Raab: Letter to LSB
The Solicitors Regulation Authority’s (SRA) fining powers should go “considerably beyond” the proposed increase to £25,000, the Legal Services Board (LSB) has told the Lord Chancellor.
The oversight regulator said there was a “compelling case” for a larger increase, especially given that the Legal Services Act 2007 allows the SRA to fine alternative business structures (ABSs) £250m and the individuals working in them £50m.
The LSB was responding to a letter from Lord Chancellor Dominic Raab about the SRA’s proposal to increase the maximum fine it can levy on non-ABSs and the people who work in them from £2,000 to £25,000.
The Ministry of Justice is involved because changing the limit requires secondary legislation and Mr Raab’s letter put the issue in the context of Russia’s invasion of Ukraine and compliance with the sanctions regime.
Similarly, responding last week to a written question in Parliament about how the government was supporting the SRA in its work on sanctions, justice minister James Cartlidge said increasing the maximum fine to £25,000 would “create a stronger deterrent to solicitor misconduct”.
In her response, LSB chair Dr Helen Phillips said that while the country should be proud of the UK legal sector being a “global powerhouse”, with scale came risk.
“If the UK is to maintain and indeed build further its importance as a global jurisdiction of choice, it will need to ensure that its legal sector is leading the world in terms of integrity, confidence and trust.
“That in turn will mean equipping regulators with the tools they need to put the UK’s high standards beyond question and to take action where those entrusted with the integrity of the legal sector – the often very large businesses who make their living from facilitating transactions – fail to deliver against those standards.”
Financial penalties should be able both to deter and to remove any gains from non-compliance, she continued.
“For a firm with a multi-million pound turnover, the current maximum fine of £2,000 is clearly risible. Even the SRA’s proposed increase to £25,000, while welcome, may simply be seen by some as an acceptable cost of doing business.”
Dr Phillips said the fact that the SRA could seek larger fines through taking cases to the Solicitors Disciplinary Tribunal, “with the associated delays and significant additional resource and financial cost”, did not remove the need for regulators to have these tools themselves.
“We also agree that it is hard to justify the significant difference between the SRA’s internal fining powers for ABSs and for non-ABS firms and individual solicitors. That is why the LSB would support going considerably further than the SRA’s proposals.”
She suggested that the limit should instead be tied to the turnover of the business involved.
Dr Phillips added that changes to the SRA’s fining powers would be subject to the overall safeguards contained in the Legal Services Act 2007 – the LSB would have to approve any associated changes that the SRA makes to its regulatory arrangements, such as the guidance to implement the increased powers.
“It would also be subject to our oversight of its performance on enforcement, against the enhanced expectations that we will be developing during this year. So there will remain strong safeguards in place to ensure high levels of transparency and accountability.”
The SRA has also come under pressure from the Office of Professional Body AML Supervision (OPBAS) to go further with its fining powers. OPBAS oversees the anti-money laundering activities of all the UK’s legal and accountancy regulators.
In its response to the SRA’s consultation on fining powers, OPBAS too questioned the discrepancy with ABSs, adding that there did not seem to be “compelling arguments for the case that £25,000 would deliver a more effective, proportionate, and dissuasive deterrent for AML breaches”.
It continued: “We are concerned that current proposals will see the SRA continue to remain constrained in the action it can take and that the fines overall in the legal sector will remain low.”
In a separate development, the Office of Financial Sanctions Implementation (OFSI) has updated its guidance on its approach to enforcement.
This is partially to reflect changes in legislation brought in under the Economic Crime (Transparency and Enforcement) Act 2022.
These changes include a new strict civil liability test for imposing monetary penalties, changes to the review of monetary penalties, and a new ability to publish details of breaches where a monetary penalty has not been imposed.
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