Robert Forman outlines the SRA’s plan to increase and extend the fines it can issue to regulated solicitors

Robert Forman 600x400

On 23 May 2022 the Solicitors Regulatory Authority (SRA) announced that it will ask the Lord Chancellor to increase from £2,000 to £25,000 the maximum fine it can issue to ‘traditional law firms’ and those working for them. It also announced an intention to modify internal procedures within existing statutory powers.

If the SRA gets its way, it will become the primary disciplinary body for all law firms and those working within them. This is already the case for licensed bodies (such as alternative business structures (ABS)) – with the change, ‘traditional law firms’ (recognised bodies), will join them. 

Fining data

In the years 2018 through 2021 around a third of all Solicitors Disciplinary Tribunal (SDT) cases resulted in a fine. Seventy-five per cent of those fines were at a level of £25,000 or below. 

Of the 35 fines imposed in 2021, 12 followed a substantive hearing, and 23 were issued by way of ‘agreed outcome’ (a Carecraft procedure in which the SDT must ratify the consent order). Of those 12 that went to a substantive hearing only a couple at most would have exceeded £25,000 (SDT data indicates that four fines of between £15,001 and £50,000 were issued). 

Existing powers

Currently, the SRA can impose a fine of up to £250 million on licensed bodies (ABS) and up to £50 million on any individual working for such a body. In all other cases, for both firms, and individuals working for them, the SRA cannot impose a fine of greater than £2,000. 

Therefore, for non-ABS firms and individuals, the SDT remains the principal disciplinary authority, where fines are unlimited.

When the Legal Services Act 2007 created the SRA’s present powers, parliament’s intention was to remove the less serious cases from the SDT. Arguably, the Lord Chancellor will need to consider at which point a fine is ‘serious’.

Since 2012 the SRA has repeatedly tried to increase its powers of sanction for traditional firms; principally arguing that there is no rationale for the difference in its powers to fine ABS and traditional law firms. 

This time around it has focused on its regulatory objectives – arguing that an increase in fining power will result in a quicker regulatory response, and thus improve regulatory protection.

The SRA also references the time and cost-saving for everyone, and a reduction in stress for the profession.

The consultation

Following the SRA consultation, both the SDT and the Law Society issued responses rejecting the SRA’s proposals. The SDT supports an increase in fining power to £7,000, whereas the Law Society supports an increase to a figure of between £5,000 and £7,500.

The SDT’s primary concerns are that:

  • the SRA should not act as judge and jury
  • increased powers won’t resolve cases more quickly as the SRA is the cause of most delays (and SDT cases only take six months to complete)
  • there will be a lack of transparency/public scrutiny due to plea bargaining and shorter written reasonings.

The Law Society accepts that an increase of fining powers would speed up the process, save costs and reduce the stress on all parties. However, it remains concerned about the SRA acting as judge and jury and the lack of transparency in serious cases.

Will it benefit solicitors?

There are many valid complaints that can be made about the manner and skill with which SRA investigations and proceedings are conducted, in particular, extreme delays in conducting investigations and reaching decisions, a lack of understanding of the nature of solicitors’ practice, and a lack of competence.

However, as counterintuitive as it may seem, in my view, increased SRA fining powers are in the interests of solicitors. Here’s why.

A reduction in delays

The SRA’s primary rationale is that by reducing delay before a regulatory response is issued (by the SDT), the public are better protected, and the profession benefits too.

The SDT disagree that their process causes delay – indicating that most cases take around six months to process. However, the delay caused by SDT proceedings does not comprise solely the six-month long SDT process. Following the SRA’s decision to refer a respondent firm or individual to the SDT, it invariably takes the SRA between six and 12 months to prepare SDT papers, and therefore SDT proceedings extend the disciplinary process by around 12 to 18 months.

In this 12 to 18 months, the firm/individual will face considerable uncertainty. The SDT referral will be taken into consideration by professional indemnity insurers likely across two insurance periods, and the firm and individual may lose work/income (panel and tender rules or by reputational damage).The SRA are primarily responsible for the delays; so its proposal is an attempt to reduce its own delays. 

Reduced financial exposure 

When a solicitor or firm is referred to the SDT, from a financial standpoint, they’ve already lost. This is the consequence of an unjust costs regime in which it is almost impossible for a respondent at the SDT to recover their defence costs – even if no allegations are found proven against them.

A fine of £25,000 is a frightening sum of money for most. However, by comparison, the SRA’s costs claimed at the SDT are frequently £70,000+, primarily covering its external legal costs, and the so-called costs of its internal forensic investigation. 

