As was probably to be expected, the Solicitors Regulation Authority (SRA) have confirmed that contributions by law firms and individuals to the SRA Compensation Fund will be increased for the first time in five years. The purpose of the fund is to provide compensation to those owed money by a regulated law firm in circumstances such as when professional indemnity insurance is unable to cover a loss, where the loss is due to a solicitor’s dishonesty and to reinforce public trust in the legal profession.
Despite the serious concerns about these rises expressed by the Law Society, the SRA has announced that, subject to approval by the Legal Services Board, individual contributions to the compensation fund for 2024/25 will be increased by 200% to £90 (£30 last year) while firm contributions will increase by 236% to £2,220 (£660).
In a Law Society press release at the beginning of July, Law Society chief executive Ian Jeffery said “The substantial proposed increase in the Compensation Fund contribution this year – 200% for individuals and 236% for firms – is deeply concerning. Solicitors are steadfast in their wide support for the Compensation Fund, as a vital protection for clients, and it clearly delineates the profession from unregulated providers of legal services. However, we have to question whether the SRA has provided sufficient evidence to justify the increases”.
The fund has come under increasing pressure due to the SRA having to step-in and close down more firms to protect the public. This has led to a substantial rise in claims from consumers. This includes an expected £35m of claims following the largest ever intervention last year into the law firm Axiom Ince. Ian Jeffrey said “We are aware that there have been a number of recent failures that have placed considerable strain on the resources of the Compensation Fund – most notably the collapse of Axiom Ince – so we see the need to rebuild the fund’s reserves over time. However, we also want to understand what measures the SRA is putting in place to minimise the risk of the rising number of calls on the fund.”
The SRA have stated that the rise in contributions will allow fund reserves to be rebuilt over the next two to three years.
Contributions to the compensation fund form part of firms’ annual practising certificate and firm authorisation renewals. The SRA have confirmed that their element (£162), and total individual practising fees for 2024/25 will remain at the same level as last year – meaning a total individual fee of £307. Firm fees will also be set in line with last year, meaning any increase would only follow from an increase in a firm’s turnover.
Going forward the SRA have stated that they will consider how the compensation fund should operate in the future including changes to how fund contributions are apportioned. More worryingly, they have also stated that they will consider this as part of its ongoing consumer protection review, so don’t be surprised if the compensation fund increase is used as one of the arguments for abolishing client accounts (see Infolegal article “It’s time to be afraid, very afraid” from May 2024.