Fines: Higher threshold will make many cases quicker, says SRA
The Solicitors Regulation Authority (SRA) is to press ahead with plans to expand its fining powers from the current maximum of £2,000 to £25,000.
It will also take into account the turnover of firms and income of individuals when setting fines, and introduce fixed penalties of up to £1,500 for lower-level breaches.
However, following consultation, the regulator decided to temper the proposal that a fine would be inappropriate for sexual misconduct, discrimination and harassment by adding a “narrow” ‘exceptional circumstances’ proviso that would allow for one.
It recognised too that a fine was likely to be an appropriate sanction for firms where poor systems or controls allowed this type of behaviour to occur or persist.
The £2,000 cap contrasts starkly with the SRA’s fining powers for alternative business structures, which under the Legal Services Act 2007 are £250m for firms and £50m for individuals working in them – aligning its fining power with these remains the SRA’s long-term goal.
All the fines it and the Solicitors Disciplinary Tribunal (SDT) levies go to HM Treasury, while solicitors and firms will retain the right to appeal any outcome or penalty imposed by the SRA at the SDT.
The SRA said more than 7,500 people engaged with the consultation launched last November in some way – including 3,500 who took part in social media polls – but it only received 39 formal responses.
There was “strong public support for all our proposals”, and “general support among other stakeholders for the increase to our fining powers” – although the Law Society and SDT backed a limit of only £7,500 and £7,000 respectively.
The SRA’s consultation response said: “Our assessment is that [SDT] cases resulting in fines under £25,000 have tended to be straightforward, less serious matters which would not generally warrant the increased time, cost and stress involved in a hearing before the SDT.”
It pledged to work with the SDT “to develop a shared understanding of what represents a serious case, and our referral criteria”.
An updated equality impact assessment, meanwhile, identified “a potential positive impact from this proposal by reducing costs, delays, and stress for those subject to fines of between £2,000 and £25,000.
“We also commissioned analysis from an economic consultancy, and this highlighted that changes to our fining processes should not unfairly impact on any particular category of person.”
However, the SRA said it would monitor and evaluate the impacts on different groups.
The consultation proposed basing fines on the size and financial position of firms – capping them at 5% of turnover, up from the current 2.5% – and on income for individuals.
A number or respondents questioned whether turnover was the most appropriate metric to use. In response, the SRA commissioned economic consultancy Economic Insight, which found that the annual domestic turnover from SRA-authorised activities in the last year prior to the misconduct best reflected their ability to afford the penalty.
For individuals, it recommended that an individual’s income related to the tax year prior to the employment in which the misconduct occurred should be used.
Increasing the cap to 5% had the potential to increase the deterrent effect of the fine, Economic Insight said, while it was unlikely that a fine at that level would compromise the viability of any given firm.
Firms and individuals would be able to make representations regarding their ability to pay.
Alternative metrics, such as profit for firms and net worth for individuals, were not likely to better correlate, the report said.
Fixed penalties would not change the threshold for taking action, the SRA stressed. “Rather, this change will allow us to streamline our approach to misconduct that is currently suitable for a low-level fine.
“It also means we can foster greater transparency around possible disciplinary outcomes for failure to cooperate with us as a regulator and more administrative breaches.”
An example was a failure to comply with the transparency rules, for which a number of firms have received low-level fines: “These kinds of matters are capable of objective determination and attracting standardised penalties.”
The SRA plans to start off with fixed penalties in a small number of specified areas and then evaluate the scheme before deciding whether to extend it.
The current suggested fine would be a maximum of £800 for a first breach and £1,500 for subsequent breaches.
The SRA acknowledged there were differing levels of confidence in the independence, transparency and efficiency of its internal procedures.
“Our processes safeguard the independence of decision-makers by ensuring a separation between those who investigate and those who adjudicate on cases…
“However, we think it is important that we evolve our processes and consider what more we can do to increase transparency and confidence.”
This linked to the consultation issued earlier this month on the publication of regulatory decisions.
The SRA will now develop its updated guidance on financial penalties and the new rules to introduce the fixed-penalties scheme. It pledged to work with the SDT to ensure “consistency of approach” between the two.
It will be for the Ministry of Justice to increase the fining power and the SRA said it was already in discussions with officials.
It said it would also consider other suggestions made in the consultation, including whether the SRA should, and if so how, “systematically consider the impact on victims in all of our disciplinary cases”.
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