The SRA currently uses one external law firm to prosecute cases at the SDT, seeking to recover a ‘fixed fee’ of £41,400 (£34,500 + VAT). Additionally, it will seek to recover its ‘supervision’ costs (£1,575) and a profit cost in respect of time spent by its employed forensic investigators. I use the term ‘profit cost’, as despite case law indicating this should not happen, the SRA invariably seeks an order for the forensic investigator’s time to be paid at an hourly rate well in excess of the actual cost to the SRA of employing that person.

If the cost of defence representation is added, the cost to a respondent of a contested SDT application can exceed £100,000. If no allegations are found proven, normally the SRA will not recover their costs, although typically, they will still try. 

There was some hope that the judiciary would adjust the cost recovery regime, to enable successful respondents to recover the costs they are put to, in defending unsubstantiated allegations. However, following the publication on 25 May 2022 of the judgment in Competition and Markets Authority (Respondent) v Flynn Pharma Ltd and another [2022] UKSC 14, that hope has for the foreseeable future been extinguished.

By contrast, when the SRA issues an internal sanction, presently it imposes a cost order of just £1,575, the ‘supervision’ cost. It is not clear whether the SRA intends to seek to earn its forensic investigation ‘profit cost’ in its proposed change of rules.

Nevertheless, by avoiding SDT proceedings, the respondent will in the least save the associated costs of prosecution and defence. The SRA for its part (and thus the profession) will also avoid its unrecoverable costs, and the cost of running the Tribunal will be reduced.

It will be interesting to see whether the SDT displays greater willingness to award a solicitor the costs of an appeal they are forced to bring as a result of an incorrect SDT fine issued.

Illusory risk of plea bargaining

There is a risk that solicitors and firms will agree to fines rather than incur the costs and exposure of contested SDT proceedings – but that already happens in the SDT. The majority of cases ending in fines of between £2,000 and £25,000 are resolved by way of an ‘agreed outcome’. Agreed outcomes are increasing year on year. In its response to the SRA’s consultation, the SDT reported that 66% of all fines issued in 2021 were imposed following an agreed outcome.

Low risk of abuse/miscarriage/lack of transparency

In the eleven years that the SRA has had a maximum fining power of £250m, the largest fine it has issued to date is £232,500. Here, a maximum fine of £25,000 is proposed. 

If a sanction is agreed, it will be recorded in a regulatory settlement agreement setting out the allegations, misconduct and mitigation, and publicised. 

If the fine is not agreed, and simply issued by the SRA, the solicitor or firm can appeal to the SDT. The remit of the SDT on an appeal will need to be looked at to ensure that it proceeds by way of rehearing rather than review, to ensure that live evidence will be heard and to address the ‘judge and jury’ concern (the SRA typically does not hear live evidence in internal investigations).

Concerned about the risk of miscarriage, the SDT cites that in eight cases in 2020 all allegations were found not proven. I appeared in two of the eight and such cases invariably include an allegation of dishonesty and will continue to be referred to the SDT. In all other cases, the right of appeal will exist.

Judge and jury

There’s a valid concern here. However, with a right of appeal to the SDT, the solicitor/firm is not in a significantly worse position than they are in the present system.

While currently, if the SRA makes a referral to the SDT and it has not imposed a sanction, it has nevertheless made a finding of fact that misconduct has taken place.

What are the alternatives?

Some commentators favour a system that would give the SRA power to impose a fine of up to £10,000 as of right, or up to £25,000 if by agreement with the respondent. While at investigation stage a respondent may not be prepared to agree a fine above £10,000, when faced with the stark reality of the unrecoverable costs of SDT proceedings they may change their mind. The SRA may not be prepared to enter into the ‘cat and mouse’ of negotiating a fine, and in the absence of immediate agreement, simply refer to the SDT. Allow the full maximum fining power of £25,000 and the firm/solicitor will have the choice of SDT proceedings.

The SRA indicates in its response to its consultation that it will retain discretion to refer a case to the SDT for a full hearing in appropriate cases, examples including where there are complex legal arguments, and where the facts are disputed and require to be resolved at a hearing. It would be open to those being investigated to argue for an SDT hearing to avoid the ‘first instance’ fine.

The SRA indicates that it will, save in exceptional circumstances, seek to have suspended or struck from the roll, any solicitor found to have engaged in sexual misconduct, discrimination or harassment. The SRA will not have the power to suspend or strike off a solicitor, and therefore, this is simply notice that it is unlikely to issue a fine. 

The SDT will continue to impose sanctions in accordance with its Guidance Note on Sanctions, and having regard to its privileged position as an expert tribunal and barometer of professional views.

A view that the SRA fining powers should be increased is not a vote of confidence in its performance, but perhaps a sad reflection of the present unwieldy and expensive system of regulation. 

The government approved the increase in the SRA’s fining powers from £2,000 to £25,000 just prior to going to press. This is likely to come into force at the end of July 2022.