The Scottish Law Agents Society have warned the profession that under plans being considered by Community Safety Minister Fergus Ewing, licensed legal services providers under the legal services bill will be able to “utilise” the solicitors’ guarantee fund without themselves being members or paying into it.

The Law Agents warn that such a proposal will extend to large new firms employing only one solicitor, and may threaten the survival of the guarantee fund principle.

The Law Agents ask if it is “fair that solicitors should be asked to underwrite the dishonesty of non solicitors in LLSPs who compete with them but have no practising certificate?”

“It does not have quite the same ring as "STOP, THIEF!" but this is because the Scottish Government has proposed to utilise and not to steal the Guarantee Fund,” the agents said in a statement.

“In a letter by Fergus Ewing, ironically, to the Justice Committee of the Scottish Parliament, the author addresses the problem of how to protect the customers of the newly proposed Licensed Legal Services Providers (LLSPs) which customers will include members of the public receiving an almost unlimited range of services including estate agency, insurance advice, accountancy services, surveys, not to mention the particularly hazardous financial services etc but whose providers will qualify as Legal Service Providers as long as they employ a single solicitor. Mr Ewing's conclusion is that this can only be achieved if the legislation were to "utilise the Guarantee Fund" so that the customers of anyone providing services through an LLSP will receive the same protection as is presently enjoyed by clients of traditional legal practices (that is, solicitors).

“While under the Guarantee Fund, as it presently so successfully operates, self employed solicitors in private practice guarantee to make good any loss sustained by a client as a result of dishonesty for which another practising solicitor is responsible. The practitioners whom we guarantee are known to us to have undertaken higher education in the law, extensive practical training and supervised experience and to have been considered and passed as fit to enter the legal profession over a period that can hardly be less than seven years and is likely to be longer. These same people are subject to all the solicitors’ practice rules, including the demanding Accounts Rules and also to regular inspection and report and to draconian discipline and even to loss of the right to practise if found wanting. As a result, the public tend to trust the legal profession with its money.

“However, none of these safeguards would operate in relation to the Guarantee Fund once it has been “utilised” by the Scottish Government. The terms of Mr Ewing’s letter are shown below and members are invited to consider the probable effects of these measures. Would they operate an effective Guarantee Fund in the public interest? ? Would the Guarantee Fund be likely to survive? Is it fair that solicitors should be asked to underwrite the dishonesty of non solicitors in LLSPs who compete with them but have no practising certificate?

“Would members impart their wisdom to the Minister and to the Chairman of the Justice Committee of the Scottish Parliament with a copy to SLAS. The measures would effectively annex without compensation a fund of about £4 million into which many of us have been contributing for many years and , where only a tiny number of us have been or will ever be responsible for claims.

“Time is short because the terms of Fergus Ewing's letter are already reflected in Section 91 of the Legal Services Bill”.

The letter from Fergus Ewing is copied below.

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Justice Committee
Legal Services (Scotland) Bill
Letter from the Minister for Community Safety to the Convener

During the Stage 2 sessions, I made a number of commitments to give certain matters further consideration before Stage 3, and to meet with Committee members where appropriate. I thought it might be useful to set out the various issues which I will be considering over the summer, along with my current position. I am happy to meet with any members who may wish to discuss these, or other, matters relating to the Bill.

Automatic suspension of practising certificate

Amendments 359 to 361, which were proposed by the Law Society of Scotland (“the Society”) provide that a solicitor’s practising certificate must be automatically suspended under certain conditions. As I set out on 22 June, I consider this to be a substantial policy change with significant implications for the profession, and so I welcomed your decision not to move the amendments. However, I am willing to consider any evidence that such amendments are necessary, and this will be discussed with the Society before Stage 3. I will then update the Committee.

Compensation fund for licensed providers

As I have made clear, I believe that the only viable option to provide robust protection against fraud for clients of licensed providers, as is enjoyed by clients of traditional practices, is to utilise the Guarantee Fund. (SLAS italics) I welcome the Committee’s approval of my amendments to permit the use of the Guarantee Fund by all licensed providers, but do understand the concerns raised by the Society. I will discuss this in detail with the Society in advance of Stage 3, and am confident that a satisfactory agreement can be reached which will ensure that the protection of the Guarantee Fund extends to clients of all licensed providers. I will, of course, keep the Committee informed of progess on this vital issue.

Regulation of claims management companies

As I stated on 8 June, I am willing to consider any evidence of problems with claims managements companies, and to discuss whether any action needs to be taken. However, although I am not against regulation of claims management companies in principle, I suspect that introducing such regulation in this Bill would be difficult.

