Claims on the Solicitors Compensation Fund and the number of interventions into law firms are both falling as the impact of the recession finally begins to fade, and so it is now deliberately running at a deficit to reduce the level of reserves, it was reported yesterday.
During the year to 31 October 2015, the fund – which compensates clients who have lost money due to the actions of solicitors where not covered by indemnity insurance – paid out £17.9m, compared to £23.8m the year before.
Accounts before yesterday’s meeting of the Solicitors Regulation Authority (SRA) board also showed that in 2015 the fund received 1,174 new claims, down from 1,842 in the previous 12 months. At the end of the year, there were 292 open claims, compared to 548 in 2014.
Richard Collins, the SRA’s executive director of strategic planning and performance, said there had been a “big peak” of claims after the 2008 recession and the fund’s reserves had gone up accordingly. “But we are now coming off the back of it… We’re getting back to a steady [state], and are still on a bit of a downward trend.”
The fund also pays the costs of interventions into law firms, and Mr Collins that the number and size of these were declining too – most have been small firms of late, with Blavo & Co the biggest in the last year.
The fund’s deficit for the year was £11.5m, reducing reserves to £44.5m. Mr Collins said the SRA was looking for that figure to fall to £20-25m as the minimum required to cover claims. He explained that the fund was protected from the shock of a huge claim because “we get a long period of notice on big claims, [giving] us time to build up reserves if necessary”.
It currently raises £8.5m a year through contributions from individual solicitors and each firm which holds client money, which is lower than the running costs.
As at 31 October 2015, there were £36.8m worth of open claims (£43.8m in 2014), but only a fraction of this will actually be paid out.
The board also heard that the Ministry of Justice was canvassing views on a proposal to remove the current statutory requirement that means approved regulators have to apply to the High Court for permission to destroy documents seized or obtained during the course of an intervention.
The ministry proposes replacing this with an approach based on compliance with a published approved file retention policy.
SRA chief executive Paul Philip said the regulator has given the proposal its strong support, telling board members that there were “multiple millions of pounds of savings here” given what it currently has to spend on file storage.
Meanwhile, well-known law firm consultant Tony Williams will next month become a member of the board. A one-time worldwide managing partner of Clifford Chance, in 2000 he left for the same role at Andersen Legal prior to the collapse of the Andersen organisation in 2002 in the wake of Enron. He then managed the orderly dissolution of Garretts, the English arm of Andersen Legal.
He established Jomati Consultants in October 2002, which a decade later won a Queen’s Award for Enterprise in International Trade.
Mr Williams replaces Moni Mannings, who recently left London law firm Olswang, where she was a senior partner, and is now chief operating officer of IP data analytics and strategy company Aistemos. The appointment maintains the City bias on the SRA board.