The Solicitors Regulation Authority (SRA) has decided to implement its controversial plan to cut the maximum award from its Compensation Fund from £2m to £500,000.
The fund will also stop covering unpaid fees of barristers and other professional experts, and not pay out to large charities and trusts with claims.
The Compensation Fund pays grants to people who have suffered financial loss because of a solicitor’s dishonesty or failure to account for client money where not covered by indemnity insurance.
“Only 0.2% of all payments over the last 15 years have been for more than this amount,” it said, adding that it could pay out more in exceptional circumstances.
The changes have now to be approved by the Legal Services Board, meaning that opponents still have a chance to scupper them – back in 2014, a similar proposal to reduce the minimum level of insurance cover firms had to hold to £500,000 was rejected by the board and ultimately dropped.
Following an initial consultation in 2018, the SRA consulted on revised proposals for the Compensation Fund at the start of this year and announced today that it was pressing ahead with all of them except the plan to limit claims to the people who have been provided with the legal service.
“Nearly all respondents strongly opposed this proposal,” it said. “We will continue to allow applications from parties on the other side of a legal matter where it can be shown that the solicitor had failed to use funds for the purpose intended to complete a transaction for their benefit, or to make a settlement or other payment to them. This could be for example in a conveyancing transaction.”
However, the SRA will continue to refuse claims where it thinks the third party should explore an alternative remedy – such as against an insurer – and where the solicitor was not directly involved in the transaction, for example where a solicitor’s name is associated with an investment transaction to provide credibility but there is no underlying legal work involved.
Other changes to the fund’s operation will see the removal of any financial or hardship tests for eligible applicants, and the introduction of a £5m cap on multiple connected claims, such as those arising from an investment scheme.
“We remain of the view that setting a fixed level cap is the fairest and most transparent option. This provides the most certainty for clients, the profession and the fund,” the SRA said.
“This will in turn provide greater flexibility for us to adopt a less conservative reserves approach to cover potential liability, with the associated contribution costs to the profession, which may ultimately be passed to consumers.”
SRA chief executive Paul Philip said the tension between protecting clients and the reputation of the profession on the one hand, and having to fund the scheme on the other, was a major theme of the feedback it received.
“That is why we deliberated and consulted twice on these proposals, to make sure we strike the right balance. Our changes will support public confidence, give claimants clarity about what the fund can and cannot cover and make sure this valuable additional protection is available in the long term.”
Compensation Fund contributions for 2020/2021 will be £50 for individuals and £950 for firms holding client money.