Compensation fund pays out nearly 50m
The compensation fund paid out nearly £50m in a year, with grants totaling £46.4m in 2024-25, up from £27.9m in the previous year. The fund provides a safety net for client money that is not accounted for or has been stolen.
The demise of Axiom Ince is expected to drain the compensation fund of £39.1m once all claims are paid, according to the fund’s newly published accounts for 2024-25. Some £37.5m had already been paid out by 31 October, the end of the financial year.
More than £19.2m of the 2024-25 payments related to Axiom Ince, with the fund’s accounts stating that the very high level of grants in the year related to the Metamorph Group and Axiom Ince interventions. The fund’s liquidity, and the contributions paid by solicitors and firms, have fluctuated sharply over the last decade.
Accumulated funds touched an end-of-year high of £67m in 2019 but slumped to a decade low of £25m in 2023. At the end of 2024-25 the total stood at £41.3m, buoyed by rising contributions from the profession.
The regulator announced last week that in 2026-27, it will ease the relative burden on small firms by moving from the present 50/50 split between individual and firm contributions to a 70/30 divide. Firms will pay £2,170 and individual solicitors £170.
A decade ago, firms paid £548 and individuals £32. The levy on individual solicitors next year will be almost double the previous 11-year high of £90 (2018-19 and 2024-25). This change is likely to have a significant impact on the financial burden of small firms.
The profession continues to evolve, and the current system of holding client money and funding the compensation fund requires careful consideration. The latest accounts note that there is a strong case to properly explore the long-term transformation of the model of holding client money and how the compensation fund is funded, particularly in light of legal market changes.
The Solicitors Regulation Authority’s immediate focus is on making changes to better protect and safeguard the client money under the current system. In May, the regulator signalled an unprecedented cash call on the profession, announcing that its budget for 2026-27 must rise by 29% to £111.5m to fund a complete overhaul of the organisation.
They will likely be closely watched by the profession. With the compensation fund’s payments and contributions continuing to fluctuate, it remains to be seen how these changes will impact the fund’s liquidity and the profession as a whole.
It is a complex issue.
