Cash-strapped solicitors may have to pay ‘a significantly larger’ sum into the Compensation Fund as more firms require intervention in a deepening recession. Papers considered last week by the Solicitors Regulation Authority board forecast that the number of interventions is expected to rise from 71 in 2008 to more than 100 this year.

The fund is supported by a levy, last year amounting to £150 for all solicitors holding client funds. Rob Adams, director of client protection, told the board that ‘it is likely that a significantly larger contribution will need to be collected at the start of the 2009/10 practising year’. The payment is separate from, and on top of, the practising certificate fee.

During the 12 months to March 2009, the fund handled 1,920 claims, an increase of 22.5% on the previous year.

Antony Townsend, the SRA’s chief executive, told the meeting: ‘It is no surprise that with the economic downturn, demand on the fund is going up and the number of claims is going up.’

The fund reserve at 31 March 2009 was £55.5m. If payments made by the fund reach £38m – the upper-end estimate – the fund will end the year with ‘significantly lower reserves’. However, the SRA said there is no risk of insolvency to the fund.

Interventions are a last-resort measure when the SRA sends in an agent to close a practice on grounds ranging from dishonesty to death, returning papers and cash to their owners. Because small firms are more vulnerable to the incapacity of individuals, almost all interventions involve firms with one or two partners. Interventions last hit treble figures in 2000, with 113. In 2007, there were 48.

A report presented to the board said: ‘It is now forecast that intervention numbers will exceed 100 by the end of 2009.’ The report adds that the ‘impact of the economic downturn and resulting crystallisation of mortgage fraud’ requires extra investigation and inspection work, which will be reflected in ‘further growth in interventions, and therefore applications to the fund, over the next 12 to 24 months’.

The final decision on the level of contribution rests with the Law Society Council. Last year the SRA recommended a contribution of £300, but Council opted for £150.

The Law Society said that ‘a properly funded compensation fund is essential for the protection of the public and the reputation of the profession. We believe that the contributions should be targeted at those who cause risk to the fund. It is obviously prudent for the SRA to be considering how to manage the perceived increased risks so that the overall cost to the profession is proportionate’.

The SRA’s Financial Protection Committee will publish its recommendations to the SRA board next month.