Plans for law firms to notify the Solicitors Regulation Authority (SRA) when proposed merger and acquisition activity is to take place are being consulted on by the regulator in the next phase of its work on client money, and consumer protection.
Picking up on the work already done around requiring law firms to provide more regular accounts to the regulator, and separating the compliance roles from those of management and senior leadership, this latest consultation proposes the SRA could collect “different and more timely” information from firms to enable more proactive risk identification and avoid interventions on the scale of Axiom Ince, PM Law and SSB Group. The consultation focuses on points where changes to a firm’s profile might indicate the potential of a higher risk of harm to the interests of their clients.
The proposals include changes to governance which would widen the scope of events law firms would be required to notify the regulator of. Current notification requirements include if the firm is in serious financial difficulty, changes to managers, owners and compliance role holders and any changes in the financial services provided. The consultation proposes firms should notify the SRA when they start holding or receiving client money, or merge with or acquire, other firms. The proposals are “designed to reduce the likelihood of consumer harm, while maintaining public confidence in legal services” said the SRA.
The November 2024 consultation identified the SRA could do more to profile the risk of its regulated community, and more proactively manage that risk:
“We act if we identify specific concerns. This includes putting conditions on an existing authorisation or revoking an authorisation. In relation to acquisitions, we have historically focused on closing firms to make sure that client accounts and files are disposed of properly, whilst we ask for and receive limited information about buying firms. However, we could potentially place conditions on the authorisation of the acquiring firm, or the firm being acquired, to prevent an unacceptable acquisition that was not in the public interest from taking place. This is in addition to introducing targeted monitoring and supervision requirements based on our assessment of risk.
“While we have some good information to help us to identify risks, there are areas where we think this could be improved. In particular, some information is only collected at the initial authorisation stage and/or annually thereafter.”
Commenting on the consultation Aileen Armstrong, Executive Director – Strategy and Policy, said: “Our focus is on gaining earlier visibility of potential risk. Having the right information at the right time is important to help us to proactively identify risks earlier and, if necessary, act on them to prevent harm, including the loss of client money.
“The proposed new notification requirements will help set the foundation for this. We are initially targeting two areas where stakeholders agree there should be greater visibility of changes in real time: law firms acquiring other firms and firms starting to hold client money. We urge stakeholders to engage with us on our proposals for achieving this.
As part of the wider work being done on the topic the SRA signalled its intention to continue its work on whether the current model for firms holding client money continues to provide the right protections for the long term in the 2026/27 business plan; which includes consideration of “clearer personal responsibility” for senior individuals in firms when it comes to protecting client money and managing risks.
The consultation is now open and will run until 17 August 2026.
