall costs
alternative arrangements for a new consumer protection fund, or a modification to the SRA Compensation Fund, to provide compensation to consumers for loss that arises more than six years after a firm closes with no successor.
In a subsequent stakeholder meeting the SRA further confirmed that they have ruled out the option of an open market solution. In our view that is a sensible position to take. We have commented previously, and in our consultation response, on the difficulties and limitations that would be involved with such a solution. The SRA have also confirmed that they will be working closely with stakeholders and the Law Society to explore options. They propose to report to the SRA Board before the end of the summer on this work and if any new arrangement is proposed then the detail of that will be the subject of a further consultation.
What you should do now?
Stay tuned to this debate. The profession and other stakeholders such as Howden should continue to engage with the SRA. It is important that the momentum on this issue is maintained and proposals are identified. Howden will continue to participate in an SRA stakeholder group on this issue and we certainly plan to respond to any further consultation.
And for those who think that this issue is not relevant to them……we encourage you to think again.
Don’t be too quick to dismiss this issue on the basis that you are years away from retirement and it does not affect you. Time flies by, and if you want to close your practice at some point in the future and cannot find a successor to assume responsibility for future claims, then having cover at the end of your 6-year run-off period will be an important issue. Those who are sole practitioners and principals in traditional partnerships will be personally liable for claims. While LLPs and other incorporated practices have the benefit of limited liability, there nonetheless remains the risk of a claim against an individual (principal or employee) based on negligence. It does not happen often – but it can happen.
We also encourage those in large firms to participate in this debate. History tells us that large firms are not immune to failure and where a successor isn’t found, or a merger partner insists that elective run-off is purchased, then the absence of PSYROC will be relevant.
Another concern could arise from a commercial perspective where a principal from a ceased practice is now a principal in a large firm. There could be financial stress and reputation issues for the individual in the event that there is a significant claim for which they have no cover. That could in turn impact the reputation of their current firm.
We also regularly see solicitors and principals from large firms establishing smaller, niche SRA-regulated practices as a step on the route to retirement. Once again, there will be no cover for those who take this option and cannot find a successor willing to take responsibility for claims when they eventually close the practice to retire.
This issue is highly important to all who presently enjoy the protection provided by PSYROC and all who are currently regulated by the SRA and may need to take advantage of PSYROC in future. Make sure your views are heard so that your financial protection may be maintained.
Written by Jenny Screech LLB (Hons)
Legal Consultant, Howden PII