ADMINISTRATION: concerns over costs in paying £13m to victims of solicitors' dishonesty



There is to be a review of how the Compensation Fund works after figures showed that £16 million was spent in administration last year to pay out £13 million to the victims of solicitors' dishonesty.


Regulation Board chairman Peter Williamson announced the review at last week's Law Society Council meeting, which also agreed to reduce the full 2006/07 contribution to the fund by £100 to £400 per solicitor.


Solicitors who are four, five or six years' qualified will pay £200, while less experienced solicitors will, as usual, pay nothing.


Concerns about the operating costs were raised by council members Denis Cameron and Sue Nelson. Mr Williamson said: 'I agree it is time we had a look at the Compensation Fund... It is on the medium-term agenda of the Regulation Board and I will look at promoting it further up.'


This year's contribution was set in the wake of no major defaults in 2005 - although there is concern over the possibility of a 'catastrophic default', possibly arising from a large firm unravelling or from a firm facilitating an investment scheme involving money passing through client accounts that is then lost.


Grants are almost invariably made only in relation to firms that are subject to intervention, and the number of interventions remained steady at 60 in 2005.


However, a report before the council speculated that had so many resources not gone into investigating miners' compensation cases - which now seem unlikely to lead to interventions - the number of interventions in other practices may have been higher.


Interventions following the abandonment of a practice or a solicitor's bankruptcy - as well as accounts rules breaches - have increased, but those on the grounds of suspected dishonesty dropped from 21 to 11 in 2005.


This could be the result of London solicitor Anal Sheikh's unprecedented successful challenge to an intervention last year - an appeal was heard in the Court of Appeal last week - suggesting more effort to base interventions on breaches rather than suspicion.


Under the government's legal services reforms, all frontline legal regulators will be required to have a compensation fund - many currently do not. A financial analysis on the options it commissioned from accountants PricewaterhouseCoopers was published last week.


The three options are: having a central fund for all; a central fund excluding the Law Society, which would retain its existing fund; and each regulator having its own fund.


The Law Society wants to retain its fund, which it says works well, while the others want a central fund. The analysis said the first two options would work best financially for the other professions, although all the options came out at roughly equal for solicitors.


Neil Rose