SRA scraps plans to cap compensation fund
The regulator had proposed to reduce the single claim limit from £2m to £500,000
The Solicitors Regulation Authority (SRA) has announced it will not reduce the maximum grant allowed from its compensation fund, following a 2018 consultation on the issue.
The fund compensates individuals owed money by a regulated firm. It covers risks not covered by professional indemnity insurance, compensates those who have suffered loss due to a solicitor’s dishonesty or failure to account for money they received, and aims to reinforce trust in the profession. Solicitors contribute to the discretionary fund through a levy on the practising certificate fee.
In June 2018, the SRA ran a consultation which proposed key changes to the compensation fund, including reducing the single claim limit of the fund from £2 million to £500,000. However, the SRA has now abandoned these plans.
The Law Society has welcomed the news. A Society spokesperson said: “We are happy to see the SRA has made the right decision in this matter and recognised the paramount importance of its role protecting the interest of the consumers of solicitors’ legal services.”
They added: “In our response to the SRA’s consultation on changes to the compensation fund, we insisted the proposed cap was unnecessary.
“According to their own data, the average grant from the fund is £20,000, with 75 per cent of grants under £5,000. So, in practice the number of applications likely to be affected by a £500,000 ceiling would have been very low.
The Law Society highlighted a reduction in the limit may have impacted public confidence: “But, at a time when other professional compensation schemes, such as the Financial Ombudsman Service, are increasing their maximum pay-outs, this change would have sent entirely the wrong message to consumers, undermining public confidence in the profession, and legal services more generally.
“Solicitors pride themselves on having high levels of consumer protection for their clients, the proposal to lower the fund would have left consumers exposed to greater risk.
“It is a matter of principle that people defrauded by their solicitor should be eligible to apply for compensation, regardless of their means or perceived deservedness.