Annual reports to Parliament

Robert Brown withdrew amendment 286, which would require Scottish Ministers to report annually to the Scottish Parliament any influence that the existence of approved regulators and licensed providers was having on competition and the quality of legal services in the market, in favour of my amendment 32. He did this on the understanding that we would have further discussions about the detailed operation of the annual review and reporting process which approved regulators will be required to undergo. I maintain that amendment 32, in conjunction with the rest of the regulatory scheme, does satisfy Mr. Brown’s concerns, but I am happy to discuss this matter
further with him and will report back to the Committee in due course.

Designated persons and suitability to be an outside investor

On 22 June, Robert Brown agreed to not move his amendments 330 and 110A, but suggested that further discussions were necessary in relation to designated persons and the suitability of outside investors. I am happy to meet with Mr. Brown to discuss these issues, and to report back to the Committee.

Internet provision of will writing services

During the debate on the regulation of will writing services on 22 June, Robert
Brown and Stewart Maxwell raised some questions about how the new regulatory regime will cope with firms offering will writing services over the internet, and whether discussions with the UK Government will be required. As I stated at the time, anyone offering will writing services in Scotland will require to be regulated, and I believe that the provisions we have proposed will be sufficient regardless of exactly how such services are offered. However, I am happy to look at this again, to ensure that there are no loopholes which might be exploited. I also think it would be useful to discuss this issue, and the regulation of will writing in general, with the UK Government, not least because Scotland will be the first part of the UK to implement such regulation.

Branding issues

There was some discussion of the “branding” of licensed providers on 22
June, in relation to my amendment 72 and Robert Brown’s amendment 365. As Mr. Brown pointed out, the key issue is to determine exactly how wide any provision about branding should be. I consider that the main concern is around the use of the term “solicitor”, which is why my amendment 72 prevents licensed providers from using this term unless authorised by the Law Society. However, I do appreciate concerns which have been raised about the lack of protection for other terms, such as “lawyer”, and around ensuring that licensed providers do not brand themselves in a way which is misleading to consumers. While I suspect that it may be difficult to resolve this issue entirely before Stage 3, I do intend to discuss this further with the Law Society, and will report back to the Committee in due course.

Further cap on the Guarantee Fund

On 22 June, Robert Brown mentioned the Law Society suggestion of an annual cap on the Guarantee Fund, in addition to a per claim cap (as introduced by my amendment 212). While such an amendment has not been lodged, I am aware of the proposal. As I stated to the Committee, I share Mr. Brown’s concerns about such a cap. Whether or not an individual receives compensation for fraud carried out by a solicitor should be determined solely by the merits of the case, not by the amount of money which has already been paid out of the Guarantee Fund that year. However, I will be discussing
this matter further with the Law Society, and am happy to keep the Committee informed of any developments.

Safeguarding interests of clients

Amendment 367, in your name, sought to give the Council of the Law Society, instead of the Court of Session, the power to prevent any payment being made out of a solicitor’s account in the event that the solicitor in question has ceased to practice and the Council is not satisfied that they have made all relevant documents and money available to clients. I have some concerns about such a change, and do not think it appropriate without further consideration of the implications. I therefore welcomed your decision to withdraw this amendment on 29 June. However, as I stated to the
Committee, I am happy to discuss this with the Law Society, and to consider whether there is a legitimate issue to be addressed. Again, I will report back to the Committee following these discussions.

Law Society subscriptions and funding

Amendments 368 and 369, in your name, would have allowed entity level charging by the Law Society, and charging for specific services. Although I resisted these amendments, and welcomed your decision to respectively withdraw and not move them, I do think this issue is worthy of consideration. I am attracted to the idea of allowing some measure of differential charging by the Law Society, but I think that further discussion and consideration of the impact on the profession is necessary. Therefore, I will pursue this with the Law Society over the summer, and will report back to the Committee in due course.

Scottish Solicitors’ Discipline Tribunal

Amendments 374 and 375, in your name, related to the operation of the Scottish Solicitors’ Discipline Tribunal. I maintain that these amendments are unnecessary, and the Law Society has so far not provided any evidence to the contrary. I therefore welcomed your decision to respectively withdraw and not move them, but will have further discussions with the Law Society to determine if any real issues exist, and will keep the Committee informed.

As far as I am aware, these are all the issues on which I committed to providing information to the Committee, or to discussing further. I am happy to meet with any members who wish to discuss these or other matters in advance of Stage 3 and, as I have said, I will report back to the Committee in due course.

I hope this has been helpful.

Fergus Ewing MSP

Minister for Community Safety