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Yorkshire BS new rules will reduce home buyer choice

The Yorkshire Building Society Group will remove solicitors from its conveyancing panel unless they have indemnity insurance with a ‘rated’ insurer by 1st October. This new insurance requirement will also affect solicitors who now apply to join the Group’s conveyancing panel.

The Yorkshire Building Society Group is the second biggest in the country. Apart from the Yorkshire Building Society it includes such well-known names as the Chelsea, Norwich & Peterborough and Barnsley Building Societies. So any decision by such a major lender which will reduce the number of solicitors on its panel will impact on many buyers.

A ‘rated’ insurer is one which has obtained a rating from one of the various ratings agencies such as Moody’s or Standard & Poor’s.

While all solicitors must have Professional Indemnity Insurance (PII) there is at present no requirement for this to be obtained through a rated company. There are several insurers who offer PII cover but are not rated, and their premiums are generally lower than rated companies.

Many Solicitors will be removed from Yorkshire Group’s panel

The Yorkshire Group’s new requirements could lead to many solicitors’ firms being removed from its panel. Homebuyers obtaining a mortgage from one of the many Societies within the group may find that their preferred solicitor cannot also act in connection with the mortgage.

Mortgage lenders have to instruct solicitors to act for them in connection with the completion of a mortgage.

If a buyer’s solicitor is on the mortgage lender’s conveyancing panel then the solicitor can act for the lender as well as the buyer. This saves time and money on the conveyancing work.

Buyers’ choice of Solicitor will be reduced

But if the buyer’s preferred solicitor is not on the lender’s panel it means that the buyer must look for another solicitor who is on their panel – perhaps a firm that they do not know or who are more expensive.

Alternatively a second panel solicitor will have to act for the lender. But that means that the buyer will have to pay their costs in addition to his own. And this usually results in the conveyancing taking longer as all the paperwork has to be sent to the second solicitor.

Should all Solicitors be insured with a rated insurer?

This move by the Yorkshire Group comes at a time when a debate is going on as to whether all solicitors should be required to obtain their Professional Indemnity Insurance  cover from an insurer with a satisfactory rating from a rating agency.

Most of us are familiar with news stories about countries losing their triple A credit ratings. But the agencies which give these ratings, such as Standard & Poor’s, Moody’s and Fitch,  also give ratings to many other financial institutions, including insurers.

However these ratings are not given unless a company applies to a ratings agency. Such an application will cost a substantial amount. Such costs will result in higher premiums which will ultimately inevitably be passed on to clients.

Insurance companies are not obliged to obtain any such ratings, and solicitor are not at present required to obtain PII insurance from a rated company.

All solicitors must have PII cover, but can choose from any company classed as a ‘Participating Insurer’ under the Solicitors Regulation Authority (SRA) indemnity insurance rules.

‘Participating Insurers’ have to be authorised to offer the relevant insurance contracts either by the Prudential Regulation Authority (PRA) or the equivalent regulator in another EEA Member State under “passporting” arrangements.

They also have to have signed a Participating Insurer’s Agreement under which the insurer agrees to offer policies which meet the minimum terms and conditions set out in the SRA indemnity insurance Rules.

The SRA had recently proposed that these existing rules should be amended. They wanted solicitors to have to obtain PII insurance from a ‘rated’ insurer, that is one which has been given a minimum B rating by at least one of the major ratings agencies.

Rating is no guarantee for a solicitor’s clients

Insurance companies have to pay substantial fees to the ratings agencies in order to get a rating. So the premiums charges by rated companies are generally higher than those for unrated insurers.

But being rated does not guarantee that an insurer will not go out of business, or decide to stop providing PII cover. So the proposed change would not ensure that clients would find themselves dealing with an uninsured solicitor.

These rule changes proposed by the SRA came in for a substantial amount of criticism. They were seen as unfair to the many smaller firms of solicitors, especially those where the partners were members of racial minorities.

Concerns were also expressed that the rules would have been in breach of EEA competition rules. For example, non-solicitor firms which can now carry out conveyancing work do not have to have PII cover.

SRA drops planned rule changes – will Yorkshire follow suit?

The SRA has just announced that as a result of its consultations it has decided to scrap the proposed rule changes. This means that solicitors can still choose to take PII insurance with an unrated company so long as the SRA have accepted it as a Participating Insurer

So it looks as if that the Yorkshire Group has jumped the gun on this issue, and is imposing higher conditions for its panel solicitors than are required under SRA rules. It is understood that Yorkshire Group will require their panel solicitors to have PII cover with an insurer with a minimum rating of AM Best B+ or Standard and Poor’s A.

These conditions will severely reduce a solicitor’s choice of insurers and will probably result in increased premiums for many firms if they want to remain on the Yorkshire’s panel.

This move is likely to hit smaller local firms the hardest, and could force some of them out of business.

It is also likely to affect buyers who prefer to get a mortgage from a traditional Building Society – perhaps one which has a local connection. Buyers will find that if they want to get a mortgage from one of the Societies in the Yorkshire Group their choice of solicitor will be substantially reduced.

Whether the Yorkshire Group will still stick with their plans after the SRA has dropped its proposed rule changes remains to be seen. Let us hope that they will reconsider.

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