The Regulation of Practice Committee administers the Compensation Fund, maintained in order to compensate clients for losses due to dishonesty by solicitors or their employees.
The committee also polices the profession’s compliance with regulations regarding accounts, anti-money-laundering, and regulatory requirements under the Solicitors Acts 1954-2015 not assigned to other regulatory committees.
Overall financial performance
The income and expenditure account of the Compensation Fund reflects a surplus (representing an excess of income over expenditure before fair-value movements arising on revaluation of investments and tax) of €577,587 for the year ended 31 December 2022, compared with a surplus of €1,524,052 for the year ended 31 December 2021. This reduction is primarily due to an increase in expenditure of €913,157.
During 2022, the Compensation Fund investments incurred a reduction in fair value arising on the revaluation of investments of €3,909,137, as opposed to a surplus in 2021 of €1,800,276. Together with a reduction in the taxation charge of €307,089, the deficit after taxation was €3,431,187 as opposed to a surplus in 2021 of €2,917,602.
The income in 2022 remained relatively stable, with an increase of €550,084 in contributions receivable due to the increase in the contribution rate from €620 to €650. This was offset by the reduction in the income and return on investments of €195,767 and recoveries from defaulting solicitors of €388,726.
The increase of €913,156 in expenditure as between the two years is attributable to an increase in the provision for claims of €360,026, insurance of €127,704, a negative interest bank charge of €145,671 and a general increase in costs due to the elevated inflation rates.
The net assets of the fund, as at 31 December 2022, stood at €24,779,668 compared with €28,210,855 at 31 December 2021. The decrease of €3,431,187 in the net asset position of the fund as between the two year- ends is reflected in an increase of
€477,950 in revenue reserves, together with a decrease of €3,909,137 in the unrealised profit on the investment portfolio.
Developments since December 2022 In the six months to the end of 30 June 2023, a total of 46 claims were received. Excluding invalid claims refused, these claims amounted to €656,149.26. Payments totalling €347,997.09 have been made in respect of these claims, and claims totalling €279,481.80 are still under consideration.
Following a rigorous review of the financial position of the Compensation Fund, including the effects of inflation and the reduction in the value of investments, the committee decided that it was appropriate to increase the Compensation Fund element of the practising certificate fee to €700 in 2023 from €650 in 2022.
The net assets of the fund are valued at approximately €25 million as at 31 May 2023. Insurance cover for €50 million in excess of €5 million is in place for the year ending 31 December 2023.
Given the volatility in markets and the resultant fluctuations in the valuation of the Compensation Fund’s investments, the committee has reviewed the current investment portfolio and set a target risk and return for the investments that allowed an appropriate portfolio to be identified that would focus on capital preservation. The transition to the new portfolio is currently being implemented.
In view of the committee’s wide statutory remit and considerable workload, as well as convening for plenary sessions, it sits in five divisions (dealing with regular matters and claims on the Compensation Fund). It also subdivides into specialist subcommittees/working groups.
The committee met 50 times during the period reported on. From September 2022, in-person meetings recommenced, with the option retained to meet virtually where required.
Arising from these meetings, the committee decided to:
levy contributions amounting to €10,500 towards the cost of investigations,
refer 13 solicitors to the Legal Practitioners Disciplinary Tribunal (six of these cases related to late filing of accountant’s reports), and
apply to the High Court pursuant to the Solicitors Acts in six cases.
In 2022, due to COVID restrictions, Law Society inspections for the purposes of monitoring compliance with the Solicitors Accounts Regulations and anti-money-laundering obligations continued to be by offsite ‘desktop review’, with a gradual return to ‘on-site’ inspections towards the end of the year. In 2023, the gradual return to on-site inspections continued, with the result that, in 2023, a Law Society inspection might be either a full on-site inspection or a combination of a desktop review and an on-site inspection, with information provided to the investigating accountant in advance of the attendance at the solicitor’s practice.
In 2022, the Law Society continued with the review of the Solicitors Accounts Regulations and, in May 2022, draft regulations were presented to the Council of the Law Society. Council directed that the draft regulations be circulated to interested parties for review.
Submissions were received from a number of Council members, bar associations, and individual solicitors. Following consideration of the submissions, changes were made to the draft regulations in order to provide clarity and to take account of concerns raised about the impact of the proposed changes on the working practices of solicitors. Amended regulations were passed by Council in October 2022, and the concurrence of the Legal Services Regulatory Authority was obtained in December 2022. The new regulations were signed by the president of the Law Society and the chief executive officer of the Legal Services Regulatory Authority in March 2023. The new regulations came into operation on 1 July 2023. The Society has engaged in an extensive communication campaign with the profession on the new regulations. The Society is confident that the new regulations will increase protection for client moneys, while ensuring that the regulations are workable and capable of effective implementation by all solicitors’ practices in Ireland.
Committee Review Working Group A working group was initiated comprising a cross-section of current committee members and Regulation Department executive staff to review what the committee does, how it does so, and make recommendations as to how it might be improved. A report with findings/ recommendations will be submitted by the end of the year.
This is my first year as chair of Regulation of Practice Committee, and it is a learning experience.
With a new director of regulation and the new Solicitors Accounts Regulations, there are challenges ahead, which I look forward to. There is an enormous amount of time and expertise put in by the voluntary members of the committee, which should be recognised. In addition,
it has been a pleasure to work with the members of the executive. I would like to thank the committee vice-chairs, the lay members, my fellow committee members, the director of regulation and Registrar of Solicitors and his team in the Regulation Department for their professionalism, support, and valued participation in the work of the committee.
Garry Clarke | Chair