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Feeling fine? The SRA increases its fining powers by over 1,000%

July 2022
Jon Hyde

On 20 July 2022, the Solicitors Regulation Authority (“the SRA”) increased its maximum fining powers for law firms and the solicitors who work in them from £2,000 to £25,000.  This follows a consultation by the SRA into this proposed change, which received 39 formal responses and engaged with 7,500 people.  The increase in the SRA’s fining powers was opposed by The Law Society among others, but was strongly supported by Lord Chancellor Dominic Raab.

The substantial increase in the SRA’s fining powers is intended to empower the SRA to deal with a wider range of offences than it was previously able to.  This should relieve pressure on the Solicitors’ Disciplinary Tribunal (“the SDT”), which previously had to deal with all disciplinary matters where the fine exceeded £2,000.  Research by the Ministry of Justice found that nearly 90% of all fines issued by the SDT between 2014 and 2021 were under £25,000, meaning that its workload may be substantially reduced by these changes – and the SRA’s workload increased in turn.  This may help to address concerns about how long it can take the SDT to resolve the cases before it, although the SDT has pointed out that it listed 96% of cases for a substantive hearing within six months, and determined 70% of cases.

Although the SRA claimed “broad support” for these changes, criticisms of the SRA’s increased fining power have raised a number of issues.  One is the practical question of whether the SRA has the resources to meet this increase in workload; last year, it investigated around 2,000 cases and issued around 250 fines.  If the SRA is taking over 90% of the SDT’s workload, it will need to invest in substantially greater resources in order to do that work in a timely manner, not least because the SRA is already subject to concerns about delay.

A further criticism of the SRA’s increased fining powers centres on the lack of transparency behind its decision-making.  SRA decisions are not subject to public scrutiny, and it acts as prosecutor, judge and jury.  This may be acceptable for the famous post-apocalyptic British comic book character, Judge Dredd, or for the relatively modest matters that the SRA dealt with previously.  However, it is potentially problematic where it is dealing with many more, and more complex, cases, which can have a devastating impact on the lives of the solicitors and firms involved.  This makes the SRA’s ongoing consultation into how much information its decision notices should provide, and what further details could be published about SRA decisions, all the more important as that may shed important light on the SRA’s exercise of its greater fining powers.

The SRA has sought to deal with these concerns in part, by reassuring the profession that fines will be imposed by panels of two or three adjudicators who have not been part of the investigation, by noting that cases with fines under £25,000 “tend to be straightforward”, and by pointing out that its decisions can be appealed to the SDT, to which the SRA will continue to refer “the most serious cases”.  However, solicitors and firms may find this to be small comfort in practice.  The SRA’s decision-making process remains firmly in-house and completed away from the public gaze.  The SRA may feel that the cases it deals with are “straightforward”, but they are nevertheless often harrowing experiences for the solicitors and firms involved.  Finally, an appeal to the SDT is no small undertaking, for the time and stress involved for solicitors and firms, and the potential financial cost as they will likely have to bear their own costs as well as those of the SRA.

It was also pointed out by opponents to the SRA’s increased fining powers that the level of the increase was unduly large – The Law Society calculated it to be in the region of 1,150%.  They suggested that the SRA could instead have a more reasonable increase to its fining powers, to, say £5,000 to £7,500 or so, but these suggestions were rejected.  Nevertheless, “traditional” law firms face far lower financial penalties than Alternative Business Structures and the individuals who work for them, who the SRA can fine up to £250m or £50m, respectively.

Now that the SRA’s fining powers have formally increased, it has published guidance about how it will use them.  The SRA will start by determining the penalty by reference to how serious the conduct is, including its nature and the risk of harm, and ensuring that the penalty provides “credible deterrence”.  Depending on these factors, the fine could be anywhere between £500 and £25,000 – or, if the individual or firm has “greater means”, between 0.5% and 2.5% of annual domestic turnover (generally, where that figure is £2m or more).  The SRA will then discount the penalty, if appropriate, to reflect any mitigating factors (such as early admission or remedying harm).  Finally, the SRA will consider whether the fine removes any financial benefit obtained from the misconduct, and may increase the penalty to ensure that it does.

It is perhaps easy to see why solicitors and firms may be concerned about the SRA’s increased fining powers, and whether the SRA has adequately addressed the concerns raised around this change.  It seems that this development may have been driven in part by a desire to reduce the SDT’s caseload, although the SDT challenged accusations of delay in its handling of cases, and the SRA may equally be accused of taking its time when prosecuting firms.

The impact on insurers of solicitors and firms may be more mixed, principally because regulatory fines cannot be covered by insurance as a matter of public policy.  It remains to be seen whether insurers may face claims by solicitors and firms for cover for greater costs arising from SRA action, or potentially appealing such action to the SDT, following these changes to the SRA’s powers.  It is also possible that enterprising claimants may try to use any fine imposed by the SRA to support a related civil claim, which insurers may be covering.  If nothing else, this development reminds insurers that the regulatory challenges faced by solicitors can be as daunting as traditional civil claims against them.

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