Penalties: high figure will not constrain licensing authorities
Alternative business structures (ABSs) face a fine up of to £150 million for misconduct or non-compliance, with a figure of £50 million for individuals working within them, under plans released by the Legal Services Board (LSB).
The LSB said such large figures “will have strong deterrence in the market and avoid situations where any entity or individual may consider ‘pricing in’ non-compliance”.
A consultation paper issued yesterday explains: “Experience from other sectors indicates that the threat of significant penalties does work in terms of deterrence (and regulators do not have to use their powers often) and that in practice the level of penalties is not disproportionate. We consider that small firms should see that setting a high maximum will mean that they are not disadvantaged by their larger competitors” penalties being capped at a disproportionately low level.”
The figure for entities was set after looking “at the size of firms currently in the market, potential entrants to the market, the deterrence effect of penalties and the size of penalties imposed by other regulators”.
The figure for individuals was influenced by the miners compensation claims scandal, “where one partner is reported to have earned more than £30 million over a five-year period on matters that led to him being struck off the roll of solicitors”.
The LSB had planned to give licensing authorities the power to levy unlimited fines – in line with what the Solicitors Disciplinary Tribunal can award – but the Ministry of Justice advised that this was not possible under the Legal Services Act 2007.
The consultation says the LSB considered making the penalty a percentage of turnover but it saw various disadvantages to that, such as how to define turnover for these purposes. It would also be no use in setting a figure to fine individuals.
The LSB said a high fixed maximum would give a licensing authority “the flexibility to exercise its discretion and judgement in setting a penalty in a way that enables it to take into account the likely wide variation in the outcomes of investigations that it will encounter”.
It added: “We consider that this has the strongest deterrence and the simplicity of the construction means that challenge to the amount of a penalty will be considered in the application of the rules of the LA through the appeal process rather than through administrative appeals on the application of the maximum penalty rules.”
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