News releases

Board asked to approve interventions costs' proposal

The Board of the Solicitors Regulation Authority (SRA) has been asked to approve plans to fund the cost of interventions from the Compensation Fund.

At its meeting in April, the Board agreed to consult on the proposal to make key stakeholders aware of the suggested policy change and seek views. Respondents were also asked that, if they did not agree with the proposed approach, they should identify other means of funding intervention costs. None of the 24 responses included an alternative course of action which sat outside of the SRA Budget or Compensation Fund and would not have a financial impact of the profession.

The Board will be asked at its meeting on 12 June to approve the proposal. The Solicitors Act 1974 (as amended) provides express statutory power for intervention costs to be paid from the Compensation Fund. The responses did however raise concerns about the cost to well managed firms arising from the financial failure and disorganised closure of other firms and suggested that further steps should be taken to recover intervention costs from partners in cases of firm failure. The Law Society response also suggested that the move should not be a long-term solution.

Richard Collins, SRA Executive Director for Policy, said: "We are grateful to all those who responded to the consultation within the short timetable which was necessary to fit the timetable for setting regulatory fees for 2014. 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.

"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. In the future, all matters that have been raised will undoubtedly be covered by both the Wider Fees Review and Compensation Arrangements Review."

There was a reduced need for interventions in 2012 compared to previous years, but the first four months of 2013 saw 15 interventions take place, two of which are estimated to cost £1.8 million because of the nature of the issues to be dealt with in order to protect present and past clients. The SRA has now estimated that the total cost of interventions in 2013 may be £7 million greater than the budgeted costs.

However, significant resource is being applied by the SRA to supervising firms in financial difficulty with a view to ensuring that any firms that do have to close, do so in an orderly fashion, protecting the interests of clients and avoiding the need for intervention. So far, the 15 interventions effected by the Authority have an estimated cost of more than £2 million.

Interventions into Birmingham firm Blakemores and Atteys of South Yorkshire are estimated to eventually cost £800,000 and £1 million respectively. The two interventions were carried out on 11 and 12 March, and a report on financial stability among all firms in England and Wales was presented to the SRA Board on 13 March.

The SRA has since brought together all its advice to firms on managing finances—including responsibilities outlined in the Handbook and a series of good and poor behaviours against which to measure practice - which can be accessed here:

More on Financial Stability

The Wider Fees Review and Compensation Fund Review will report back in the next two years.

Go to the Board paper

 
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