The current practising certificate fee system is crude and unfair. It is a clumsy ‘one glove fits all’ approach to collecting the funds to pay for regulation. It takes no account of the type of work done by the solicitor, whether he or she handles client money and the statistical probability of regulatory attention.

I am delighted to say that this will change in October. Although work on the detail and actual numbers continues, I am confident that the profession is about to have a fee structure that is fairer and which takes greater account of regulatory risk and the likely effort for the Solicitors Regulation Authority.

Change was inevitable. The Legal Services Act 2007 requires the SRA to regulate firms as well as individual solicitors. The majority of the SRA’s effort is focused on firms. Lord Hunt recognised this in his recent review of legal regulation, when he recommended "that the practising certificate fee should be clearly and, so far as possible, equitably split between an entity element and an individual element. I recommend that in-house solicitors should pay only the individual element’.

The SRA held two consultations, one of them in conjunction with the Law Society, before deciding the way ahead. We have striven for a system that is: Henceforth, 40% of the SRA’s income will be raised from individual fees and 60% from a firm-based fee. Our current assumptions lead us to expect the individual fee to be around £520.

  • fair and proportionate, particularly in relation to small and new businesses;
  • efficient and economic to administer;
  • as stable and simple as possible;
  • based on verifiable data;
  • targeted on those who tend to create the bulk of the SRA’s work; and
  • capable of enabling us to predict future income with accuracy.

We came to the conclusion that the calculation of firms’ regulatory payments should be based on their turnover (defined in England and Wales as gross fees), assessed in different bandings. All firms in private practice already record turnover as part of their annual accounts process and use it when renewing their indemnity insurance. It is an excellent indicator of how much business a firm conducts, and is a reasonable proxy for assessing ability to pay. This measure should avoid an unfair burden falling on firms where the earnings of practising certificate holders are relatively low.

In recent years, in-house solicitors working in local government and in commerce and industry have made a compelling case for not paying as much as colleagues in private practice. These groups make up 14.5% of all practising certificate holders. They do not handle client funds, pose a much lower regulatory risk and create relatively little work for the SRA. Henceforth, solicitors in these sectors will pay only the individual fee, not the firm-based fee. However, this will result in an increased fee burden on private practice of about 15%.

Compensation Fund fees will be split equally between individuals and firms. The Compensation Fund currently has reserves £25m higher than target, so we propose to halve the surplus in order to lighten the burden on the profession. This year, individual solicitors, including those in the employed sector, are likely to pay a flat fee of around £10 towards the compensation fund. Firms that hold client money will pay a further flat fee of around £150.

Unfounded rumoursI gather there are suggestions that the reform of the practising certificate fee structure is an underhand way of raising the SRA’s income. This is nonsense. I have already undertaken to do everything possible to reduce the regulatory burden on solicitors. That remains the case.

I also understand there is concern that this is an attempt to shift the burden away from the major commercial firms towards smaller practices. Again, this can be categorically denied. While stressing that the figures are provisional, I can provide examples of two firms, both with three PCs. At the moment, both would pay the same. In future, one with turnover of £286,000 should pay significantly lower fees; another with turnover of £761,000 should pay more.

I accept that some City firms conducting the largest transactions, generating the highest fees, will pay more. They will have large corporate clients with substantial in-house legal departments, which will be paying significantly less.

Other firms which will certainly pay significantly more are those with large numbers of non-solicitor fee-earners, or put another way, firms of any size with high revenue per PC holder. With regard to access to justice, over 60% of firms which derive half their turnover from legal aid will have a reduction in fees, while overall fewer than 5% are likely to have an increase of 50% or more. Solicitors in such firms have to recognise that the SRA now regulates not only them as individuals, but also their organisation.

Change in the method of paying for regulation was inevitable, because of the new types of legal practice enabled by the Legal Services Act. We have taken the opportunity not only to revise the system to cope with these developments, if needed, but also to end various historical inequalities.

I am confident that the new system, with its closer focus on regulatory risk and the use of turnover to assess how much firms should pay, will be infinitely fairer than the present one.

Charles Plant is chair of the board of the Solicitors Regulation Authority