2010 Fee Structure SRA Board briefing 15 th February 2010 V1.0 1

Why a new fee structure? The current system is unfair and creates anomalies The Legal Services Act 2007 changed the Law Society's statutory powers to require it to adopt firm-based regulation as well as regulating individual solicitors It is estimated that between 60% and 80% of SRA effort is spent on firms The current fee charging system is disproportionate for in house solicitors providing services to the unregulated body that employs them Recommendation from Hunt Review I recommend that the practising certificate fee should be clearly and, so far as possible, equitably split between an entity element and an individual element. I recommend that in house solicitors should pay only the individual element 2 Confidential

Principles for new fee structure Is it fair to fee payers? (Proportionate) Is efficient and economic to administer (Reduces administrative burden)? Ensures a predictable income to meet the costs of regulation? (Consistent) Is stable - charges should not vary considerably year on year? Is as simple as possible? To enable the regulated community to predict their likely fees Is based on data that can be verified? Ensures that where possible the costs of particular processes that are not of general application should be borne by those making such applications on, as far as possible, a cost recovery basis? (Targeted) Takes some account of ability to pay, in particular in relation to small and new businesses? Fees should not be a deterrent to new entrants (Proportionate) 3 Confidential

Recommended Fee Structure* * Please note that figures and bandings are only indicative BandMin Turnover Pay % of Turnover Firm Count (10927) A£00.67%2294 B£20, %2606 C£150, %2733 D£500, %1355 E£1,000, %1479 F£5,000, %224 G£10,000, %163 H£50,000, %38 I£100,000, %29 J£400,000, %6 4 Firm Fees Regulatory Fees 40% Individual 60% Firm Compensation Fund Fees 50% Individual 50% Firm Individual Fees £9 / Solicitor £140 / Entity holding client money £511 / Solicitor Only discount available: Maternity 50% Additional Flat Fee per foreign branch office

We are currently working with a 40/60 split - this could be phased lower over time. For 1 st year, result is a shift in fee burden of approximately 15% from in-house onto private practice firms We recommend making significant changes to the make-up of the Compensation Fund Fees: There will be winners and losers as a result of this fairer fee policy High Level Impact 5 IndividualFirmAverage Firm Fee burden Increase 40%60%15% 30%70%18% 20%80%21% 5 Confidential WinnersLosers Firms of any size with relatively low revenue per PC HolderFirms of any size with relatively high revenue per PC Holder Low revenue sole practitioners Current approachRecommended Approach Significant proportion of fees are to pay indirect costsShift indirect costs to regulatory fund to increase transparency For 1 st year, exclude cost of interventions / investigations in order to help reduce Comp Fund reserves to approved level. Largest firms pay disproportionately high contribution given that the grants are typically against the smallest firms Only fees are individual based rather than firm based and the method for calculation is complex (whether hold client money and number of PCs held) Flat Fee per solicitor, Flat fee per firm that hold client money. This is the simplest model and for the next year and is more proportion. It works well as the value is low

Initial Impact Analysis 6 Count OLDNEW Reg IncomeCF IncomeReg IncomeCF Income Firms:10,892£727,450£0£71,855,257£1,000,000 Total PCs within Firms:80,610£92,677,979 £16,704,265 £41,161,958£746,430 REL/RFLs:977£383,900£498,886£9,047 In House PCs:27,384£28,137,719£2,847,216£13,430,870£253,570 TOTAL PCs: £121,927,048£19,551,481£126,946,972£2,009, ,971£141,478,529£128,956,019 Approx £12.5m reduction in Compensation Fund reserves, which are currently £25m higher than target Please note that this information is based on indicative bandings and figures

Worked Examples 7 Please note that this information is based on indicative bandings and figures

Key Consultation Activity 8 Activity Consultation Paper 19: Focus on agreeing principles and preferences on model for firm fees Presentation to External Implementation Group Workshop with cross section of Top 100 Firms Consultation Paper 21: Presentation of preferred model, consideration of options for compensation fund, more detailed impact analysis with worked examples, consideration of renewal process Lawyers with Disabilities Division workshop Sole Practitioners Group workshop Joint Workshop inviting special interest groups (low attendance but two members of EIG attended with very useful feedback), Association of Women solicitors were invited but chose not to participate Junior Lawyers Division workshop Conveyancing Solicitors workshop Crime and Civil Practitioners workshop Plan for follow up workshop with City of London Top 100 law firms before 13 th February Consultation Paper XX: Detailed consideration of Appeals process 2 Joint workshops on Appeals process to be run alongside Appeals process consultation Completion of an Equality Impact Assessment FSPB MeetingsDate 10am -12:30pm18 th Feb 11am -1pm25 th Feb 11am -1pm30 th Mar

Generally, there was recognition that the new fee structure would be fairer for in house solicitors As expected, a variety of views exist around the fairest fee structure, however the majority of respondents understood the rationale for the use of the turnover (gross fees) model due to its facility to consider different firms’ “ability to pay” Those firms who disagreed were typically those who perceived that they would be directly negatively impacted, including the City of London Law Society on behalf of some larger firms. We are running a workshop with this group to explain the rationale, reduce confusion & provide more information about how they will be impacted The proposed fee structure is recognised as being likely to have a net positive impact on equality groups such as Disabled, BMEs, etcetera. Their average gross fees are lower than average and their fees will be consequently lower Many questions around whether this is a covert attempt to raise the fees. Our response was a categorical ‘No’ Many questions around whether this is an attempt to shift the burden onto sole practitioners away from City Firms. Our response was a categorical ‘No. The turnover bandings will be set to ensure that with the new model, approximately the same proportion of the fees will be paid by firms of different sizes as today’ Concerns from multiple parties around impact on Legal Aid firms, especially those who are heavily geared to non PC holding fee earners; variable views on how important this is given that these firms have higher regulatory risk Need for an Appeals process as using a one stage process will result in turnover figure being out of date – however general preference for one stage process as this provides firms with ability to plan and save for the renewal process. Variety of views around whether an appeals process is required after the 1 st year Lots of feedback around need for significant communications to the profession as early as possible, especially for those firms who will be experiencing a significant increase 9 Key Consultation Outcomes