The Solicitors Regulation Authority (SRA) has been directed to take action by the Legal Services Board (LSB) in the wake of the independent review into the failure of Axiom Ince.
In response to the report, in which the SRA was criticised for regulatory failings in the run up to the collapse of Axion Ince, it was felt ‘formal action’ was needed with the the Lord Chancellor’s advice noting the collapse of the firm
“…has had a significant impact on affected consumers and has negatively affected the trust in the solicitor profession, bringing lawyers’ professional ethics into the spotlight. Having considered the main findings outlined in the independent report of the SRA’s handling of Axiom Ince, I note the significant regulatory failings incurred by the SRA. Such acts or omissions will have undoubtedly undermined the public’s confidence and trust in both the legal sector and the regulation of legal services. It is important for the SRA to take accountability for the failings in regulatory oversight identified and take appropriate steps to avoid a similar case in the future.”
Following a series of acquisitions from 2021 to 2023, Axiom Ince grew from 80 employees to 1,400 employees and from £13.9m to over £107m. The firm collapsed in 2023 with a £60m hole in its client account. The independent review noted the final two acquisitions were firms already being monitored by the SRA with the LSB suggesting a ‘reasonable view’ taken by the SRA at the time should have been to mitigate the associated risks with the acquisitions. Additionally multiple key compliance roles were held by the firm’s owners, including being the compliance officer for legal practice, for finance and administration, and for money laundering.
The key findings in the independent review were
- The SRA did not act adequately, effectively and efficiently
- The SRA did not take all the steps it could or should have taken
- The SRA’s actions and omissions in this matter necessitate change in its procedures to mitigate the possibility of a similar situation arising again.
The enforcement action, published in a decision notice outlines the actions the SRA must take to mitigate future risk. Amongst the actions are directives the SRA must
- improve how it identifies risks to consumers and being more proactive in responding to them. This includes risks arising from the corporate structure of law firms and from sales, mergers and acquisitions.
- strengthen the regulation of client money, ensuring firms have effective safeguards in place.
- strengthen controls to protect the public interest and consumer interest where there is a concentration of ownership, compliance and management roles in one person.
Work to tackle the final two points is already underway as part of the SRA’s client money consultation launched earlier this year in which proposals to reduce or remove the role of client account are considered, alongside concerns about the fact around 1/4 of all regulated firms are in a position where the COLP/COFA/MLRO and ownership/management functions are held concurrently, potentially creating multiple points of conflict and failure.
The decision notice directs the SRA to provide evidence of ‘improved Board-level oversight of regulatory risk and intelligence activity’ and strengthen its risk identification functions, and improve its enforcement. Firms will note the directive to specifically tackle the issue of individuals holding multiple compliance role; and given the amount of merger and acquisition (M&A) activity in the legal sector currently, the practical application of a directive to “introduce oversight mechanisms for firm consolidation activity to better protect and promote the public interest and the interests of consumers and promote and maintain adherence to the professional principles” will be interesting, with a requirement for firms to notify the SRA in advance of M&A activity ‘where relevant.’
Commenting on the Decision Notice Catherine Brown, Interim Chair of the Legal Services Board, said:
“The severity of what happened at Axiom Ince—with £60 million in client money missing and 1,400 people losing their jobs—demanded decisive action, and we welcome the SRA’s constructive engagement with us during this statutory process. The directions we’ve issued are designed to protect the public and better ensure client funds are properly safeguarded. Over the last few months, the SRA has already started making the necessary changes to rebuild public trust and confidence in the regulatory framework that protects people who need legal services.”
“We are grateful to the Lord Chancellor, the CMA, the Legal Services Consumers Panel and the Lady Chief Justice who provided us with valuable advice during this process. We carefully took all their advice into account in reaching our final decision. We will continue to engage closely with the SRA in our role as its oversight regulator and will now monitor its compliance with these directions.”
The SRA must comply with the LSB’s directions within 12 months and provide a written report to the LSB on progress every three months.
Law Society of England and Wales president Richard Atkinson added
“We welcome the LSB’s strong action to address the SRA’s failings following the collapse of Axiom Ince. The directions reflect the unanimous feedback from those consulted, that the next steps must be clear, measurable and proportionate. Many also agreed there were failings identified in the independent report into the handling of Axiom Ince and supported the firm action taken against the SRA.
“The decision by the LSB strikes the right balance between ensuring strong consumer protection while avoiding unnecessary regulatory burdens. The clear timelines and oversight framework will help ensure good progress is made towards restoring consumer trust and confidence in the regulator. As the LSB’s decision recognises, the Law Society had no direct connection to, nor involvement in, the events examined in the independent review of the SRA’s intervention into Axiom Ince.”
