SRA: second attempt to raise fining powers
A consultation on a fresh attempt by the Solicitors Regulation Authority (SRA) to increase its powers to fine law firms has closed with familiar battle lines drawn, with the Legal Services Board (LSB) backing the move and the Law Society opposing it.
Whereas in 2012 the SRA plan to increase maximum fines from £2,000 to £250m was rejected by the Ministry of Justice, this time the authority is consulting on an increase to £10,000, £50,000 or £100,000.
Meanwhile, ILEX Professional Standards (IPS) – the regulator of chartered legal executives – has issued its own plans to increase available maximum fines for individual CILEx members to the levels initially envisaged by the SRA.
Currently the SRA’s maximum ‘in-house’ fine allowed for traditional firms is £2,000, with the only recourse to a higher penalty being referral to the Solicitors Disciplinary Tribunal (SDT), which involves greater time and cost. By contrast, in the case of an alternative business structure (ABS), the SRA can impose a fine of up to £50m on an employee or manager and up to £250m on the ABS itself.
The LSB said it backed the SRA’s preferred maximum fine of £100,000 as “most consistent with the principles of better regulation”. But it reiterated the position it stated in 2012 that the maximum should be higher “in order to ensure that it acts as a sufficient deterrent for the largest non-ABS firms”.
It pointed out that the turnovers of City giants such as Allen & Overy and Clifford Chance topped £1bn last year and a fine might have to have a “deterrent effect” that was “sufficient to influence the behaviour of individuals and to punish systemic failings at an entity level”.
It noted SRA figures showing that to 30 July 2013 the SDT had only imposed one penalty over £20,000 but said it “only adds to our concern that the current regulatory arrangements do not appear to be appropriately targeted or proportionate and seem unlikely to be a sufficient deterrent to code breaches”.
The Legal Services Consumer Panel took a similar position, supporting £100,000 as an interim measure, but agreeing that traditional law firms and ABSs should treated the same at the higher levels initially sought.
However, the Law Society said it was the wrong time for the SRA’s fining powers to be increased and highlighted what it said was “a lack of transparency” about the SRA’s enforcement team.
It noted that SDT fines of over £10,000 were rare, so doubted that increasing fining powers beyond £10,000 “would provide any substantive efficiency gains”.
The society raised doubts over the SRA’s approach to calculating fines. It predicted there would be “a high level of appeals to the [SDT]” that would “negate some of the cost savings claimed by the SRA”.
Finally, it said the SRA’s own figures showed black and minority ethnic (BME) solicitors were disproportionately represented in enforcement action statistics. The society was therefore “surprised that no further analysis of the effect of these changes on BME solicitors has been undertaken.
In its response, Birmingham Law Society argued the SRA’s analysis of the benefits was “flawed” and questioned whether ‘in-house’ investigations would be as efficient compared to SDT decisions as the SRA claimed.
It also raised “inherent” problems arising from the criminal and civil burdens of proof operated by the SDT and SRA respectively. If fining powers were raised, it should be to no more than £10,000, the society said.
Launching a consultation that will close on 22 April, IPS argued it needed to increase the maximum it could fine an individual member to £5,000 because the existing £3,000 “has been found to be inadequate as a deterrent and admonishment when more serious cases have been determined that have caused a greater impact on individual complainants, the public and the professional reputation of CILEx; within the legal community as a whole”.
However, where CILEX members were authorised to carry out reserved activities or to be a manager in an ABS, it proposed a maximum fine of £50m “to take into consideration the wide range of practices that members may set up and the level of risk they pose to the delivery of the standards of conduct expected of them”. For entities, it proposed a maximum of £250m.
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