SRA Compensation Fund

Purpose of the 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 (PII) 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 two of the SRA Compensation Fund Rules 2021.

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)

The claimant 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

Find out how the SRA makes decisions on compensation fund applications

Maximum amount that can be claimed

The maximum payment limit for any one application is £2 million.

However, larger grants can be made in exceptional circumstances (as set out in rule 9 of the SRA Compensation Fund Rules).

Where multiple applications are made in relation to the same or connected underlying circumstances, the SRA can cap grant payments for those applications at a total of £5 million (as set out in rule 10 of the SRA Compensation Fund Rules).

The Compensation Fund levy

How the levy is calculated

The SRA calculates how much is needed for the Compensation Fund for the year ahead based on factors including:

• the value of outstanding claims
• intelligence about likely sources, volumes and values of new claims
• economic forecasts
• considerations about interventions costs

How the levy is apportioned

This levy is currently split between:

• regulated individuals, who pay a flat fee
• firms holding client money, which pay a larger flat fee

The cost of the Compensation Fund is divided equally between PC holders and firms.

It is often the case that firms will pay the individual levy on behalf of their employees.

In this hypothetical rounded example, the projected cost of the fund is £15 million, with 165,000 solicitors and 9,000 firms that handle client monies:

In these circumstances, a sole practice with no employees and a firm with 100 solicitors would each contribute:

Based on the ‘flat fee’ approach, the sole practice would contribute £878, in contrast to the £5,333 contribution paid by the 100-solicitor practice.

The SRA has indicated the clients of smaller firms are most likely to have recourse to the Compensation Fund, because smaller firms are more likely to experience fraudulent behaviour that falls outside of the scope of their professional indemnity insurance (PII).

Larger firms are also more likely to have specialist risk and compliance officers to reduce the likelihood of fraudulent activity and are more likely to use sophisticated risk management resources, further limiting their risk.

While the per capita contribution to the fund of larger firms may be less than the per capita contribution of smaller firms, the clients of larger firms are less likely to have recourse to the fund

Larger firms contribute to the Compensation Fund because they respect and uphold the principle of professional collective responsibility.