The Solicitors Regulation Authority has been given the green light to massively increase compensation fund contributions to cover the cost of the Axiom Ince intervention.
The Legal Services Board had given itself until November to make a final decision but confirmed in a decision notice today that the revised contributions have been approved for the 2024/25 year.
The total contribution level sought for the next year is £31.6 million – up from £10m in 2023/24. This will mean a new individual contribution of £90 (2023/24: £30) and a firm contribution of £2,220 (2023/24: £660).
In addition to contributions, the LSB also agreed that the SRA can have access to a £10m banking facility to support the compensation fund, which exists to compensate clients who have lost money through the misconduct of solicitors.
The main reason for the increasing contributions is to fill the hole in the fund created by the costs of the 65 interventions in the previous year, notably the national firm Axiom Ince. The SRA estimates that it paid £41.1m in grants from the fund in 2022/23 – up from £15m the year before.
But the timing of the increases is controversial, given that the LSB is currently investigating the SRA’s handling of the Axiom Ince collapse and is set to report imminently following a review earlier this year. The LSB did not directly address this in its decision notice, stating that the proposed changes do not meet the conditions for refusal and outlining reasons for that assessment.
The notice added: ‘The SRA justifies the increase as being necessary and proportionate, given the overarching aim of the compensation fund is to maintain protections for the public, and to maintain trust and confidence in legal services.’
The apportioning of contributions has also been an issue since the increase was announced, with firms paying the same flat fee no matter their size. The LSB said in its decision notice it was ‘mindful’ of the impact of this approach on smaller firms and has asked the SRA to assess whether the system is fair.
The decision notice also reveals that the SRA has taken on extra staff at senior executive level to manage its finances, including an additional chartered accountant with experience of managing cash flows in large organisations.
The Law Society described the contribution fee rise as ‘deeply concerning’ and said it has only increased the need for the LSB to publish its report into Axiom Ince.
Law Society chief executive officer Ian Jeffery said: ‘The SRA’s request for additional funds is largely the result of the collapse of Axiom Ince and the cost of compensating its victims.
‘We expect the independent review of the SRA’s performance on this matter commissioned by the LSB to be published as soon as possible, so that the lessons can be learned.’
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