Hansard

I very much welcome the convener’s statements that there must be a guarantee fund. That principle is plainly accepted; I reached it at the very first meeting that I had about the bill. I undertook during stage 1, when giving evidence and in my speech in the chamber, that there must be a guarantee fund. There must be protection for the public against fraud by LSPs, as there is for solicitors. We all support that principle.Amendments 210A, 210B and 211A, in the name of the convener, seek to limit the use of the guarantee fund to licensed providers that are regulated by the Law Society of Scotland, whereas my amendment 210 would allow all licensed providers to use the fund.There is agreement among the committee, and among most other bodies of people whom I have consulted, that people who suffer pecuniary loss as a result of fraud while receiving legal services from a licensed provider should have recourse to the same level of compensation arrangements as are provided for by the guarantee fund.The convener indicated that the guarantee fund is the only practical option. We reached that conclusion, as I indicated last week, after considering the alternatives. It is worth repeating that the guarantee fund is a statutory fund. It does not belong to the Law Society—it was set up under statute and is administered by the Law Society. It is a standalone fund. Were the Law Society to be required to set up a new fund, it would find it as difficult as anyone else. So, too, would accountants. Setting up a multimillion-pound fund to guarantee against fraud is an extremely costly business. That is why the guarantee fund is the only practical option.There is great force behind the proposition that allowing licensed providers to use the guarantee fund would pose little risk, partly because of the size of the firms that are likely to become licensed providers and the historically low number of claims against such firms. That would bring with it the happy result that the guarantee fund would be in receipt of more contributions—firms would be required to pay into the fund but would not be subject to outgoings in claims against the fund. In other words, the use of the fund has potential benefits. Indeed, the record clearly shows that. Since last week, when I said that I was not certain about the matter, I have looked into it, and the record of claims shows that they tend to involve smaller firms—sadly. There are, therefore, potential benefits from having the guarantee fund.It has even been suggested that there could be a substantial reduction in the levy of the guarantee fund, taking into account the developments that we are discussing, as well as the pattern of claims over the past couple of years and the size of the fund. That could be beneficial to the generality of solicitors. It should be noted that the guarantee fund covers all solicitors and will continue to do so, whether or not amendments are made to extend cover to licensed providers.12:15 I appreciate the concerns that have been expressed and make clear that this is the most important unresolved issue. We are in detailed discussion with the Law Society about the matter and have made our views clear to it. We do not think that other regulators would be able to establish a new fund. Were that a requirement, it is unlikely that there would be any other regulators. I appreciate that there are concerns about the matter and will endeavour to establish an agreed approach to the use of the guarantee fund in advance of stage 3.The Law Society administers the fund, so it has the controls that arise from that. The society deals with claims and considers them carefully; it will continue to do so, no matter where claims come from. As matters rest, the society will have that element of control, as a watchdog and administrator, to ensure that no improper or invalid claims are accepted. As long as it has that responsibility, it will seek to continue to discharge it.Following the convener’s remarks, I am happy to consider additional provisions to provide the Law Society with additional comfort on the matter. For example, it may be possible to confer limited monitoring functions on the society, so that it can ascertain whether everything possible is being done to prevent claims on the guarantee fund by licensed providers that it does not regulate. That could be the subject not only of further discussion but of amendments at stage 3. I hope that that is helpful to members.Having addressed the most important amendments in the group, I turn to those that remain. Amendments 364, 366 and 370, along with various other suggested amendments to the Solicitors (Scotland) Act 1980, were proposed to me by the Law Society of Scotland some time ago. The society described them as necessary technical amendments. Accordingly, I gave assurances that any changes to the 1980 act would be technical in nature and limited to those that we considered to be necessary. However, amendments 364, 366 and 370 are not simply technical amendments—they represent a significant change of policy. The Law Society has not supplied evidence to indicate that there is a problem with the provisions of the 1980 act as it stands. I am not aware of any consultation on these matters within or outwith the legal profession.Amendment 364, in the name of Bill Aitken, would insert amendments into paragraph 1 of part 1 of schedule 3 to the 1980 act. The effect of the amendment would be to allow the Law Society to collect contributions to the guarantee fund at an entity level, rather than from individual partners in solicitors firms and sole practitioners. To some extent, that would be a move away from individual regulation to entity regulation. At present, all principals in a solicitor firm, including sole practitioners, pay into the guarantee fund as individuals. I am not aware of any difficulties with the arrangement, or of any consultation that has taken place on the proposed changes.I have said all along that those firms that wish to remain as traditional practices will be unaffected by the bill, which is permissive in nature. Amendment 364 would affect such practices, regardless of whether they chose to adopt new business structures. I oppose the amendment on the ground that it involves a significant change of policy that has not been consulted on and which would affect those solicitors who chose to remain in traditional practices.Amendment 366, in the name of Bill Aitken, would amend section 43 of the 1980 act so that the purpose of the guarantee fund would be to make grants to compensate not only persons who had suffered loss owing to dishonesty, but those who were “likely to suffer loss”. Amendment 370, in the name of Bill Aitken, would amend part 1 of schedule 3 to the 1980 act by asserting new paragraph 4A, which would allow the council to“make loans from the Guarantee Fund to judicial factors appointed by the court on the petition of the Council.”The amendments would change fundamentally the purpose of the guarantee fund. The 1980 act states that the fund is“for the purpose of making grants in order to compensate persons who in the opinion of the Council suffer pecuniary loss by reason of dishonesty on the part of”solicitors. In other words, we are talking about fraud and the purpose of the fund is to provide compensation for fraud, not to grant loans that might not be paid back. The effect of the two amendments would be to allow the council to make loans to judicial factors for investigating breaches of the accounts rules and to make grants to those who are “likely to suffer loss”. That is absolutely not the purpose of the guarantee fund. It does not compensate for negligence on the part of a solicitor or fund the investigation of accounts rules breaches, and it is not for instances of possible fraud. Its sole purpose is to compensate those who have had the misfortune to be the victims of actual fraud.For those reasons and because the amendments represent a fundamental change of policy, I cannot support them. I invite the convener to withdraw amendment 210A and not to move his other amendments.