Cost of interventions threatens to swamp SRA

The SRA is already set to spend £2.2m intervening in law firms this year, almost a million pounds more than its estimated expenditure of £1.28m for the whole of 2013.

The regulator’s board also heard today that if it had intervened in former national firm Cobbetts, later acquired by DWF, the cost could have been £6m.

Describing the cost of interventions as a “real red flag issue”, the SRA’s chief executive, Antony Townsend, said the money spent so far this year could swallow up 10 per cent of the regulator’s annual operating budget.

Richard Collins (pictured), director of policy and standards at the SRA, said the regulator would be discussing with the Law Society whether the cost of interventions should come out of the Compensation Fund.

Collins said the fund was “much more capable of dealing with one-off peaks of significant expenditure” than the regulator’s fixed annual budget.

“In the past financial failures would be an opportunity for other firms to acquire or merge,” he said.

“Now we are seeing a situation where firms are failing and we are having to intervene to protect the public.

“Interventions should not be seen as an automatic response to the financial failure of a firm. They are almost a last resort. In other cases, such as fraud and dishonesty, we have to intervene at an early stage.”

He said there was no need to intervene where, as in the case of Cobbetts, another firm was prepared to take over the files and assets.

“In the case of Blakemores there was no firm prepared to take over the clients and assets, so we needed to intervene,” he said.

Collins said there were 62 interventions in 2011, at a total cost of £1.97m and 37 in 2012 at a total cost of £1.16m. He said the regulator had estimated that there would be 30 interventions this year, at a cost of only £1.285m.

However, Collins said that the cost of closing Atteys alone was currently estimated at over £1m. Following the intervention, 400,000 closed files have to be dealt with.

He estimated the cost of intervening in Blakemores at £800,000, with 4,000 live matters, 130,000 dead files and 5,000 deeds requiring attention.

Collins warned that other law firms were in difficulties and being supervised by the SRA. He said the increasing cost of interventions would be borne by the profession and by clients.