The Law Society has told the Solicitors Regulation Authority (SRA) that the funding of interventions using the solicitors' Compensation Fund is preferable to a levy on the profession, however, the Society does not support the adoption of this policy on a long term basis.
In its response to the SRA's consultation, Exercising the statutory power to pay the cost of firm interventions from the Compensation Fund, the Law Society said it understands the need for emergency measures to fund the increased cost of interventions for 2013, but such measures should not be used to drive a policy change ahead of the SRA's full review of the entire compensation arrangements, which is scheduled for 2014.
The Law Society considers that interventions should only be used in extraordinary circumstances as they are a draconian measure that severely impact all concerned, including clients and employees.
The Law Society is committed to work with the SRA to identify alternatives to interventions particularly in the context of firms failing for purely financial reasons. The process of intervention is one of a number of methods by which the SRA enforces compliance and the internal and administrative costs should, in principle, form part of the SRA's budget. This helps to ensure that there is transparency and accountability.
Law Society chief executive Desmond Hudson said:
'The Compensation Fund exists primarily to make good any deficiency in client money and to maintain public protection in the event of solicitor dishonesty. This does not necessarily align with the purposes for which intervention costs may be incurred.
'Every effort should be made by the SRA to reduce the likely overspend this year on interventions. There is significant value in keeping the cost of 'last resort' compensation and the cost of enforcement separate. Although the money comes from the 'same pot' in the end, the two aims are different and it would be unfortunate if the two became muddled as a matter of course. It is crucial that the SRA should ensure that it is accurately forecasting future costs so that there is proper transparency about the money that is being spent.'
Des Hudson added that, 'any long term policy change to the Compensation Fund requires a full and detailed impact assessment and substantial consultation.'
'This assessment must also consider future costs likely to be born by the Compensation Fund, may potentially have to bear, now and in the future, particularly given the SRA's recent expansion of its scope. By its nature the money that the Fund will pay out in any year may be less predictable than that required to support the SRA's regulatory activities. For this reason, intervention costs should remain in the SRA's budget and accounts and the SRA should manage the process of interventions as efficiently and economically as possible.'
Read the Law Society consultation response
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Notes to editors
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Contact: Catherine Reed, The Law Society
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