A controversial plan to cut maximum payouts from the Compensation Fund has been quietly dropped by the regulator. Minutes of the Solicitors Regulation Authority’s latest board meeting - held last month behind closed doors - state that the proposal to reduce the single claim limit from £2 million to £500,000 has been removed from a package of reforms. 

The decision follows an intervention by the Legal Services Board, which last month warned that the reduction would be of ‘significant detriment’ to clients. The Law Society welcomed the news. 

Solicitors Compensation Fund payments – ultimately funded by practitioners and firms – are available to clients who have suffered hardship as a result of dishonesty. The SRA argues that only 0.2% of payments over the past 15 years have been for more than £500,000, so cutting the limit would hit a tiny number of claimants.

While conceding defeat to the LSB on the issue, the board minutes reveal that the SRA could revive the plan in future. 

Minutes of the meeting on 27 April state that: ’following the [Legal Services] Board’s steer at its meeting on 12 April 2021, the executive had further discussions [with the] LSB about how we could take forward the application for our Compensation Fund reforms. 

’In the light of those discussions and further information we had provided in relation to larger charities and trusts, the board agreed that we should submit an amended application with the reduction in the single claim limit from £2 million to £500,000 removed from the reform package. This does not preclude returning to this proposal at some future date, but does mean that the rest of the package can be implemented in a more timely fashion.'

The SRA's other proposals include barring compensation payouts to large charities and trusts with assets or annual income of more than £2m.

Reacting today, a Law Society spokesperson said: 'We are pleased to hear that the SRA has decided not to reduce the single claim limit of the Compensation Fund.

'In our response to the SRA’s consultation on changes to the Compensation Fund, we insisted the proposed cap was unnecessary. According to their own data, the average grant from the Fund is £20,000, with 75% of grants under £5,000. So, in practice the number of applications likely to be affected by a £500,000 ceiling would have been very low.

'But, at a time when other professional compensation schemes, such as the Financial Ombudsman Service, are increasing their maximum payouts, this change would have sent entirely the wrong message to consumers, undermining public confidence in the profession, and legal services more generally.

'Solicitors pride themselves on having high levels of consumer protection for their clients, the proposal to lower the Fund would have left consumers exposed to greater risk.

'It is a matter of principle that people defrauded by their solicitor should be eligible to apply for compensation, regardless of their means or perceived deservedness.

'We are happy to see the SRA has made the right decision in this matter, and recognised the paramount importance of its role protecting the interest of the consumers of solicitors’ legal services.'


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