A single ‘get-rich-quick’ investment scheme that goes bad could wipe out the £48m compensation fund, the chief executive of the Solicitors Regulation Authority warned this morning.

Paul Philip was speaking at the Law Society’s annual Risk and Compliance conference in London, ahead of the publication of a new consultation on the scope and scale of professional indemnity insurance. That long-awaited consultation will be published next Friday, he revealed. 

Philip told around 300 solicitors that ‘get-rich-quick’ schemes fronted by law firms pose a real threat to the integrity of the profession’s client redress arrangements. He cited schemes that ‘offer a 15% return in a year from investing in car parking spaces, hotel rooms, or housing estates in Bulgaria that don’t exist’.

Hundreds of millions of pounds can be funnelled through the client account by ‘one-man band’ firms that disappear, leaving the client high and dry, he said. ‘We have six, seven, eight cases where large sums of money have gone through client account where there is no underlying transaction. There is no one to litigate against but a claim can be made against the compensation fund. One of those claims could wipe out the fund.’

The consultation next Friday will also address the health of the compensation fund as well as PII. 

Minimum PII cover is currently set at £2m in most cases. A previous reform proposal foundered in 2014 when the oversight regulator, the Legal Services Board, blocked SRA plans to cut minimum cover from £2m to £500,000.