Knowles Benning: One of the closed-down Metamorph firms
The closure of 16 offices of the Metamorph Group by the Solicitors Regulation Authority (SRA) has so far cost the profession £1.4m, it has emerged.
The payments were made from the SRA Compensation Fund, which reported last week that overall there has been a significant jump in the value of claims made against it.
It is a discretionary fund of last resort funded by the profession 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 – or did not have insurance in place.
Insurance will generally pay out where there is an innocent partner at the firm.
Papers from last month’s meeting of the SRA board recorded that following the multiple closures of Metamorph firms in December and January – one of the regulator’s largest ever interventions – it was in the process of collecting just over 65,000 files.
“We are also receiving and processing a large volume of compensation fund claims relating to the matter and have so far paid out £1.4m in emergency funds.”
The SRA will hope to recoup some of this money if it is in the various firms’ client accounts but the intervention itself will be a hefty burden on the profession – the compensation fund’s annual statement, also released last week, showed that interventions cost £4m in the year to 31 October 2022.
Overall, in those 12 months, the fund paid out £15m in grants – compared to £27m in 2020/21 – but there has been a sudden jump in the value of open claims.
The fund received or reopened 1,285 claims in 2022 and closed 1,483, leaving 339 open claims. While this is 198 fewer than in 2021, the total claim amount has shot up from £75m to £102m.
An SRA spokesman said this rise was linked to a number of claims made from victims of fraudulent investment schemes involving solicitors.
As at 31 October 2022, the fund had £54m in reserves. “After a deliberate reduction in the balance on the fund in recent years, the reserves are now at a level where we would expect them to remain relatively stable over time,” the financial statement said.
It also showed that last year the SRA recovered £9.6m of grants paid out in previous years, primarily from statutory trust accounts – where it holds client money from shut-down firms – but including £2.3m from solicitors themselves.
For the current practising year, the profession paid £9.7m towards the fund – £30 per individual and £690 per firm which held client money – which was £1.9m less than the previous year. The proposed figure for the coming year should be announced next month.
