Some trends in Solicitors Regulation Authority (SRA)
Fines and Regulatory Settlement Agreements
As we returned to the office on Monday 6 January 2025 one of the leading legal news websites, Legal Futures, ran an article on the SRA issuing £1.5 million worth of fines since their enhanced fining powers came into force in June of 2023.
Partner Paul Bennett led part of the Law Society of England and Wales’ work in trying to resist the changes because of concerns over how they would be implemented, used and – perhaps most importantly – the potential adverse impact on the mental health of legal professionals and the risks to the profession of unnecessary financial hardship. Given a choice between private equity, accountancy and law why would young talent risk their own financial futures by picking law?
The Legal Futures piece is interesting in that to the Year Ending 31 October 2023 there is a demonstration of a significant number of fines with significant financial consequences for law firms and individuals. The pace since then appears only to have quickened in terms of the number and the severity of the financial fines imposed. The new system is now embedded and both the SRA’s investigations and their team of Authorised Decision Makers (ADMs) are now familiar with the revised system.
We know and acknowledge that the SRA has an incredibly difficult job. We also know, because we defend law firms and professionals, that some of the points that the SRA are faced with are unreasonable and unrealistic and stem from a lack of basic knowledge of the rules from professionals and others. There are well founded criticisms of a regulator who perhaps fails to understand the profession it regulates because it sees itself akin to a market regulator rather than the professional regulator it actually is. The Statutory Framework is clear – it is a regulator of a single legal profession not the market.
In traditional law firms both the firm and any individual working in it (whether qualified or not) can be fined up to £25,000 each under the SRA’s internal fining powers and the fines are imposed by the ADMs. An appeal is possible but that is to the Solicitors Disciplinary Tribunal and the costs of doing so are routinely prohibitive.
For Alternative Business Structures (ABS) the firm can be fined up to £250 million and each individual working within the firm can be fined up to £50 million personally. There is a very significant difference therefore between the risks faced by traditional law firms and the staff in them, including the partners, and those in ABSs.
Legal Futures’ report indicates that there were 794 disciplinary cases in the year ending the 31 October 2023. That is a marked increase on previous years where the number of cases has tended to be around 500.
Our prediction is that the figures of the year ending 31 October 2024 will show a very significant increase again.
Law firms face a more challenging regulatory environment than ever before. Law firms and individuals working in law firms operate in the most highly regulated market in England & Wales in our view, they are not akin to the financial services market because the remit of the individuals working in such businesses is distinct and the sums of money typically handled by solicitors are less than those in financial services, but when it goes wrong, as demonstrated by the catastrophic cases of Metamorph Group and Axiom Ince where tens of millions of pounds has been lost, demonstrating the risks of consolidation of law firms.
Traditionally, law firms have been a cottage industry but over the last decade due to consolidation, something we encourage and benefit from as a firm advising on mergers and acquisitions, has in a small number of cases gone wrong. Those cases tend to be the ones that are reported, and the numbers tend to be slightly higher than would otherwise be the case in a more fragmented market. For example, the number of law firms in England & Wales has dropped by almost 2,000 in the last decade. The trend therefore for consolidation also consolidates risk.
For those buying law firms and seeking to consolidate in the greater financial stability that can come with that of course the benefits of consolidation are significant, but in the small number of cases where it goes wrong, then the financial impact can be out of kilter because of the consolidated risks.
Regulatory Settlement Agreements (RSAs)
The fining powers evolution has seen an increasing reliance on RSAs by the SRA in relation to allegations of misconduct, primarily through instances of AML breaches, conflicts of interests breaches and minor rule breaches. In comparison with, for example doctors, such minor rule breaches would not be dealt with by a financial penalty or in an RSA. This does mean that the legal profession is in a distinct position, the personal risks faced are higher and harsher.
It is often said that RSAs are a fairer and swifter manner to achieve a regulatory outcome by the regulators but of course that assumes the individual or firms entering them understands what they are and their implication.
What is an RSA?
They are an agreement that misconduct has occurred, based upon this admission the SRA offer an alternative to going through a full hearing before the Solicitors Disciplinary Tribunal (SDT). RSAs certainly have a very solid grounding where misconduct is obvious, and is admitted at an early stage, and it can be dealt with in the public interest.
The difficulty with the failures in the current system is though there is a risk of firms and individuals accepting an RSA to avoid the stress and costs arising from disciplinary proceedings.
The absence of negotiation
One of the most difficult issues for law firms and individuals faced with a proposed RSA is how to negotiate it? It is often presented as a fait accompli, but it should not be taken as such. We have experience of negotiating them, although we would note that most scenarios which are judgment errors the SRA may consider that it is view with the benefit of hindsight should prevail. Certainly it is easier for a third party, whether us or another specialist law firm, to negotiate with the SRA. The power imbalance is not the same and importantly this is not our first rodeo whereas for most recipients of an SRA it will be precisely that.
Conclusion
If you or your firm is offered an RSA then we would strongly suggest you take independent legal advice on it. The terms offered should be subject to advice given that these will be in the public domain. A cynical reader might say, ‘Well you would say that wouldn’t you?!’ but you will note that we simply suggest that those facing RSAs take advice from a specialist, not necessarily from us, as whilst clearly we would be delighted to help if we have capacity, the only way in which the systems works for the benefit of all of the profession and the public is with RSAs and the quality of RSAs improving over time.
For an individual firm or professional facing an RSA, the key issues are the reputational and financial implications of the RSA, and advice on those is always beneficial in our experience.
If you are currently engaged with the SRA in negotiating an RSA we urge you to take advice at the earliest opportunity to achieve the best outcome that you can in all the circumstances. To contact us now email info@bennettbriegal.co.uk .
This article was written by Paul Bennett, a Partner at Bennett Briegal LLP who handles disciplinary matters involving the SRA.
