The compensation fund is a discretionary fund operated by the Solicitors Regulation Authority (SRA).
All solicitors contribute to the fund through a levy added to the practising certificate fee. This is currently split between regulated individuals, who pay a flat fee, and firms holding client money, which pay a larger flat fee.
Purpose of the compensation fund
The fund provides compensation to people who are owed money by a regulated law firm. It helps:
- provide a safety net for risks that professional indemnity insurance is unable to cover
- people who have suffered loss due to a solicitor’s personal dishonesty
- people who have experienced hardship due to a solicitor's failure to account for money they’ve received
- reinforce the public’s trust in the legal profession
You can find a more detailed explanation in part 3 of the SRA compensation fund rules 2011.
Who can claim
The fund is discretionary. The SRA decides whether someone is eligible to make a claim.
A claimant does not have to be a client or a former client of the solicitor or firm who owes them money. However, they 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 they can show that the beneficiaries will suffer hardship)
They must be able to show they’ve suffered:
- loss because of the regulated person or firm's dishonesty – including theft and misappropriation of funds
- loss and hardship due to the regulated person or firm's failure to complete work for which they have been paid
Maximum amount that can be claimed
The maximum payment limit is £2 million for any application (as set out in rule 17 of the SRA compensation fund rules. However, the SRA can waive this rule in some circumstances (as set out in rule 24).
In June 2018 the SRA ran a consultation on Protecting the users of legal services: balancing cost and access to legal services. It proposed key changes to the compensation fund, including:
- restricting claims to people and organisations who could prove hardship
- reducing the maximum payment from £2 million to £500,000
- making sure applicants who could have prevented the loss are not able to claim
Our response to the consultation
We flagged areas where changes could be made without disproportionate damage to the regulatory objectives. These include the rules around run-off cover and certain proposals regarding the fund.
We highlighted concerns about the quality of the data and analysis that underpins the SRA’s conclusions. We believe the evidence is unclear, insufficient and incomplete.