The Law Society has called for ‘proper transparency’ if regulators are to pay intervention costs out of compensation fund reserves.
The Solicitors Regulation Authority confirmed on Wednesday it wants to cover an estimated £7m overspend on interventions this year by using money held in the compensation fund.
The SRA says it is the only option to avoid imposing a one-off levy on the profession, but there are concerns that a fund designed for client protection is being used to intervene at failed firms.
Mark Stobbs, the Society’s director of legal policy, confirmed the SRA has the power to move the costs of intervention to the compensation fund and this may avoid an immediate levy on the profession.
‘However, although the money comes from the same pot in the end, the two aims are different and it would be unfortunate if the two became muddled as a matter of course,’ he said.
‘Interventions are an important part of the profession's public protection role, but it is crucial that the SRA should ensure that it is forecasting for the future so that there is proper transparency about the money that is being spent.’
SRA director Richard Collins told Wednesday’s board meeting it was ‘unattractive and almost impossible’ to levy a charge against the legal profession to cover intervention costs.
‘There would be no certainty about the level to pitch it and you’d be going to firms in a financial year who have not expected such a cash call.’
Collins stated that recharging interventions to the compensation fund would have a ‘minimal impact’ on the fees collected from the profession, with the fund able to absorb unpredictable costs better than the operational budget.
The failure of firms such as Blakemores and Atteys has meant the SRA is already close to spending its entire £3m interventions budget for 2013.
The regulator has warned that if a firm as big as Cobbetts were to require interventions, it could add as much as £6m to the cost.