Hayhoe: No compelling evidence to support curbing compensation fund
The Solicitors Regulation Authority (SRA) should be “bolder” in its approach to third-party managed accounts (TPMAs), the chair of the Legal Services Consumer Panel has argued.
Tom Hayhoe also said it was “not acceptable” for the SRA to put restrictions on its compensation fund “when the risk can be completely or significantly removed if solicitors are precluded from holding client money”.
Mr Hayhoe said the panel had “always been supportive” of the use of TPMAs to process and manage payments and transactions.
“This idea has been explored by the SRA in previous years, and we have responded positively to these consultations.
“We think the time is right for the SRA to be bolder in its consideration of this idea, and at the very least, make a transparent decision with a clear rationale for its position.”
Mr Hayhoe said that otherwise the option of using TPMAs only reappeared “whenever there is a problem or crisis under consideration”.
He was responding on behalf of the panel to the SRA’s discussion paper on consumer protection, launched in February, which set out a range of options, including either reducing or ending both solicitors holding client money and the compensation fund.
Mr Hayhoe said the panel “agrees with all the arguments for TPMA” and was “convinced that TPMAs will eliminate or drastically reduce the occurrence of theft”.
However, he said that for them to work in the interest of consumers, “certain principles” must be adhered to.
These included independence of the third party from the transacting party and transparency of status and ownership of the third party, which must be regulated by the Payment Services Regulator under the umbrella of the Financial Conduct Authority.
TPMAs “need not be a one-size-fits-all approach for all types of firms or authorised persons” and there could be some form of risk assessment that identified which firms or practitioners should be “precluded from holding clients’ money”.
Mr Hayhoe said the panel should “focus heavily on the first part of its review around the effectiveness of its current processes and policies”; until it could “clearly demonstrate” that preventative measures such as TPMAs minimised or eliminated the risks of theft, it was “unacceptable” for the SRA to reduce the scope of the compensation fund.
The SRA was “yet to present any compelling evidence” for a reduction in the fund’s scope.
He went on: “It is not acceptable for the SRA to alter the compensation fund arrangement to the detriment of consumers, when the risk can be completely or significantly removed if solicitors are precluded from holding client money.”
On monitoring and supervision, Mr Hayhoe said “multiple scandals” had highlighted deficiencies in the SRA’s supervisory and monitoring activities and the panel had emphasised that “there must be elements of external scrutiny and benchmarking with other regulators (outside legal services)” to inform a comprehensive review.
“This is the minimum that the panel would expect to see from a regulator who is serious about tackling what is now evidently systemic failures.”
Mr Hayhoe added that the discussion paper suffered from the “reoccurring problem” of “inadequate information” provided by the SRA.
“There is little detail on its authorisation, monitoring and supervision processes. There is no information about the finer details of the compensation fund either.”
The panel “expected less information” from a discussion paper, but “even for a discussion paper, the data and evidence provided does not afford the panel with enough insight for meaningful engagement”.
Leave a Comment