This autumn the media will be replete with stories about the number of small firms of solicitors who have ceased to practise. A recurrent theme will be the lack of competition between those firms who remain, and an absence of choice for the consumer. There are three reasons for my prediction.

First, historically low rates of interest have deprived firms of income in the form of interest on client funds. I would suggest that for the majority of high street firms holding client money, this interest has always been an important element of their profits. Whether such income is justified as reward for providing a banking service or an unjustified windfall is not germane. It is not my purpose to argue the merits either way, merely to observe that this source of income has disappeared.

Second, we have just experienced the worst recession in living memory. The performance of the housing market, on which many firms rely for conveyancing fees, has been poor and the outlook is no better. With substantial cuts to public expenditure just around the corner, consumer sentiment is guarded. Companies and clients are holding back on discretionary spending, which includes expenditure on legal services.

Third, and most significantly, professional indemnity insurers are increasing premiums substantially. This is not unrelated to the collapse in bank base rates. Just as solicitors have lost interest on client funds, insurers have lost the interest they would have earned by placing their premium income on deposit. Like any other business facing a hike in the overhead, they understandably seek to pass on this additional cost to their solicitor clients. It is fortunate for them that they are in a position to do so. The average high street firm is in no position to impose a sudden, and substantial, increase in fees on hard-pressed clients who are worried about employment prospects, the recession and public expenditure cuts. At the same time, insurers have had to meet additional costs arising from the claims of firms who are in the assigned risks pool.

There is nothing the solicitor regulation authority can do about the first and second of these problems, but there is something it can, and must, do about the third.

The market for solicitors’ professional indemnity insurance has become skewed in favour of the banks and building societies that lend money in the mortgage market. In the vast majority of residential conveyancing transactions the solicitor acts for the lay client, who pays a fee, and also for the lender, who traditionally does not. At the same time, if something goes wrong and a negligence claim is made, the lender has access to the most comprehensive and extensive insurance product in the entire market. This is ridiculous.

The solution to this problem is simple. The Code of Conduct must be amended to provide that a solicitor may not act in a mortgage transaction for any lender unless he charges a proper fee. What a 'proper fee' is may be open for discussion. The fee would have to reflect the fact that work is done for the benefit of both clients, whether it is 'generic' to the transaction as a whole or just mortgage specific. It might relate to the proportion of the purchase price being lent on mortgage.

This would reflect fairly the risk taken by each party to the transaction. The fee could be capped at the level of fee charged to the client, or it might be a given percentage of the fee quoted to the client, which has the merit of simplicity. Judging by the figures mentioned in mortgage offers, lenders seem to think that the mortgage-specific work has a value around 30% of the quoted fee, so that could be the rule.

Such a move could be the difference between a firm deciding to cease or continue in practice for the insurance year 2010/2011.

Mortgage lenders would be required to, in effect, contribute to the cost of the provision of a comprehensive form of insurance of which they are major beneficiaries, which is just and equitable.

The SRA has only days in which to act. Please don’t think that if a client finds that his solicitor has gone out of business he can go to the one down the road. This time next year, the one down the road may no longer exist.

Charles Fuchter , Redfern Stigant