The Legal Services Board (LSB) has authorised a substantial rise in the contributions required from solicitors and legal firms to the Compensation Fund, coinciding with the Solicitors Regulation Authority’s (SRA) collection schedule.
The contribution increase results in individual solicitors, often funded by their firms, seeing their payments escalate from £30 to £90, while law firms managing client funds will face a hike from £660 to £2,220. This decision will enable the fund to raise £31.6 million, a notable increase from the previous £10 million in the practising year.
This decision by the oversight regulator, which is tasked with approving these figures annually, came after it exercised its statutory power to extend its assessment period from the typical 28 days to 90 days this year. Although approval was required by early November, the decision was reached early, ensuring the SRA’s practising certificate renewal and contribution collection could proceed without disruption.
The need for increased contributions is largely attributed to recent spikes in interventions, notably including the costly cases of Metamorph Law and Axiom Ince, which significantly depleted the fund. The SRA anticipates paying over £35 million in claims related to Axiom Ince, with £10 million disbursed by mid-2024 and monthly claims continuing to surpass £1 million.
To manage this, the SRA has secured a £10 million banking facility to bolster the fund if necessary. Combined, this strategy provides access to no less than £33.4 million during the 2024/25 practising year. However, this amount falls £6.2 million short of the minimum reserve calculated by the SRA, which acknowledges the need for updating their financial methodology.
Regarding future considerations, the SRA has indicated potential changes to the contributions structure as part of a broader consumer protection review. This review could impact the contribution distribution between individual solicitors and firms.
Ian Jeffery, Chief Executive of the Law Society, stated, “The SRA’s request for additional funds is largely the result of the collapse of Axiom Ince and the cost of compensating its victims.” He highlighted the commitment of solicitors to support the fund, which serves as a distinct marker differentiating regulated from unregulated legal service providers. Jeffery also supported the LSB’s call for enhanced transparency and accountability within the regulated community contributing to the fund.
This development marks a significant financial shift for legal practitioners, aligning with ongoing reviews and demands for more robust consumer protection in the legal sector.
