The increasing burden on the compensation fund has been brought into focus by figures showing near-record demand for payouts.
The Solicitors Regulation Authority’s annual review for 2017/18, published today, reveals that £18.1m was paid to law firm clients during that year. This was 19% more than the previous year and the highest figure recorded since 2013/14.
The rise explains why firms are now paying more than ever to help compensate clients who have lost money through a solicitor’s dishonesty.
The SRA collected £90 per solicitor and £1,680 per firm for 2018/19 - up from £40 per solicitor and £778 per firm the year before.
Such an increase was predicted last year when the SRA warned that a single ‘get-rich-quick’ scheme was capable of wiping out the £48m compensation fund, with the levy needing to increase to cover such major claims.
Nothing on that scale was reported in 2017/18, but the largest compensation fund grant of £820,000 in the year was 64% higher than the highest payout in 2016/17.
The sizeable payout followed the closure of an unnamed firm, which specialised in probate and estate management, due to suspicions of dishonesty. A 20% shortfall in the client account was discovered, with the SRA forced to replace the money. Two employees of the firm were fined £30,000 and a third was struck off.
Excluding the most extreme case, the total number of claims made in 2017/18 increased 21% to 2,648, while claims that led to a payment more than doubled to 1,553.
Probate losses are the most common factor behind a compensation fund payment, with this sector costing the fund £5.3m. Conveyancing fraud cost the fund £3.7m.
As well as paying for the fund through solicitor and firm contributions, the SRA says it will ‘pursue all avenues’ in recovering costs. This will include taking action against: the intervened-in solicitors or managers; the firm’s insurer; and, in certain cases, the firm’s former partners and directors. In total, some £6.9m was recovered in costs from compensation fund grants in 2017/18, up 25% year-on-year.
The SRA is likely to refuse a claim if it should be dealt with by the firm’s insurers, arises from a business with a turnover of more than £2m a year, or stems from the client not taking proper care of their money.