The practising certificate (PC) fee for solicitors is set to fall 4% this year, but the saving will be largely wiped out by an increase in contributions to bolster the Solicitors Compensation Fund ahead of an expected rise in claims arising from their involvement in fraudulent investment schemes.
The Law Society issued a consultation on Friday that laid out a proposed budget of £134.1m for 2017/18 to run both the Solicitors Regulation Authority (SRA) and the Law Society’s representative function, compared to £137m for the present year.
With £33.3m coming from other sources – most notably £15.8m in commercial income – that leaves a total net funding requirement of £100.8m. The society proposes to use £2.2m of reserves, meaning £98.6m needs to be collected from PC fees, £1.2m less than last year.
With more solicitors on the roll as well, this means a proposed PC fee of £278, down £12.
The SRA will get the largest slice of the money raised (£52.6m), while the Law Society will receive £32.8m under the ‘permitted purposes’ provision of section 51 of the Legal Services Act 2007. These are non-regulatory activities for which the Law Society can charge the profession.
There are growing questions, not least from the SRA itself, about whether the society should have the continuing power to place a compulsory levy on solicitors for its representative work. However, its budget has fallen this year, from £35.3m this year.
The rest of the money is levied by the Legal Ombudsman (£9.8m), Legal Services Board (£2.8m) and Solicitors Disciplinary Tribunal (£2.4m).
Also, the society anticipates having to pay £300,000 to fund a new regulatory role created by the Financial Conduct Authority to focus on money laundering activity.
Solicitors have until 2 July to comment on the proposals.
Meanwhile, issuing a second warning notice to solicitors about their involvement in fraudulent investment schemes in just nine months, the SRA said contributions to the compensation fund in 2017/18 will be increased by £8 to £40 per solicitor. Firm contributions will increase by £230 to £778.
The regulator said it has received 12 reports about potential investment scams in the nine months since the first warning notice, compared to 18 reports in the preceding 18 months.
There has also been increased enforcement action, with two partners from Sanders & Co suspended after many investors lost money in a Brazilian Ecohouses scheme – sanctions the SRA is appealing – and Naresh Chopra, where he was found to be acting for investment companies offering opportunities in diamond and fine art trading.
“The number of solicitors involved is very small, but the impact is very significant both in terms of damage done to the reputation of the profession and the losses sustained by what are often vulnerable members of the public,” the SRA said.
“People have already lost substantial amounts, potentially totalling hundreds of millions.”
As a result, the regulator is forecasting a rise in high-value claims on the compensation fund that will require settlement in the next 18 months. “Not every case will result in successful claims, but it is important that sufficient funding is available.”
The new warning notice expands on the one issued last September, reflecting both the changing nature of dubious investment schemes and also that practitioners in many fields of law may find that they are at risk of facilitating one.