The Legal Services Board (LSB) has summoned the Solicitors Regulation Authority to an in-person meeting before the end of May to seek assurance that it has the necessary expertise and oversight approach to deliver the urgent reform needed to address the challenges and complexities in the legal sector.
The regulator has also been ordered to commission an independent external audit to assess and evaluate its compliance with statutory directions, with a report to be made available to the LSB by the end of June.
The SRA is currently subject to three concurrent statutory enforcement measures, which the LSB says is “exceptional in the history of legal services regulation”.
In a statement issued yesterday, the LSB said its board “is clear that regulatory action by the SRA must be urgent and immediate”.
The board is also “deeply concerned” about the failure of PM Law, and the likelihood of “further significant failures in this class of case”.
There is a “pressing need for urgent action to protect consumers,” it added. Cumulative loss of client money associated with Axiom Ince and PM Law now stands at approximately £100 million.
The LSB is “separately and closely scrutinising the SRA’s response to the collapse of PM Law Ltd, including what the SRA knew, when it knew it, and what action it took”.
It will require closer scrutiny and oversight of the SRA’s handling of known higher-risk firms and will exercise its formal information-gathering powers under section 55 of the Legal Services Act 2007 to obtain further information from the SRA. The LSB will ask the SRA how it will handle and manage higher-risk firms, how it will mitigate the risks, and, crucially, how it will protect consumers at known risk of harm.
Monisha Shah, chair of the Legal Services Board, said: “The LSB’s primary concern is consumers: those who have already suffered harm and those who remain at risk. People must be able to use legal services with confidence that effective regulation is in place to protect them, particularly from loss arising from alleged criminal activity.”
Statutory directions were issued this month under section 32 of the Legal Services Act following the LSB’s independent review of the SRA’s handling of the Axiom Ince collapse.
In March, a performance target was issued under section 31 of the Act following regulatory failures identified in connection with the SSB Group case. Also in March, and in connection with the SSB Group case, public censure was issued under section 35 to draw public attention to the SRA’s regulatory failures.
There are three further enforcement powers available to the LSB under the Legal Services Act 2007: section 37 allows for the financial penalties for failure to comply with directions or internal governance rules; section 41 allows for intervention directions, an extreme measure used only in serious circumstances where other tools are inadequate, which enables the LSB or a nominated person to take over one or more of the regulator’s functions.
Sections 45 and 76 allow for cancellation of designation, the most serious sanction available. This is used only in exceptional circumstances where no other enforcement power would adequately address the issues.
Earlier this month, the SRA’s new CEO Sarah Rapson acknowledged the organisation needs to “regain the trust of solicitors, law firms and the wider public” and that “carrying on as usual is neither realistic nor sustainable.”
In a statement published on the SRA website, Rapson said the message is clear from the profession that the regulator is not getting the “basics of good regulation right” and said she was under “no illusion about the scale of the change needed at the SRA”.
“Slow investigations and delayed casework are the clearest signs of this. Stakeholders have told us that our approach has been too reactive, relying on enforcement after the fact rather than addressing risks before they cause harm,” Rapson wrote.
The chief executive outlined four priorities for the SRA: a focus on operational excellence; proactive risk identification to ward off incidents like Axiom Ince and SSB; tackling issues that impact consumers most, specifically high-volume consumer claims; and improving collaboration and engagement with the profession.
New roles will be created to strengthen leadership capacity, and a new supervision pilot will be established to develop alternative to full investigations. A law profiler tool will be rolled out to “provide a more coherent view of firm-level risk,” and a “rapid and strategic risk assessment process” will aim to tackle the evolving challenges facing legal firms and individuals.
The plans have been guided by solicitor feedback and “the people that rely on the invaluable services that this profession provides,” Rapson explained.
“Put simply, we have not been getting enough of the basics of good regulation right. Slow investigations and delayed casework are the clearest signs of this.”
Responding to the LSB’s statement, Law Society of England and Wales chief executive Ian Jeffery said: “The new CEO of the SRA, Sarah Rapson, has inherited a problematic legacy and we welcome her openness and commitment to address those problems.
“The SRA must show it has a credible plan to deliver meaningful and long-lasting improvements. This plan, of course, must address the regulatory measures imposed on it by the LSB.”
