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Firms that generate complaints to pay more as oversight regulator approves CLC reforms of practising fees

4 November, 2021

The Council for Licensed Conveyancers (CLC) has won approval to overhaul how it calculates and collects regulatory fees from the practices it regulates, so it can now recharge more of the cost of the Legal Ombudsman (LeO) to the firms that generate disproportionate levels of complaints.

The oversight regulator, the Legal Services Board, has approved the changes, which will see 30% of the £686,511 the CLC will pay in 2021/22 for LeO’s services levied on 83 firms on the basis of usage. The plan is to increase this to 80% over the next four years.

The CLC has been able to cut practice fees by 42% since 2016 on the back of growth in practice turnovers, control of its own costs and prudent use of reserves, despite the rising costs of the Office for Legal Complaints (OLC), LeO’s official name.

CLC-regulated firms only generated an average of 256 cases in each of the last three years – just 4% of the total handled by LeO – but the levy is a significant cost of regulation; the CLC’s own budget for the coming year is just over £2.2m.

This issue has become increasingly pressing with the LeO’s budget jumping 16.5% to £14.5m as it deals with longstanding performance issues exacerbated by Covid. The move will also incentivise firms to improve their complaints handling, serving the client interest and potentially reducing firms’ regulatory fees. 

Until now, all CLC-regulated firms have paid the LeO levy through their practice fees, which are calculated purely on the basis of turnover. The decision to separate the cost of the LeO is the first of its kind in the legal sector and will reduce practice fees by an average of 23%. Their collection begins this month.

More than half of CLC practices (62%) do not generate any complaints which are referred to the LeO and many more have an acceptable level of complaints though it is widely recognised that the entire sector needs to improve complaints handling. The LeO levy will be collected separately next May when the final LeO costs for its financial year have been confirmed. The payment of the practice fee and the LeO levy are both conditions of licence by the CLC.

All firms will this year share 70% of the costs on the basis of turnover, in recognition of the wider importance of the LeO to consumer protection. The remaining 30% will be allocated on the average number of complaints against each firm accepted by LeO over the previous three years. As a result, most CLC-regulated practices will see their percentage share of total costs fall.

However, 51 practices (23%) will pay more than the 16.7% average increase because they have a higher number of LeO cases.

Two practices will pay an extra £16,000 and £12,000 respectively, 16 firms will pay between £5,168 and £1,044 more (average of £2,095), and 33 practices will pay between £821 and £25 more (average of £289).

The increasing cost of OLC (totalling £14.5m this year) is recovered from all the legal regulators in proportion to the number of cases arising from their regulated communities. The CLC’s cost share for 2021-22 is estimated to be £686,511, which equates to one-third of the sum it will collect to meet the costs of all its own regulatory work (£2.2m) for the coming year. This cost comes even though CLC practices generate small numbers of complaints – an average total of 256 cases over each of the last three years, only about 4% of the total handled by OLC, although that number has increased slightly in recent years.

The CLC has also increased the number of turnover bands for calculating practice fees from four to nine to improve progression to higher bands as turnover increases allowing more practices to benefit from rate tiering as they grow. Most firm’s fee rate will be higher this year than what it would have been under the old bandings.

CLC chief executive Sheila Kumar says: “Despite the CLC reducing its own operating costs in a sustainable and steady way over the past five years, the LeO’s costs – which are beyond our control – have grown, and continue to grow, very substantially.

“While it is right that all regulated practices should contribute to the costs of complaints handling to ensure availability of the service, introducing a usage fee is fairer, builds in better proportionality into meeting LeO costs and will encourage improvements in complaints handling.

“We will monitor the impact of the new approach on complaints handling. The findings will guide the move from the usage element making up 30% of the LeO levy to 80%. This phased approach gives practices four years to address complaints handling and bring referrals down to proportionate levels.

“We are again freezing individual licence fees, continuing the trend of a real terms reduction over several years.”