Maximum payments to clients of dishonest solicitors are to be slashed from £2m to £500,000 as part of measures to reduce the financial burden on the profession, the Solicitors Regulation Authority has announced.

The regulator also confirmed today that it will stop covering the fees of barristers and other professionals yet to be paid by their instructing solicitor. Large charities and trusts will no longer be eligible for payments from the compensation fund, and payments may not be made where the firm that caused the shortfall has indemnity insurance in place.

But the regulator has dropped plans to limit grants to those who were clients or beneficiaries of the legal services provided. Parties on the other side of a legal matter, most commonly in conveyancing, can still make applications where it can be shown a solicitor had failed to use funds for the purpose intended to complete a transaction for their benefit.

Wronged clients will also benefit from the removal of any financial or hardship tests for eligible applicants, and those seeking grants will no longer need to prove that they have suffered due to their loss.

The SRA faces a difficult balancing act between making sure wronged clients are compensated, and not penalising solicitors who act properly by forcing them to pay more into the fund. Two consultations have been held in the past three years to discuss the issue, before the SRA board finally signed off on changes.

Paul Philip, SRA chief executive, said: ‘The tension between these two issues was a major theme of the feedback we received during both consultations. 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.’

On the reduced maximum payment, the SRA points out that only 0.2% of payments over the past 15 years have been for more than £500,000. The regulator has included provision to pay out more than the new maximum in exceptional circumstances.

There were 15 formal responses to the 2020 consultation, including from bodies such as the Law Society and Legal Services Consumer Panel. The SRA also held focus groups with members of the public.

The changes will be submitted to the Legal Services Board for final approval.