The Legal Services Board (LSB) has delayed approval of proposed increases to the Solicitors Regulation Authority’s (SRA) Compensation Fund contributions, marking the first such postponement.
The SRA has proposed significant increases in contributions to its Compensation Fund, citing a substantial rise in intervention-related expenses. Individual solicitor contributions are set to increase from £30 to £90, while law firms holding client money will see their contributions rise from £660 to £2,220. These changes are expected to generate £31.6 million, up from £10 million in the current year.
Historically, the LSB approves these figures within 28 days; however, this year it has exercised its statutory power to extend this period to 90 days, a decision primarily aimed at ensuring comprehensive scrutiny of the proposed hikes. LSB interim chief executive Richard Orpin emphasised the importance of this decision in his communication with SRA chief executive Paul Philip, highlighting the need for careful evaluation given the potential impact on consumer protection arrangements.
The urgency stems from a notable increase in SRA interventions, which rose to 65 law practices during the 2022/23 financial year, including the high-profile closures of Metamorph Group and Axiom Ince. These interventions resulted in a substantial financial toll, with the cost soaring to £20.5 million from £4 million the previous year.
Such financial pressures have depleted the fund’s reserves significantly, reducing them from £54.2 million to £25.1 million by October 2023. Looking ahead, the SRA anticipates disbursing over £35 million in relation to Axiom Ince for the 2023/24 and 2024/25 financial years. Meanwhile, grants exceeding £27 million have been allocated for the Metamorph intervention, although this is expected to be a short-term cash impact, recoverable from statutory trust accounts.
Furthermore, while the proposed individual fee aligns with levels seen in 2018/19, when the firm fee stood at £1,680, the current landscape is markedly different. Although the number of solicitors has grown, the total number of firms has decreased, impacting the overall financial structure of contributions.
The Compensation Fund serves as a discretionary fund of last resort, providing up to £2 million for cases where solicitors have mishandled client funds and professional indemnity insurance is insufficient or absent.
The LSB’s decision to delay approval underscores the complexities involved in balancing consumer protection with regulatory financial demands.
