The Solicitors Regulation Authority (SRA) proposes adjusting the current funding model for its Compensation Fund from a 50/50 split to a 70/30 ratio between individual solicitors and firms.
- Feedback on potential long-term changes is encouraged, with considerations for determining contributions based on firm size or risk level.
- The proposal responds to changes in the profession’s demographic since the original funding model was established in 2010.
- A shift towards a 70/30 split is deemed more equitable given the increase in individual solicitors and decrease in firms.
- Potential long-term strategies include incentivising risk-reducing actions and adjusting contributions according to firm attributes.
The Solicitors Regulation Authority (SRA) has initiated a consultation process aimed at redefining how contributions to its Compensation Fund are structured. Currently, the fund is sustained equally by individual solicitors and firms, but a proposed shift would change this balance to a 70/30 split, favouring individual contributions. This modification is seen as reflecting the evolving landscape of the legal profession since the 50/50 split’s inception in 2010.
The consultation seeks to engage stakeholders in a broader discussion on how contributions might be more dynamically calculated, particularly by considering firm size or risk profile. This is part of a series of reviews following the SRA’s consumer protection assessment. The motivation behind this proposal stems from the profession’s support, including views from public and consumer groups, towards sustaining an effective compensation fund.
The last fiscal year saw individual solicitors contributing £90, while firms paid £2,220, rates significantly heightened following the collapse of Axiom Ince. Should a 70/30 model be adopted for the 2025/26 practising year, estimated contributions would adjust to £55 for individuals and £662 for firms. This recalibration is particularly advantageous to smaller firms, many of which employ a higher proportion of ethnic minority solicitors.
Long-term reform options include offering contribution discounts to firms that adhere to specified criteria, such as hiring external auditors or attaining cybersecurity certificates. While intended to promote safer operational practices and protect both consumers and the fund, the complexity of managing these measures could lead to increased costs, disproportionately impacting smaller firms.
Other approaches considered involve utilizing client money amounts or firm turnover to set differential contribution rates. Although these methods could encourage less direct handling of client funds, they may inadvertently compel larger firms to seek alternative financial management strategies, such as third-party managed accounts, thereby affecting the fund’s overall structure.
Revisions to the claims payout process are also on the table, including adjusting or eliminating the current £5 million cap on claims related to connected circumstances. The scheme’s existing discretion allows the SRA to assess claim validity based on the applicant’s contribution to their loss, particularly in high-value investment schemes where solicitor involvement falls outside typical business practices.
The SRA’s proposals aim to better align the Compensation Fund’s sustainability with the profession’s current structure, ensuring fairer contribution rates and risk management.
