Boyce: Small increase in PC fee
Solicitors’ contributions to the SRA Compensation Fund will fall next year because an anticipated spike in the level of claims arising from dubious investment schemes did not transpire, it has emerged.
The Legal Services Board (LSB) has approved a £10 reduction in the individual contribution to £30, with the firm contribution falling £70 to £690.
At the same time, the LSB has backed a 10% increase in practising fees for solicitors, or £10.4m, with the practising certificate fee (PCF) to rise £20 to £286, the highest level since 2016/17.
The Solicitors Regulation Authority (SRA) operates the compensation fund as 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 – or did not have insurance in place. Insurance will generally pay out where there is an innocent partner at the firm.
This year will be the fourth in a row where the contributions – which is split equally between individual solicitors and firms – have fallen; in 2018/19, they more than doubled to £90 and £1,680 respectively.
The LSB decision notice said: “The SRA explained that the balance of the compensation fund was substantially increased in 2017/18 due to the perceived threat of dubious investment schemes. The level of grants expected from such schemes did not materialise as many claims fell outside of the rules.
“However, there has still been an upward trend in grants made which was largely caused by an exceptionally high level of grants paid last year.
“This was something the SRA had anticipated and planned for and was driven by a specific set of cases, which is why it had built up a large balance by October 2021. The SRA does not expect those conditions to be repeated.”
We reported in April that the 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 SRA will raise £9.7m from the 2022/23 contributions – down from £11.6m – which it said would maintain the viability of the fund in excess of the required minimum reserve.
For the first time, the SRA has set at £10m the specific figure of how much more than the minimum reserve it wants to keep; in previous years it has been “considerably higher” than this.
In its application to the LSB, the SRA said: “The proposed range will help us avoid significant variations in the fee year on year while also ensuring reserves do not become excessive.
“It should also be highlighted that there has been a significant reduction in the balance over the last 12-18 months where the forecasted balance for the end of 2021/22 of £37.6m will be a £13m reduction from the £50.6m held at the end of October 2021.”
The fund is separate from practising fees, of which the Law Society and SRA will collect £114.7m in 2022/23, up from £104.3m in the current year.
Firms will pay 60% of this – £68.8m, up from £62.6m – and individuals 40%, £45.9m up from £41.7m.
Of this, £60.5m (53%) will go to the SRA and £32.8m (29%) to the Law Society, with the remaining money (£21.4m) covering the compulsory levies from the Legal Ombudsman, Legal Services Board, Solicitors Disciplinary Tribunal and the Office for Professional Body Anti-Money Laundering Supervision.
This is ahead of further rises over the next two years as the Law Society looks to boost its income by £8.4m to £36.9m in 2024/25.
In its response to LSB questions, the Law Society said it intended to operate a small surplus in the coming year, after four years of running at a deficit.
The LSB commended both the Law Society and SRA on achieving increased engagement with the profession over the fee plans, and “on the increased transparency and accountability that this brings”.
Law Society president I Stephanie Boyce said: “We acknowledge the LSB’s sensible decision for a small increase in the PC fee, which will underpin support for the profession and enable the Law Society to serve solicitors in England and Wales better.
“We understand the economic environment businesses and individuals are facing with rising inflation and the cost-of-living crisis, and our request for a 15% increase for the Law Society’s work was based on a thorough investigation about what our members want.”
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