The Solicitors Regulation Authority has this week approved sweeping changes to the way the practising certificate (PC) is charged, which will come into force this October.

The SRA board has pressed ahead with a new charging regime that will shift more of the PC fee burden onto private practice, to the benefit of the employed sector.

However, some board members expressed concerns that the proposals could ‘penalise firms for being efficient’ and have an unfair impact on City firms, with one large City firm having protested that it would be forced to pay up to 40% more in regulatory fees.

Under the new regime, 40% of the overall PC costs will be paid through an individual fee, and 60% through a firm-based fee. Solicitors in local government and commerce and industry will only pay the individual fee, not the firm-based fee. The move will shift around 15% of the PC fee, roughly £16m, onto private practice.

The individual fee will be based on a flat rate, likely to be around £511. The firm-based fee will be based on turnover, or gross fees, and will be calculated on a banded approach based on figures captured in the 2009 renewals exercise.

Individual solicitors, including those in the employed sector, will also pay a flat fee of around £9 towards the compensation fund this year. Firms that hold client money will pay a further flat fee of around £140 towards the fund.

The changes will mean that firms with high turnover but few PC holders, such as bulk conveyancers, will pay far higher regulatory costs than at present.

The exact turnover bandings have still to be agreed by the SRA board. However, under the current draft, the percentage of turnover to be paid in fees would be calculated in 10 tapered bands, with the first £20,000 of turnover subject to a 0.67% charge, and the next £20,000 to £150,000 charged at 0.59%. The top band, for turnover between £1m and £4m, would be charged at 0.08%.

Some members of the new SRA board, which was formed in January, expressed concern over the proposals. Mark Humphries, sole practitioner and former partner at magic circle firm Linklaters, said he was not convinced that turnover is the best basis for calculating fees. Sole practitioner Yvonne Brown said the new regime meant that ‘efficient small firms will be subsidising inefficient small firms’.

SRA board chair Charles Plant, a former partner at City firm Herbert Smith, said he had received a letter from one City firm claiming that the proposals would increase its regulatory costs by 40%.

Plant said: ‘It is obviously not right that in-house and local government lawyers should be paying the same as private practice [when they cost so little to regulate]. A firm with very considerable revenue and very few PC holders, but an army of paralegals, is presenting a greater regulatory burden, and it is only right that that firm should be paying more… But the fact is that [the major commercial firms] have invested huge sums in their systems and they are saying "why should we be paying more?" We have got to be cognisant of that.’

Plant added that the board would look again at the way the turnover bands have been calculated.Jamie Turner, a consultant employed by the SRA to advise on the proposals, said City firms would not be paying more overall.

Law Society president Robert Heslett said basing regulation costs on turnover was the most ‘practical and sensible approach’ to achieve greater fairness.