Axiom Ince collapse fuels threefold hike in compensation fund levy

Regulator says proposed payment increases down to sharp rise in interventions
April 13 2019: Image taken of Aldgate Tower at 2 Leman Street, London E1 8FA. Aldgate station was not busy as this was taken on a weekday late afternoon.

Aldgate Tower Mrtravelbunny; Shutterstock

The Solicitors Regulation Authority (SRA) has proposed a threefold increase in mandatory payments to the solicitors’ compensation fund due to a sharp rise in law firm interventions including last year’s collapse of Axiom Ince amid allegations of fraud.

Under the proposals for 2024/5, individual solicitors’ payments would rise by 200% from £30 to £90, while law firms would pay £2,220 into the fund – the profession’s insurer of last resort – representing a 233% increase from £660. All firms pay the same amount irrespective of size. 

The SRA said the increase would rebuild the fund’s reserves after a spike in claims and interventions, including those related to Axiom Ince. The fund lost £29.1m in 2023, down from a surplus the previous year. 

The SRA said it had carried out 65 interventions during 2022/23, more than double the number in the previous year. 

It is the first time in five years that contributions have been raised. However, the scale of the increase brings the individual contribution back to the same level as the last highwater mark in 2018/19 while at £2,220, the law firm contribution is considerably higher than the £1,680 sum set in 2018/19.

The SRA said it had made the new levies as manageable as possible while also maintaining the fund’s viability. According to the Law Society Gazette, the SRA has also agreed to a potential borrowing facility of £10m to be taken out if there are any further large-scale interventions in future.

The SRA is proposing to keep next year’s practising certificate fees at the same level as this year – £162 per person. 

Paul Philip, the SRA’s chief executive, said the fund played “a critical role in protecting the public and maintaining trust in the profession”.

He added: “We have a duty to ensure the fund is maintained and remains viable. This proposed rise has been driven by [the] unprecedented level and cost of claims and interventions in the last year. We have done all we can to ensure the contributions don’t rise any more than they absolutely have to.”

Law Society CEO Ian Jeffery described the increases as “unfortunate” but underscored the fund’s importance to consumers, saying it provided “crucial protection and reassurance”.

He called for “greater vigilance and probity on the part of our members and a focus on effectiveness by regulators”.

A City of London Law Society spokesman said it was “disappointed” at the need to triple contributions while Paul Finn, technical author at the Forum of Insurance Lawyers, said: “The higher compensation fund costs represent an added expense that law firms and solicitors will need to absorb.”

The hike in fees comes against the background of the Legal Services Board’s (LSB’s) commissioning last December of a review into the SRA’s oversight of Axiom Ince in the run up to its collapse, when it was discovered that around £66m of client money was missing from its accounts. 

CM Murray partner Andrew Pavlovic, who specialises in SRA professional discipline and regulatory investigations, noted that an increase in contributions to the fund had been expected, particularly after the SRA decided not to enforce its £5m cap on claims arising from Axiom Ince’s collapse. 

He noted that publication of the LSB’s report into the SRA’s handling of Axiom Ince had been pushed back until after the UK general election, beyond the 24 June deadline for responding to the SRA’s consultation on the contributions rise.

“If in due course the LSB’s report does identify failings in the SRA’s approach then individuals and firms may question why they are being asked to shoulder the burden of such large increases,” he said. “From a practical perspective the increase in both firm and individual contributions will be an additional financial burden on firms that are already having their margins squeezed for various other reasons. In that regard, the proposed increases, whilst not unexpected, will be unwelcome.”

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