The SRA – an unprecedented crisis of confidence

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Posted by Legal Futures Editor Neil Rose

Sorry seems to be the hardest word for the SRA

Be in no doubt that yesterday marked the deepest crisis that the Solicitors Regulation Authority (SRA) has ever faced.

The Carson McDowell report into the SRA’s actions in the lead-up to it closing down Axiom Ince a little over a year ago, with some £60m of client money missing, makes for grim reading.

I have detailed the key findings of what it says went wrong here and its recommendations here. The Legal Services Board (LSB) is starting enforcement action in response.

Institutions faced by such reports can humbly admit they got it wrong and explain what they are going to do about it, or they can stand defiant and dispute the findings. The SRA has chosen the latter course.

That’s not to say it hasn’t owned up to errors – the report talks about a serious case review the SRA conducted internally that led to various operational changes – but it has not talked about them publicly.

And we can view the major consumer protection review announced earlier this year as an admission that change on a broader scale is needed post-Axiom.

I have been writing in particular about the radical suggestion, highlighted once more in the SRA’s response, that law firms no longer hold client money – as I have argued before, if a safe(r) alternative can be found, it would make the regulation of the profession far easier and cheaper for all.

For now, though, solicitors are lumbered with the cost of compensating Axiom’s clients, a figure the report shows would have been less had the SRA better protected such client money as the firm held before it was shut down.

So the SRA’s stance will be seen as emblematic of its arrogance, that it never admits to messing up. Its statement urges focus instead on the reforms coming out of the consumer protection review, as it looks to work “with the LSB and others to tackle the emerging challenges in the legal sector”.

That’s a politician trying to ‘draw a line’ under the past. But I don’t think the SRA can brush this off so easily.

Where is the accountability? There are serious questions for its senior executives – chief executive Paul Philip has been in post for a decade and shaped the SRA we know today – and its board, which recently extended the six-year tenure of chair Anna Bradley by two years because this was “not a steady state period for the SRA”. You think? It had seen a draft of the report by then.

In doing so, it cut short the recruitment exercise to replace her when, I’d suggest, actually this was exactly the time to bring in a new leader, unburdened by the past and with no need to be defensive, to lead reform.

Of course, the media no longer gets to watch the SRA board in action, so who knows how stringently the executive has been held to account in recent years?

What too of the LSB? It is there to ensure that the SRA does not mark its own homework, after all.

It has provided no explanation as to how it reached the decision on the enforcement action it plans to take.

Issuing ‘directions’ to the SRA is the second lowest sanction in its statutory arsenal and frankly seems lenient on the basis of Carson McDowell’s findings (although we don’t actually know for sure that the LSB has accepted them in full).

There is one only precedent for the LSB using its enforcement powers – in 2018, it issued a public censure (the next step up from directions) to the Law Society over governance arrangements that could have interfered with the SRA’s independence, but didn’t in practice.

What the SRA has been found to have done/not done here is surely more severe than that.

(It is worth noting that Carson McDowell includes an absurd litany of disclaimers at the beginning of its report, such as that other people may have come to a different conclusion based on the same materials.)

The affair also raises questions about the LSB’s oversight of regulator performance, which is largely based on annual self-declarations.

The SRA has consistently scored well in recent years. Should the LSB have picked up shortcomings at the SRA? Should it take a more proactive role? Self-reflection by the oversight regulator is needed as well.

The Law Society, meanwhile, appears cock-a-hoop to have the moral high ground over the SRA for once, to judge by its public statement and coverage of the report.

I’m being facetious (although not totally) – you would expect the representative body of solicitors to react with horror at such findings, but its priority seems to be on using the report to stop the SRA from doing things it doesn’t like (taking over the regulation of CILEX members, new fining powers). It smacks of playing legal politics.

Saying that, it’s eminently reasonable to demand the SRA focus on getting its house in order, although that may be difficult if the SRA only thinks a few ornaments are out of place.

Let us not forget too that this is not the SRA’s only significant failing of late – I have been reporting over the last year or so about how it has finally been tackling unacceptable delays in its investigation and enforcement work.

And, of course, the LSB and Carson McDowell are now moving on to look at whether the SRA could have handled the SSB Law collapse better too.

Let’s not forget also that it does good work. For example, it was striking that the complaints about an abusive law firm director, who we reported last week has now been struck off, were triggered by the SRA issuing guidance on toxic workplaces.

The central point here is that public and the profession need to have confidence in the regulator of solicitors and it’s no coincidence that it published a report just last week that showed how most actually do.

But that was then and this is now. The Carson McDowell report and LSB enforcement action represent an unprecedented crisis of confidence.

Putting aside the vocal minority of solicitors gleefully laying into the SRA online, every firm will have noticed the huge increase in compensation fund contributions they have had to pay this month as a result of Axiom Ince.

The SRA cannot ignore this crisis, much though it appears to want to. That means showing the humility and accountability so absent thus far.

Finally, I think this review should make everyone pause and consider whether the move over the last 15 years to outcomes-focused, light-touch regulation – while fine for the vast majority of firms – is robust enough to pick up misconduct on this scale. Has it gone too far or has it just not been done very well?

But do solicitors want a more proactive regulator? Are they prepared to pay for that? Are they willing to have the SRA knocking at the door more often?

Or should we just accept that, very occasionally, (allegedly) bad people do bad things and there’s only so much that regulation can do to stop them? After all, it wasn’t the SRA that made off with £60m of client money.