Closed Consultation
Compensation fund
9 April 2009
Legal Services Act: New forms of practice and regulationConsultation paper 10
The deadline for submission of responses to consultation paper 10 on the Legal Services Act was 6 June 2008. However, responses to Question 2 (raising the maximum compensation fund grant to £2 million) were accepted until 18 July.
A report on responses to this consultation was considered by the SRA Board on 4 September 2008. The Solicitor's Compensation Fund Rules 2009 came into force on 31 March 2009.
The information below is for reference purposes only.
The SRA maintains a compensation fund for the purposes of making grants to persons who have suffered loss by reason of the dishonesty of a solicitor and to applicants who have suffered hardship as a consequence of a failure by a solicitor to account for money. Grants are made at our discretion.
Currently the key provisions relating to the compensation fund are to be found in section 36 and schedule 2 of the Solicitors Act 1974. Section 36 sets out the requirement to maintain a compensation fund, the scope of the fund and the power to make rules about the fund and about the procedure for making grants from it. The collection of contributions and the administration of the fund are dealt with in Schedule 2.
The procedures for making and processing applications are set out in the Compensation Fund Rules 1995. Attached to the rules are guidelines which decision makers may take into account when exercising the SRA's discretion.
One of the changes to be introduced by the Legal Services Act 2007 is the repeal of section 36 and schedule 2 and the introduction of new sections 36 and 36A. The new sections are enabling provisions which give the Law Society (in practice, the SRA) the power to make rules relating to all aspects of the compensation fund. This means that the new rules must include the relevant provisions currently in section 36 and schedule 2 and they must come into effect upon the commencement date to avoid a hiatus.
In the new sections 36 and 36A, there is no longer any reference to dishonesty or hardship. The SRA could have taken the opportunity to totally rewrite the rules and to extend the scope of the fund. However, it is important to get the new rules in place, including any process of concurrence and/or approval, by 1 March 2009, so as to be in time for the implementation of legal disciplinary practices, firm-based regulation of partnerships and other changes in the SRA's rule-making powers. We therefore consider it appropriate that any changes to take place now will be confined to ones that are relatively minor and for the benefit of the public. It is unlikely that major changes will be proposed until the Legal Services Board is up and running and the new approval process is in place.
The current rules and guidelines are attached to the consultation paper as Annex 1, and the proposed new rules are attached as Annex 2.