LSB backs rules to prevent large organisations claiming on compensation fund

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29 October 2014


Chris Kenny

Kenny: Administrative savings for the SRA

The Legal Services Board (LSB) has approved the introduction of restrictions that prevent large organisations from making claims on the Solicitors Compensation Fund.

Claims will only be considered if they are made by individuals, small businesses with a turnover of less than £2m, charities with an annual income of less than £2m and trustees of a trust worth less than £2m.

The proposal is part of the Solicitors Regulation Authority (SRA) reform programme, approved by its board last month.

In his decision notice, Chris Kenny, chief executive of the LSB, noted that under the SRA’s current regulatory arrangements, there is no restriction on who can apply for and be paid a grant out of the Compensation Fund.

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“Anyone can make an application free of charge. A claim can be made by an individual consumer, company, charity or other entity irrespective of the wealth and means of the applicant. The SRA’s rationale for the introduction of eligibility criteria is the need to focus on consumers who are not well placed to manage risks themselves and hence require regulatory protection.”

Mr Kenny said that the introduction of the eligibility criteria is not expected to have a significant impact on the number of grants that are paid from the fund nor their value. “The effect of the change will be that those who would not be eligible to make a claim in the future would largely be unsuccessful in making a claim now, as they would not pass the hardship test.

“The change will therefore result in administrative savings to the SRA as it will not have to process claims that will not succeed. The introduction of the eligibility criteria also does also not automatically assume that those eligible to apply for a grant from the Compensation Fund will be successful – as now, each case will be considered on its own merits.”

In his chief executive’s report for today’s board meeting of the SRA, chief executive Paul Philip said the change in Compensation Fund arrangements would be introduced on 1 April.

The Legal Services Board has issued exemption directions for two further items from the SRA’s reform programme, approving them without going through the full approval process.

Law firms, other than those doing only legal aid work, will continue to be required to commission accountants’ reports within six months of the end of their reporting periods, but will only need to file at the SRA reports which have been qualified. This is due to be implemented in April next year.

In a further change, solicitors without a practising certificate who want to keep their names on the roll will no longer have to apply and pay a fee every year. Instead, the SRA will reserve the right to make “ad hoc” checks.

Earlier this month the LSB backed a new “flexible” approach by the SRA aimed at making it easier for multi-disciplinary partnerships to become licensed as alternative business structures.

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