SRA: More staff
The Solicitors Regulation Authority (SRA) is having to employ seven extra staff at a cost of £310,000 to help it cope with the number of compensation claims from clients of Axiom Ince.
The cost will be met by the profession through its contributions to the SRA Compensation Fund, the fund of last resort where a solicitor has stolen or not accounted for client money and it is not covered by professional indemnity insurance.
In late November, the regulator revealed that the fund had received £33m in claims from Axiom clients.
Papers published today from the SRA’s last board meeting before Christmas said staff were already under pressure from increased claim numbers following the high level of interventions even before Axiom Ince.
“This additional headcount will ensure claims handling times are maintained and that statutory trust balances and promptly reconciled to allow cash to be returned to the compensation fund as required.
“This will ensure that claimants can be paid while at the same time ensuring cashflows to the fund are maximised, reducing the risk of a potential call for further contributions during the financial year.”
November’s announcement said a staggered approach to payments from the fund meant the SRA would not have to call on the profession to boost its reserves before the annual levy payment in late 2024. An increase in the levy, currently £660 per firm plus £30 per solicitor, seems inevitable.
More positively, the SRA said yesterday at a press briefing that the cost of the Axiom Ince intervention was set to be substantially less than the £10m figure it had previously cited.
In the next fortnight, the SRA will publish details of the work it will undertake as a result of Axiom, including a greater focus on what it calls ‘accumulator’, or consolidator, firms.
The previous failures of Metamorph and Kingly have added to this concern – and pressure on the fund – and the board was told that the SRA’s forensic investigations team was already doing more work on accumulator firms.
“To ensure that there is no impact on ongoing casework within this function, we are intending to increase headcount by two at a cost of around £110,000.”
A paper before the board said that the SRA now expects a surplus of almost £1.2m on its current year budget, which was set £7.1m higher compared to 2022-23.
Some of this will be spent on boosting current activity – such as £160,000 more on work to reduce the number of investigations over 24 months old – but anything left will go to increasing the SRA’s reserves, which could potentially reduce the cost of practising in future years.
Meanwhile, in a letter to the Legal Services Board (LSB), the so-called Joint V – the local law societies of Birmingham, Bristol, Leeds, Liverpool and Manchester – have questioned the SRA’s decision not to engage a rule that would allow it to impose a £5m overall cap on claims from an intervention as a method of protecting the solvency of the compensation fund.
The total loss at Axiom Ince appears to be around £66m, although at least some of this is likely to be covered by the firm’s insurance.
The letter said section 28 of the Legal Services Act 2007 required the SRA to exercise its power in a manner which was proportionate.
“We are unable to see how failure to impose the cap where the claims may exceed it by 13 times might be proportionate.
“The SRA states that the cap was introduced in a different context, investment fraud, but the rule which has statutory force is not restricted in its effect and the SRA has given no other reason not to apply the cap.”
In fact, in its November statement, the SRA said “the scale of consumer loss, were the cap to be applied, would be too large, and would lead to an unacceptable loss in public confidence in solicitors”.
Chief executive Paul Philip reiterated this stance at yesterday’s briefing.
The Joint V also argued that the confidence of the public and the profession required that the review announced by the LSB of the SRA’s handling of Axiom Ince should be independent of both bodies.
The letter was, however, sent just after the LSB announced that it would conduct the review, bringing in a Northern Irish law firm to assist.
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