The Solicitors Regulation Authority has decided there will be no immediate one-off levy against solicitors to pay for the Axiom Ince fallout. But the regulator has also ruled out capping compensation claims from clients of the collapsed firm – meaning that a hike in contributions is still possible next year.

The SRA said in a statement today that client claims against the compensation fund will be prioritised to make sure the ‘most pressing’ – such as for domestic conveyancing – will be dealt with first.

That would appear to be putting off the decision to increase funding from the profession. More than £60m is understood to be missing from the client account of Axiom Ince, which was shut down by the SRA last month. The compensation fund has reserves of just £18m to distribute – including to clients of other firms – and even taking into account that some of the missing Axiom money is out of scope, there is still likely to be a shortfall. The SRA said that, to date, it has received claims worth around £33m, and a ‘limited number’ of emergency claims have been paid out where there was a risk of homelessness or imminent insolvency.

A claim against Axiom Ince’s professional indemnity insurance is underway and the level of funds which may be recovered from the existing freezing order on assets obtained by the firm is still to be determined. If funds are recovered from the insurance claim or from the sale of frozen assets, then these will be used to replenish the compensation fund.

The SRA statement did not expressly address whether contributions will rise next year or by how much, instead stating it would ‘not be calling on solicitors to make an in-year contribution at this point, but will keep this under review in the light of any further interventions or other unforeseen events’.

The rules of the compensation fund enable the SRA to impose a discretionary £5m overall cap on claims from an intervention. This cap was intended as a method of protecting the solvency of the fund in the context of investment fraud.

The SRA said: ‘In the case of Axiom, the scale of consumer loss, were the cap to be applied, would be too large, and would lead to an unacceptable loss in public confidence in solicitors. However, by adopting a careful prioritisation approach to the settling of claims, the aim is to manage the short-term solvency of the fund and avoid extreme consumer detriment.’

Discussions remain about the future of the compensation fund giving the increasing number and size of interventions in recent years. 

Law Society chief executive officer Ian Jeffery commented: 'As the representative body for the solicitor profession, we think it right that our members are not being asked to make an in-year contribution to the Compensation Fund. This decision will protect consumers and maintain public confidence in the fund.

'We maintain that the solicitor profession must be consulted before any decision is made by the SRA on its future approach to such exceptional compensation questions, given that our members would be required to pay for it.

'We will work with the SRA as it seeks to review whether its client protection and compensation fund arrangements are fit for purpose in the future.'

 

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