LSB: Invoked statutory power to delay decision
The Legal Services Board has approved the big hike in contributions solicitors and firms have to make to the Compensation Fund just in time for the Solicitors Regulation Authority (SRA) to collect them.
The contribution for individual solicitors, which is usually paid by their firms, will go from £30 to £90 and for law firms that hold client money from £660 to £2,220.
This will raise £31.6m, compared to £10m in the current practising year.
The oversight regulator has to approve the figures annually and had an initial 28 days to do so, which until now has always proven to be enough time.
This year, however, it invoked a statutory power to extend consideration of the application to 90 days.
Though it had until early November, the decision was made last week, meaning the SRA will not have the problem of starting practising certificate renewal this week, and with it collection of the contributions, without the figures approved.
The test is a negative one – whether there is a reason to deny the application.
As previously reported, a spike in the number of interventions – and particularly some very large ones, particularly Metamorph Law and Axiom Ince – has depleted the fund in recent years.
SRA expects to pay out more than £35m in claims to former clients of Axiom Ince, with £10m paid by the end of June 2024 and the SRA continuing to receive more than £1m in claims each month.
In addition to contributions, the SRA has agreed a £10m banking facility to support the fund should it be needed. Together, this would allow the fund to access no less than £33.4m at any point in the 2024/25 practising year.
This is actually £6.2m less than the SRA calculates is the minimum reserve for the fund but it told the oversight regulator that the methodology needs updating. To hit this figure would require a contribution of approximately £140 per individual and £3,460 per firm.
Instead, the SRA is managing cash inflows and outflows more closely.
If this proved inadequate, the SRA could levy an exceptional mid-year contribution on the profession and also delay the repayment of its intervention costs, which come from the fund.
Among the 13 issues that the LSB said it expected the SRA to address for next year’s application was updating this methodology and whether it should increase contributions rather than maintain access to a debt facility.
The SRA is considering possible changes to the fund – such as the contributions split between individuals and firms, which is currently 50/50 – as part of its consumer protection review.
Law Society chief executive Ian Jeffery said: “The SRA’s request for additional funds is largely the result of the collapse of Axiom Ince and the cost of compensating its victims.
“We expect the independent review of the SRA’s performance on this matter commissioned by the LSB to be published as soon as possible, so that the lessons can be learned.”
He described solicitors as “steadfast in their wide support” for the fund as a protection for clients. It also “clearly delineates” the profession from unregulated providers of legal services.
Mr Jeffery added: “The Law Society endorses the LSB’s call for enhanced transparency and accountability to the regulated community paying contributions to the compensation fund.”
