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£5m plan to cut SCF payments approved

20 October 2009

The SRA has decided to release up to £5m from its statutory trust to reduce the contributions paid by firms in 2011 and beyond to the Solicitors Compensation Fund.

The move reflects concern about the impact on firms of a rising tide of claims against the compensation fund, and a sharp increase in contributions, at a time when they already face increased indemnity insurance premiums.

A spokesman for the SRA said the decision was taken at a board meeting last week, but there would be a short consultation exercise with “interested stakeholders” before any recommendations were made to the Law Society’s ruling council.

“This would be more than a one-off payment,” the spokesman said. “There may be further payments in future years, though not necessarily as much as £5m.”

The SRA’s statutory trust currently holds around £8m in dormant client accounts, following interventions. The spokesman said although the SRA advertises and uses investigation agents, it is not always possible to trace clients.

It is understood that they could potentially come forward to claim money after it had been transferred to the compensation fund, but the SRA believes such claims would be rare.

In a separate development, the SRA has ruled out reducing the premiums charged to firms in the Assigned Risks Pool (ARP).

Andrew Long, chairman of the SRA’s financial protection committee, said: “The ARP premium rates for the indemnity year, which began at the start of this month, were fixed many months ago.

“They are contained in rules made under statute and in a set of contracts made earlier this year. It is not realistically possible to now change those rates.”

Long said that if firms in the pool obtained insurance on the open market before the end of November, that insurance could be backdated to 1 October, enabling them to leave the ARP.

The number of law firms in the pool has risen sharply, from 256 to 342 (see solicitorsjournal.com, 13 October 2009). The SRA has warned that the figure is very volatile and likely to fluctuate in the coming weeks.

A large majority of firms in the risks pool are sole practices or two-partner firms. The Sole Practitioners Group has reported being flooded with calls from solicitors unable to afford drastic increases in their premiums of up to 300 per cent.

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