Hansard

There have been calls from all quarters, including the committee, for the bill to contain compensation arrangements for those who receive legal services from a licensed provider and who suffer loss because of dishonesty within that provider. The consensus is that a person who suffers such loss should have recourse to the same level of compensation arrangements as are provided for by the guarantee fund. I agree that there should be such equality of protection for clients of licensed providers. As I recall, I said that when I gave evidence at stage 1.In the Legal Services Act 2007—the equivalent legislation in England and Wales—approved regulators must have a compensation arrangement whereby grants or other payments are to be provided in cases of fraud. However, I understand that it is not yet clear whether implementation of that will provide clients of licensed bodies there with equivalent protection to that of clients of traditional firms.I considered a number of options, including insurance cover and loans. However, it is not possible to take out insurance cover against one’s own fraud, and it might be difficult for approved regulators to afford loans equivalent to the amount in the guarantee fund, especially if they regulate only a small number of licensed providers. Nevertheless, approved regulators will be able to set up their own funds if they choose to do so. Amendments 261 and 268, in the name of Robert Brown, provide for practice rules to ensure that licensed providers are responsible for compensation arrangements.Given the difficulties that approved regulators are likely to face in finding resources to set up equivalents to the guarantee fund, I consider that it would be almost impossible for a single entity to do so. Therefore, it is clear to me that in order to ensure that consumers who use licensed providers have the same protection as those who use traditional firms, provision must be made to ensure that they can also be covered by the existing guarantee fund.The guarantee fund is a statutory fund that stands alone and does not form part of the administrative costs of the Law Society of Scotland. Persons providing legal services, such as incorporated practices and principals in solicitor firms, must pay into it. It is administered by the Law Society—that will not change.I consider that allowing licensed providers to use the guarantee fund will reinforce the fund. It will increase payments to the fund by entities that, in my view, pose little risk. It may even lead to reduced payments for incorporated practices and principals in solicitor firms, although that is obviously a matter for the Law Society.A call has been made for equality of protection. Using the same fund and the same rules for claims and grants will ensure parity of protection in a way that no other option can. Having considered the matter, I have lodged amendments that will ensure that those who suffer loss owing to fraud in a licensed provider will have parity of protection with those who suffer loss owing to fraud in a traditional solicitor practice or an incorporated practice.I turn now to the individual amendments. Amendment 169 requires approved regulators’ regulatory schemes to contain compensation rules. Amendment 170 requires all approved regulators to have arrangements in place to compensate the clients of licensed providers in the event of fraud. There is a choice for approved regulators in how they achieve that. If an approved regulator is able to set up its own fund, it may do so. Such a fund must be held for the same purpose and must be administered on the same basis as the guarantee fund. Alternatively, the approved regulator may cause the guarantee fund to be administered as respects its licensed providers.Amendment 171 provides that the compensation rules for an approved regulator that chooses to administer its own fund must state the purpose of the fund and the minimum monetary amount to be contained within it. The compensation rules must also set out how the fund is to be administered, the criteria for qualifying for payment out of the fund, the procedure for making such payments and determining claims, the scale of the contributions into the fund and provision for its destination or distribution, should the approved regulator cease to act.An approved regulator that decides to use the guarantee fund must make rules about contributions to the fund, which must be consistent with the scale of contributions for incorporated practices as is referred to in schedule 3 to the Solicitors (Scotland) Act 1980.Amendment 171A, in the name of Robert Brown, amends amendment 171 in respect of an approved regulator that decides to use the guarantee fund. It provides that, in such a case, the compensation rules that are made by the approved regulator relating to the contributions that are to be made by the licensed providers to the guarantee fund must be approved by the council of the Law Society of Scotland, after the fairness of the arrangements is confirmed by an actuary. I do not support that amendment.As I have mentioned, amendment 171 provides that compensation rules must require the making of contributions into the fund, which must be consistent with the scale for incorporated practices, as set by the council of the Law Society. Approved regulators would be bound by that amount, so there is no need for the Law Society to approve the compensation rules. It should be remembered that the compensation rules that will form part of the approved regulator’s application will be subject to approval by the Scottish ministers following consultation with, among others, the Lord President.Amendment 172 has the effect of, first, allowing approved regulators to make further compensation arrangements should that be considered necessary or expedient; and, secondly, allowing the Scottish ministers to make further provision by regulations, should that be considered necessary.Amendment 210 amends section 43 of the 1980 act, which makes provision for the guarantee fund. The amendment allows the guarantee fund to be used in respect of the clients of licensed providers where the approved regulator has chosen not to maintain a compensation fund of its own, and regardless of whether or not it is regulated by the Law Society.Amendment 211 amends schedule 3 to the 1980 act, which makes further provision for the guarantee fund. The amendment will ensure that licensed providers who are covered by the guarantee fund contribute to the fund according to the same entity-based model as applies to incorporated practices.I move amendment 169, and I invite Robert Brown not to move his amendments.