Bradley: Some things we didn’t do right
What went wrong with the Solicitors Regulation Authority’s (SRA) supervision of Axiom Ince is “in many respects… history for us”, the regulator’s chair told the profession today.
It also emerged that tightening the rules on holding client money and retaining interest on it will be part of a consultation on consumer protection reforms to be issued next week, while the SRA may change its proposals for how it fines law firms and solicitors.
Last week, the Legal Services Board announced it would be taking enforcement action against the SRA after an independent report found that it “did not take all the steps it could or should have taken” ahead of the collapse of Axiom Ince.
Addressing the SRA’s annual compliance conference in Birmingham this morning, chair Anna Bradley said underlying the events at Axiom was “a really complex fraud” involving a single individual not picked up by the other directors or the firm’s auditors.
“Of course we acknowledge that as the report says there were some things that we didn’t do right in terms of following our processes and procedures. And in many respects that’s history for us because we reviewed our actions very close to the original intervention and have already taken the action that was required in order to address those things.”
This meant “some tightening up of processing procedures and oversight of the way that those procedures were being followed”.
Ms Bradley said that “whilst we don’t agree with some of the headline findings of the report, we absolutely do agree that Axiom illustrates a number of issues which have become increasingly problematic and critical for us as a sector”. These were being addressed by the consumer protection review.
Chief executive Paul Philip indicated that he did not favour the recommended reform of greater control over mergers and acquisitions.
Aside from the cost of upskilling SRA staff, he said requiring them to undertake due diligence before a deal could slow down the rescue of struggling firms to the extent that they failed before it could complete. “I’m not saying there isn’t an issue to be addressed, but there’s a debate to be had,” he said.
He added more generally that regulation was about striking the right balance – demands for the SRA to become more interventionist would come with a cost.
The consultation arising from this year’s consumer protection review will be published next week.
Mr Philip said it was clear from the views received that maintaining the SRA Compensation Fund was vital for trust and confidence in the profession.
But it would be asking whether the current balance of contributions – split equally between firms and individuals – should change, whether large firms should pay more than small ones, and whether “the burden should fall where the risk is greatest”, ie a ‘polluter pays’ model.
The consultation will also look towards solicitors no longer holding client money in an era of digital banking, which would remove most of the risks managed by the SRA, but recognising that this is a “longer-term” ambition given that the marketplace for alternatives is not yet sufficiently developed.
Mr Philip said the consultation would also be looking at whether or not firms should be able to keep client account interest and also stricter rules on residual balances.
The consultation will raise the prospect of returning to the requirement that all firms should have to file an accountant’s report each year, rather than just qualified reports, as recommended by the Axiom Ince review as well.
“Not everybody who has a qualified accountant’s report actually reports it to us,” Mr Philip said. But he noted too that Axiom Ince “had a number of years of unqualified accountant’s reports and we don’t really understand how that could be”.
Mr Philip referenced the recent consultation on the SRA’s proposed new fining guidance, saying most of the feedback had been critical. “We will be taking that on board. I suspect we will probably need to think about the extent to which we change our proposals.”
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