The SRA Compensation Fund paid out £27m to the victims of solicitors’ dishonesty in its last financial year, an increase of 162% on the previous 12 months.
The fund received or reopened 1,260 claims in the year to 31 October 2021, an increase of 13%, as well.
However, the Solicitors Regulation Authority (SRA) said it was too early to say what impact Covid may have had on the fund.
It is a discretionary fund of last resort that can pay out up to £2m where a solicitor has stolen or not accounted for client money – and it is not covered by the firm’s professional indemnity insurance (PII) – or did not have insurance in place. PII will generally pay out where there is an innocent partner at the firm.
The fund’s annual report said payouts during 2020/21 increased from £10.3m to £27m – applications do not necessarily correlate with the year they are paid.
It more than doubled recoveries made in the year as well, from £4.7m to £10m. Of this, £1.1m was recovered directly from solicitors.
Solicitors are paying £11.6m towards the upkeep of the fund in the current practising year – down from £14.5m in 2020/21 – through a contribution of £40 per individual and £760 per firm which holds client money.
The administrative costs of the fund – which also covers the SRA’s costs of closing down law firms – fell from £9.9m to £7.3m.
This all meant that the fund’s deficit was £10m, compared to £6m the year before.
The report said this was “due to the fact that cash balances were deliberately increased in 2018/19 to provide for future high value claims, as those claims are paid over a number of years the level of cash balances has reduced.
“A significant deficit was therefore expected in the years following the decision to increase the balance.”
The pandemic “has not had a significant impact” on the fund, the report went on, but “the full extent of any impact on the profession may still take some time to be realised”.
It continued: “The potential for a future impact was considered when setting the compensation fund contributions for 2021/22, and will be considered when setting the 2022/23 contributions.
“The fund maintains significant reserves to provide for uncertainty and had £48.9m in cash at the end of October 2021. This had increased to £50.9m at the end of February 2022.”
As of 31 October 2021, the fund had 537 open claims worth £75m, both lower figures than 12 months earlier. Most claims are not accepted, or not paid out at the amount claimed.
The recently published 2022/23 business plan from the oversight regulator, the Legal Services Board, said it would review financial protection arrangements – both compensation funds and PII.
It said: “In light of mounting concerns about regulators’ compensation fund arrangements and the PII market, this work will build on work already started to help ensure that the right balance is struck between protecting consumers and the associated costs of that protection.”