SRA board backs moving cost of interventions to Compensation Fund

The SRA board has backed plans to transfer the escalating cost of firm interventions from the SRA's annual budget to the Compensation Fund.

Richard Collins, director of policy and standards at the SRA, told last month's board meeting that the regulator was already discussing the change with the Law Society.

Collins revealed at that stage that the SRA had already spent £2.2m on interventions this year, including 1m for Atteys and £800,000 for Blakemores. This compares with last year's total cost for interventions of only £1,160,000.

Yesterday's board meeting in Birmingham heard that the SRA now estimated the cost of interventions at anything between £5.48m and £14.99m, with a 'best view' figure of £9.9m. This would leave the regulator with a shortfall of 7m in its budget.

"This cannot be accommodated within the current SRA budget," Collins said in a board paper on interventions.

He said the 'frontline regulation functions' at the regulator, such as authorisation, supervision, enforcement and forensic investigation, were already overstretched as a result of a constrained budget and there was a need to prioritise new areas of activity such as financial stability and fraud.

Collins said the scope for reduction in other activities to offset intervention costs was "extremely limited".

He went on: "The overall financial position of the group would suggest that a call on group reserves would be highly undesirable, and a one-off call on those we regulate to fund this issue would be administratively costly and also highly undesirable in the current economic climate.

"The executive's view is that the most appropriate policy option is, in any event, to meet the excess requirement from the Compensation Fund. Indeed, it is the executive's view that intervention costs should generally be met from the Compensation Fund."

Collins said legislation, in particular section 36A of the Solicitors Act 1974, allowed the Compensation Fund to be applied for purposes other than simply grants to applicants.

"If we look at the potential high end intervention costs for 2013, or even the levels of certainty around the best view, it is difficult to see how any organisation could sensibly budget for such costs within a normal 'administration' budget.

"Put simply, it would have been fanciful to seek a budget for the SRA for 2013 some £6m higher than it is because there is a 10 per cent chance that a significant intervention will be required.

"We are moving into a position where now and for some time in the future, intervention costs will be unusually unpredictable and lumpy.

"Given this, our view is that from a policy and sound financial management perspective, the cost of interventions are properly accommodated within a fund of the type provided by the Compensation Fund."

A spokesman for the SRA added that the regulator's standards committee would discuss a consultation on the change next week.