Orpin: Full scrutiny needed
Approval of the Solicitors Regulation Authority’s (SRA) application for the level of Compensation Fund contributions – which are set to soar this year – has been delayed for the first time ever, Legal Futures can report.
The contribution for individual solicitors, which is usually paid by their firms, will go from £30 to £90 and for law firms that hold client money from £660 to £2,220.
This will raise £31.6m, compared to £10m in the current practising year.
The oversight regulator, the Legal Services Board (LSB), has to approve the figures annually and has an initial 28 days to do so, which until now has always proven to be enough time.
This year, however, it has invoked its statutory power to extend consideration of the application to 90 days.
In a letter to SRA chief executive Paul Philip, LSB interim chief executive Richard Orpin explained: “The application proposes significant increases to the level of contributions by authorised persons to the SRA’s Compensation Fund, an important component of the SRA’s consumer protection arrangements.
“Therefore, the LSB is extending the initial decision period to allow time to facilitate full scrutiny and consideration of the application.”
As a result, the decision has to be made by 3 November. If it goes to the wire, this could cause the SRA logistical difficulties, as the contributions are collected during the practising certificate renewal period of 1 to 31 October.
The application explains that, during the 2022/23 financial year, the SRA intervened into 65 law practices, significantly more than in previous years, including the high-profile closures of the Metamorph Group and Axiom Ince.
“These interventions impacted the financial position of the fund significantly. Most notably, the costs of all interventions as shown in the Compensation Fund financial statements for 2022/23 was £20.5m, up from £4m the previous year.
“This contributed to the reserves of the fund reducing from £54.2m to £25.1m during the year to October 2023.”
Further, the SRA expects to pay grants totalling over £35m in relation to Axiom Ince during the 2023/24 and 2024/25 financial years.
“We also paid over £27m in grants in relation to the Metamorph intervention however this represented a short-term cash impact as the funds will be recovered from statutory trust accounts (client balances held by the closing firm taken over when we intervene to close a law firm).”
The proposed individual fee returns to the same level as in 2018/19, when the firm fee was £1,680. Though the number of solicitors has increased since then, the number of firms has fallen.
The Compensation Fund is a discretionary fund of last resort that can pay out up to £2m where a solicitor has stolen or not accounted for client money – and it is not covered by the firm’s professional indemnity insurance – or did not have insurance in place.
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