With the rising cost of intervening in failed firms the Solicitors Regulation Authority (SRA) have been looking at ways in which those costs can be accommodated. One suggestion had been a “one-off levy” on Solicitors but this appears to carry less favour than utilising the Compensation Fund.
According to the Gazette, in a paper that was prepared ahead of the recent Solicitors Regulation Authority Board meeting, Richard Collins, Executive Director, commented that the costs of interventions had increased and these costs could not be accommodated in the current budget because of other pressures.
The Gazette reported that the fund was expected to fall from £67 million at the end of March to £45 million by the end of October. The Compensation Fund is currently funded by contributions from all firms who hold client money and part of the review will look at things like:
Are different arrangements needed for different types of legal services providers?
Is the calculation of contributions to the current Compensation Fund appropriate?
High profile firm closures and the prospect of even more interventions this year has seen the regulator forecast up to an estimated £15 million overspend. The regulator is also likely to have to intervene in potentially around another 50 firms with open client files who have been unable to find a buyer.
Of course, the SRA’s authority to make compensation arrangements originates from Acts of Parliament so this is likely to require amendment before changes are implemented.
There are many firms that will be affected by any decision made by the SRA and its project team but the real question is whether any extra contributions might push an already overstretched firm under? What happens to the industry if this happens on a massive scale?