The Compliance Year Ahead

Following on from our review of the October PII renewal season, we wanted to share some thoughts on what 2021 might bring for sole practitioners. Firstly, with the help of one of our risk managers, Amy Bell, we will be providing some strategy guidance in regard to your compliance plans for the year ahead. While we do not have a crystal ball to predict the future, we will also do our best to provide an overarching view of what the next few months may hold for the insurance market.

The disruption caused by Covid-19 has meant compliance plans being pushed back for the majority of practices, who have naturally focussed on maintaining financial stability throughout the pandemic. Going forward into this year, it is important for practices to reprioritise compliance plans, putting into action any items that were delayed from 2020.

At the end of last year, the long-awaited Brexit deal was finally announced. While this will only impact a small number of practices, it is important to note that the registered European Lawyer (REL) regime has now ended, with the exception of Swiss lawyers. Everyone will now become a registered foreign lawyer (RFL), unless they have opted out. If you have solicitors working with you, it is worth ensuring that your staff are on top of this.

The Legal Sector Affinity Group is expected to publish new AML guidance this year with some significant changes anticipated. We would recommend reviewing your policies and procedures, while also ensuring adequate training is arranged. As we head towards the end of the first quarter, financial crime must be seriously considered for all, but in particular for those undertaking conveyance. With the stamp duty holiday deadline looming, fraudsters will be anticipating a higher number of transactions than usual which they will no doubt look to exploit – so be vigilant.

Throughout the summer, you should ensure that your website, if you have one, is updated in line with transparency rules. Ensure that staff, fee rates and timescales are updated to reflect the current position. Do not promote something on your website that you do not do, or do not intend on doing. PII underwriters will look at your website, and cross-reference this with your presentation, and any discrepancies will be viewed dimly. In the best circumstances, questions will be raised. More commonly, insurers will simply decline to offer terms on the basis of non-disclosure. responses from some third parties. We would recommend undertaking an annual review of your policies and procedures with regards the SRA standards and regulations from two years ago.

Finally, Amy Bell has provided a list of issues which should be covered in your risk register, which would be ideal to review in the latter stages of 2021, including: • Covid-19 impact • Complaints and claims, identified trends from file audits, and supervision • BCP review • The year ahead: What are your audit and training plans?

Lockton client toolkit We have previously communicated many policy enhancements for sole practitioner clients that we negotiated from insurers. However, we always considered our approach to be consultative in nature and have therefore put together a client toolkit.

The toolkit has been developed in partnership with Teal Compliance, who are specialists in law firm compliance, to help our clients employ bestpractice risk management solutions.

Divided into relevant topics, the toolkit covers the following issues and will evolve over the coming months: • Main causes of claims • Managing compliance • Financial crime • Data protection

While this is exclusively available to clients of Lockton through the unique client portal, please speak with your Lockton representative if you have any questions on it. I’m sure they will welcome the opportunity to discuss further.

Gazing in to the crystal ball In general, sole practitioners were perhaps more Covid-ready than many larger organisations, and have coped better with the working from home mandate. In light of this, I would hope that the fee growth trend we identified for sole practitioners in 2020 continues into 2021, whereby fee growth in percentage terms continues to outperform other size segments of the legal profession.

Turning to Insurance, it has been well documented in both the insurance and legal press that the market is hardening. We expect this trend to continue throughout 2021. Conveyancers will experience greater scrutiny over their management of what is expected to be a very busy first quarter of the year, with the onus expected to fall on each firm to evidence their reaction to increased workloads. Severity of claims has increased, so those undertaking what is perceived as ‘higher-risk’ or even ‘higher-value’ work are likely to experience greater scrutiny.

For sole practitioners, the future may not be as bleak as it seems. You remain attractive to insurers, with a small number identifying SPs as an area for growth, but at the same time, we urge you not to be complacent. Our advice to all firms is to start the process earlier than you ever have done, invest more time than ever in the renewal process, select your representative carefully (engaging with them early), and evidence (through a covering letter to accompany your proposal form) your attitude towards risk management.

Despite the global uncertainly, 2020 saw a rise in new start up sole practitioner enquiries, perhaps as result of the challenges experienced by solicitors at larger practices. We expect more solicitors to consider becoming sole practitioners or freelance sole practitioners in the year ahead.

We do not envisage that commencing life as a freelancer will become any easier in 2021. There is very limited appetite from the market compared to the number of insurers (12 or more depending on your risk profile) for traditional sole practitioners. Until we see improved engagement with the regulator, who may currently have other priorities, we expect no immediate change to this situation.

It may not happen in 2021, but we do expect that cyber insurance cover will be excluded under the SRA’s minimum terms and conditions sometime in the not so distant future. This will almost certainly be the case for any first party coverage that may currently be inadvertently provided. If you can, it might be wise to look at either enhancing your existing coverage, or obtaining a separate cyber policy so that you can appropriately budget for this eventuality.

If you would like us to expand on any of the above or for further assistance with your PII renewal then please speak to any of the Lockton team who will happily help.

Best wishes and stay safe.

Danny Seaman Lockton Solicitors solicitors@uk.lockton.com 0330 123 3870