Sole practices responsible for 45% of claims on compensation fund

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SRA: compensation fund review

Sole practices are responsible for 45% of the latest claims made on the Solicitors’ Compensation Fund (SCF), despite making up only around a third of firms at the time, research for the Solicitors Regulation Authority (SRA) has found.

However, City consultancy Economic Insight found that the average size of claims paid by the fund on behalf of sole practices, at just over £100,000, was smaller than for other kinds of firm.

The SRA is coming to the end of a two-year review of the SCF. Among the aspects the regulator has said it will consider are whether “different arrangements are needed for different types of legal services providers”. At the moment, all law firms pay a flat fee of £836.

Following its “landscaping” stage, which finished last spring, the review entered its research phase, which is due to end this spring. This will be followed by a consultation and final policy recommendations by the autumn.

Economics Insight was asked to investigate the extent to which different types of firm pose different risks to the SCF.It analysed the period of 1 February 2010 to 30 September 2014, during which 8,353 claims were made against 801 firms, and £44m was paid out.

It said its initial analysis showed that firm characteristics, such as ownership structure and location, were linked to the frequency and value of claims. This meant that “pricing the compensation in a risk-based way would involve a change from the status quo”.

LLPs and incorporated practices were less likely to have claims made against them than sole practices, but the average figures for claims paid on their behalf were much higher.

The average value of claims paid on behalf of LLPs was over £400,000, but researchers said this was distorted by the huge payments made following the collapse of Wolstenholmes, and the true average should be only £159,000.

The report found that conveyancing and probate were the two practice areas most likely to give rise to claims on the SCF. Conveyancing accounted for 37% of claims and probate 20%. A separate category relating to problems with payments on account of costs accounted for 27%.

When it came to claims paid by the fund, thefts of client money was the category with the highest average. At almost £200,000 this was around four times the average amount paid out in conveyancing and probate cases.

Economics Insight said there was not a “strong regional dimension” to the likelihood of claims against firms. London had the highest number of paid claims, accounting for 35% while making up only 29% of firms.

The region which topped the chart for the highest average amounts paid out by the SCF was the South West. Firms in deprived areas of the country were more likely to have claims paid by the fund.