Part 2(F) Client Protection Fund
The Client Protection Fund (CPF) is the operating name of the Scottish Solicitors' Guarantee Fund and is a statutory Fund to "make grants in order to compensate persons who suffer a pecuniary loss by reason of dishonesty" on the part of a solicitor, an employee of a solicitor, a registered foreign lawyer or a conveyancing/ executory partner or employee. It is a fund of last resort and in most cases will only compensate those who have exhausted all other options to recover their losses, including through civil proceedings. The Fund is paid for entirely by solicitor firms without the use of taxpayer money from government.
The Roberton Report suggested that the future operation of the Client Protection Fund should be transferred from the Law Society of Scotland to the recommended new independent regulator. Therefore, the consultation document sought feedback on the fund and any suggested changes that might be needed to it.
Q29. To what extent do you agree or disagree that the Client Protection Fund works well?
Of those who indicated their level of agreement, over three quarters (79%, n=62) agreed that the Client Protection Fund (CPF) worked well, compared to 21% (n=17) who disagreed.
The Law Society for Scotland provided an answer for many when it said:
"[The CPF] is a level of consumer protection of which we are immensely proud and has, over the past 10 years alone, paid around £6 million to help 480 consumers of legal services who might otherwise have faced undue hardship through the rare but serious dishonest actions of a solicitor… It is a significant consumer protection… and with the Society's Master Policy provides a safety net of protection unequalled within UK legal services." (Organisation, Professional Body, Law Society of Scotland)
Besides offering consumer protection, respondents felt that it regulated client monies and focused on financial dishonesty. There were, however, mixed reactions as to whether it should be regulated by an independent body or remain under the auspices of the Law Society of Scotland. One individual noted, in favour of the status quo that:
"This is a matter which must be left entirely to the legal profession i.e. to the individuals whose contributions constitute the fund through the offices of the professional body and under supervision of the Lord President." (Individual)
A further respondent commented that independence was not undermined by being regulated by the profession itself:
"The fund is administered by a sub-committee of the Regulatory Committee of the Law Society of Scotland and… 50% of that sub-committee are lay members who are not part of the legal profession, suggesting that there is ample opportunity for consumer interests to be represented through lay involvement… [which] also helps to ensure that consumers are protected." (Organisation, Legal Service Provider)
However, whilst supporting the status quo, several suggested that the CPF required greater transparency and should have similar considerations to those of the Master Policy professional indemnity arrangements. This latter issue was raised more by those who disagreed that the CPF works well currently. One commented that the CPF should be treated as an insurance risk, alongside the Master Policy:
"Abolish this [CPF] fund which is an open-ended discretionary fund and replace it with a power to the new Regulator to recover from the personal assets of the solicitors in the firm involved. This is an insurable risk. Why not cover it with insurance?" (Individual)
A few voiced concerns over perceptions that the CPF was underutilised and potentially offered too little too late, with clients losing out in their attempts at redress:
"[We are] aware that there are some circumstances in which clients have struggled to achieve redress. For example, where former firms no longer exist, or where fee rebates awarded by the SLCC have not been able to be recovered. [We] would wish to see a system where all redress awarded is capable of being obtained… where firms no longer exist, practitioners are bankrupt or deceased and so on. This is essential for maintaining consumer confidence in any complaints system… we believe it is essential that this scheme, together with the Master Policy, provides wrap-around protection to consumers." (Consumer Organisation, Public Body/Sector)
In terms of the burden on solicitors to pay into the Fund, one respondent argued for payments to be made proportionate to salary:
"At the moment, all solicitors pay the same… Why should a legal aid lawyer earning £26,000 have to pay the same as a corporate lawyer earning £120,000?" (Organisation, Legal Service Provider)
Q30. What, if any, changes should be made to the Fund?
Whilst several respondents felt that the system worked well currently and needed no changes, (and bearing in mind the changes suggested above in answer to Q29), several respondents argued for a tightening of the limit of an award to remain at £1 million per claim. A few respondents argued for awards to be increased and others that the administering of rewards needed to be speeded up. The 1980 Act was deemed to be restrictive on awarding consumers monetary losses, and the Law Society of Scotland suggested there needed to be greater flexibility in legislation whilst moving to limit numbers of claims so as not to exhaust the fund:
"There is currently no limit on the number of claims that can be made by a single claimant on the same solicitor. This poses the potential risk of the fund being exhausted by an institutional or corporate claimant, for example a lender, to the possible detriment of other claimants, such as the individual consumer. Likewise, there is currently no value limit on claims against one solicitor by multiple claimants; again, this poses the risk of exhausting the fund. To ensure that the CPF continues to be fit for purpose and reflective of the policy intent behind its creation, any new permissive legislative framework must provide greater flexibility in its operation." (Organisation, Professional Body, Law Society of Scotland)
Finally, one respondent suggested doing a renewal risk assessment of professional legal service providers every five years, and another that the Fund should help compensate clients for incompetence, administrative failures or sudden death of a professional, as well as for monetary loss.
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