At a time of ever-increasing compensation claims by wronged clients, the Solicitors Regulation Authority (SRA) is proposing to reduce the single claim limit and capping total amounts payable for a group of related claims.
Following a consultation in 2018 on balancing cost and access to legal services, there were key changes suggested that aimed at sustaining the fund available for compensation claims, ending the multi-million-pound pay-outs, and reducing the burden on the profession to keep the fund going.
The fund is a discretionary one that is operated by the SRA but funded via a levy added on the practising certificate fee.
The fund currently allows claimants who have suffered a loss due to the regulated solicitor or firm’s dishonesty or due to failure to complete work for which they have been paid. The fund provides a ‘safety net for risks that professional indemnity insurance is unable to cover’ and has a maximum pay out of £2 million, which can be waived in certain circumstances.
The new proposals will limit the claims to £500,000 and focus on those who need the most protection, introducing a scheme that will prioritise payments based on the ‘impact of loss’ and exclude clients who were able to claim on a firm’s professional indemnity insurance.
Currently, any person that can prove hardship or loss due, regardless of whether they are a direct client, can make a claim. Under the new proposals, only direct clients of the solicitor or firm will be able to claim.
Paul Philip, SRA Chief Executive said that although the compensation fund provides an essential safety net, it comes at a cost:
“which is borne by the wider profession and ultimately their clients.
“We have seen how significant risks in the market over recent years, including solicitor involvement in dubious investment schemes, have affected the fund and contributions from the profession.
“We want to strike the right balance between protecting clients’ money and making sure that the fund remains sustainable for the future.”
In 2018 to 2019, there was a total of £25.6 million paid into the fund by solicitors, with solicitors paying £90 each and firms £1,680 per year towards the fund. This was a large increase from the 2010 to 2011 fees, where individual solicitors paid just £10 and firms £120.
The proposals suggested in 2018 were considered to open up ‘new areas of considerable consumer harm’ and instead offered ‘aspirational benefits that are unlikely to be delivered’, according to a response from the Law Society.
“Our analysis is that these proposals are likely to undermine the following regulatory objectives:
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protecting and promoting the public interest;
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protecting and promoting the interests of consumers; and
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promoting and maintaining adherence to the professional principles.”
Following the 2018 consolation on the principles of the fund, the SRA has now opened a 12 week further consultation on the specific proposals.
“The consultation will run to 21st April. Once finalised, any agreed changes will need approval by our Board and Legal Services Board.”
