Each solicitor may have to pay an extra £23 a year in compensation fund contributions to pay for future interventions into failing firms.
The Solicitors Regulation Authority has decided to use the compensation fund to meet the estimated £7m budget overspend on interventions this year, occasioned by the demise of high-profile firms including Blakemores and Atteys.
The profession will be shielded from extra compensation fund costs in 2013, but firms and solicitors will have to pay more from next year.
Assuming there are 121,000 solicitors, the SRA calculates each individual could pay an extra £23. Firms’ contribution will be calculated next year based on their turnover.
The figures are revealed in papers prepared ahead of the SRA board meeting tomorrow.
Since publication of the report, the SRA has contacted the Gazette to emphasise that overall the compensation fund contribution for each solicitor in 2014 will be less than the previous year.
The 2013 compensation fund levy, to cover uninsured losses faced by clients, increased by £32 (per individual) and £568 (per firm), to £92 and £1,340 respectively.
The papers make it clear that the legal profession will have to meet the extra costs one way or the other, after a year in which high-profile closures have seen intervention costs soar.
The SRA will use existing compensation fund reserves, estimated to be around £44.9m in October, to cover additional costs incurred this year.
But the compensation fund will cover all intervention costs from 2014, meaning an extra cash call on the solicitors' profession.
The SRA paper said: ‘We have considered the impact the proposal will have on those we regulate and from all perspectives and we conclude that the costs of interventions have to be met by the regulated community whatever the mechanism – either through practising fees or compensation fund contributions.’
The SRA received 24 responses to its consultation, with many expressing concern that the compensation fund is intended to pay clients who have suffered financially from the actions of their solicitor.
In its response, the regulator said interventions are carried out in the public interest, with an increased risk of misuse of client money when a firm is experiencing financial difficulties.
The SRA said the fund will continue to be applied where loss has been suffered due to the dishonesty of a practitioner or where an individual has suffered loss.
The SRA said there had been a reduced need for interventions in 2012, which was reversed in the first four months of this year when interventions took place.
Although the outcome was largely a formality, SRA executive director Richard Collins said it was important to consult with the profession to ensure openness.
‘There was a clear policy proposal from the SRA that it was necessary to use the compensation fund to cover the cost of interventions, but the consultation was important to be transparent about the situation, explain the issues faced by the board and its analysis of the best way forward and seek additional ideas to manage the situation,’ said Collins.
‘When considering the response, it is important to remember that whichever solution is decided upon, it is the profession that ultimately carries the cost of interventions.’