1. What is the compensation fund?
It is a discretionary fund operated by the Solicitors Regulation Authority (SRA) to which all solicitors contribute, via a levy added to the practising certificate fee. The SRA's powers to operate the fund are set out in statute. It was established by parliament in 1942.
The purpose of the fund is to provide a safety net for risks that professional indemnity insurance (PII) is unable to cover, since a rule of public policy prevents anyone from insuring against his or her own dishonesty. It is therefore a fund of last resort for clients who are victims of personal dishonesty of solicitors or hardship due to a solicitor's failure to account for monies.
The compensation fund reinforces the profession's covenant of trust to the public. It is administered by the claims management unit of the SRA.
2. What does it cover?
According to the SRA compensation fund rules 2011:
3.1 The primary object of the fund is to replace money which a defaulting solicitor or a defaulting practitioner's employee or manager has misappropriated or otherwise failed to account for. The applicant need not necessarily be or have been the defaulting practitioner's client.
3.2 It is also an object of the fund to provide compensation in respect of the civil liability of a defaulting practitioner or a defaulting practitioner's employee or manager who in accordance with the SRA Indemnity Insurance Rules should have had, but did not have, in place a policy of qualifying insurance against which a claim could be made in respect of such civil liability.
See more information about SRA compensation fund rules on the SRA website.
3. Who can claim from it?
A claimant must be:
- an individual
- a business, company or association with a turnover of less than £2 million
- a charity with an annual income of less than £2 million (unless it can show that the beneficiaries will suffer hardship)
- a trustee of a trust with an asset value of less than £2 million (unless he or she can show that the beneficiaries will suffer hardship).
Claimants may be asked to provide evidence of hardship.
If a claimant has suffered a loss which occurred during the normal work of a person or firm regulated by the SRA, they may be eligible to claim from the compensation fund, whether or not they were a client or former client.
However, claimants are not automatically entitled to a grant out of the fund, (even if they have an apparently valid claim).
In order to make a claim they must be able to show that they:
- have suffered loss because of the regulated person or firm's dishonesty
- have suffered loss and hardship due to the regulated person or firm's failure to account for money they have received.
In this context, 'dishonesty' is understood to include theft and misappropriation, and 'failure to account' is understood to include failure by an SRA-regulated person or firm to finish work for which they have been paid.
The SRA will decide whether a would-be claimant is eligible to make a claim. In doing so, it will make a broad estimate of the financial amounts to determine eligibility if such information is not available.
4. How much can be claimed?
Under the SRA compensation fund rules, rule 17 sets out a maximum payment limit of £2 million for any application, but rule 24 allows the SRA to waive that rule.
5. When is the next consultation?
The SRA have informed the Law Society that they intend to carry out a consultation on possible changes to the compensation fund, between late October and early December 2017, but scheduling is subject to review and amendment.
Find out more information about who can claim, for what, and how much.