Law Society raises alarm over proposed compensation fund levy increase

In response to the Solicitors Regulation Authority’s (SRA) consultation on the proposed increase to the Compensation Fund levy, the Law Society of England and Wales has voiced significant concerns regarding the potential impact on the legal sector, particularly small firms and sole practitioners.

Law Society chief executive officer Ian Jeffery highlighted the severity of the proposed hike, stating, “The substantial proposed increase in the Compensation Fund contribution this year – 200% for individuals and 236% for firms – is deeply concerning. Solicitors are steadfast in their wide support for the Compensation Fund, as a vital protection for clients, and it clearly delineates the profession from unregulated providers of legal services. However, we have to question whether the SRA has provided sufficient evidence to justify the increases. Its own principles call for transparency in determining the viability of the fund whilst keeping the levy amount and the approach to collection manageable for the regulated sector.”

Ian Jeffery emphasised the need for the SRA to present solid evidence when applying for approval from the Legal Services Board, particularly explaining the rationale behind the drastic increase within a single year. He acknowledged recent failures, such as the collapse of Axiom Ince, which have strained the Compensation Fund's resources, underscoring the necessity to rebuild its reserves gradually. Additionally, he called for clarity on the measures the SRA is implementing to mitigate the risk of an increasing number of claims on the Fund.

The proposed changes will see individual contributions to the Fund rise from £30 to £90, and firm contributions from £660 to £2,220 for the 2024-2025 period. The SRA’s principles stipulate maintaining the fund's viability, ensuring manageable professional contributions, and collecting contributions transparently.