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SRA looks at best way to meet increased interventions' costs

The Solicitors Regulation Authority (SRA) is considering options to meet the higher-than-expected costs of interventions.

A large number of firms of varying sizes are experiencing financial difficulties in the current economic climate. When all other options available to the Authority have been exhausted, the SRA may have no alternative but to protect clients by intervening into these firms when they no longer have the necessary funds to discharge their obligations.

In comparison to previous years, 2012 saw a reduced need for interventions, but the first four months of the year saw 15 interventions take place, two of which are estimated to cost £1.8 million because of the size of the firms involved. There can be no certainty over future possible intervention costs, but from within a range of scenarios, the SRA’s best estimate is that the cost in 2013 may be around £7 million.

The SRA Board has considered the options available to meet such a level of increased cost, and is of the view that the Compensation Fund is the only viable option. The Solicitors Act 1974 (as amended) provides express statutory power for intervention costs to be paid from the Compensation Fund.

A four-week consultation is now taking place so key stakeholders are aware of the proposed policy change and can express their views. The exercise will close on 31 May. The consultation needs to be completed within four weeks to fit in with the Law Society Group’s budget-setting process.

Richard Collins, SRA Executive Director for Policy, said: "In light of the increased budget pressure caused by this unexpected rise in interventions, the Board has decided that the best course of action is for the Compensation Fund to be used to pay the cost of interventions. We are therefore holding a short consultation exercise, which allows us to explain to the profession and other stakeholders what the situation is and why we believe this is the best way to deal with it.

"We have also asked that anyone who does not support this approach to identify other means of funding intervention costs. It is important to note that, whichever solution is decided upon, it is the profession that ultimately carries the cost of interventions – to the extent that it is not possible to recover the costs from the managers of intervened practices."

David Middleton, SRA Executive Director for Post Enforcement, added: "We do not take the decision to intervene into a practice lightly, and when financial instability is involved, firms can explore options which may avoid the need to close a firm down. In these tighter financial times, however, more and more firms are no longer in a position to meet their financial obligations and cannot continue or wind down in an orderly manner without putting clients at risk.”

"We do not want the number of interventions to continue increasing, but we may not have a choice."

The consultation was finalised by the Authority's Standards Committee on Wednesday 1 May.

View the consultation

So far, the 15 interventions effected by the Authority have an estimated cost of more than £2 million. The final cost of an intervention is not known until all matters have been dealt with.

The interventions into Birmingham firm Blakemores and Atteys of South Yorkshire are estimated to 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.

Legislation was strengthened in 2007 to enable the SRA to pay for the cost of all interventions from the Compensation Fund. The cost of intervening into law firms because of suspected dishonesty was paid from the Compensation Fund for many years. Since any default by a law firm can have an impact on the Fund, the power was extended in 2007 to cover all interventions.

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.

More on financial stability

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