Law firm collapses convince SRA that client account is unsustainable

We all knew the Solicitors Regulation Authority would have to raise fees to plug a funding black hole. We didn’t realise the increases would be this big.

The figures are jaw-dropping and will incite anger among the vast majority of the profession that continues to pose little risk but has to pay for those that do. Some of the costs pressures faced by the SRA are out of its control – the staggering rise in complaint numbers being the main example – but others are self-inflicted. Flawed prosecutions have incurred wasted costs order and a lack of proper supervision allowed millions to slip out of the client accounts of Axiom Ince and PM Law.

Has there been proper accountability? The chief executive overseeing multiple failings got to dictate his own six-month retirement countdown, while the board chair for the past seven years continues in post. New chief executive Sarah Rapson is not responsible for the failings that have forced fees to go up, but she has been forced onto a charm offensive initially and has now effectively torn up the strategy and started again.

If the fees increase will go down badly, there are other hints in the business plan at future plans which will cause rancour. Rapson herself has admitted to being surprised at the strength of ill feeling from the legal sector to its biggest regulator, and this could get worse before it gets better.

The SRA is shelving work on transparency rules and promotion of comparison tools. The absorption of CILEX-regulated individuals is an absolute non-starter as well.

For now, all the focus is on the client account, and inevitably this will raise the question of whether law firms can continue to hold client money.

The arguments against are well-rehearsed – ranging from the lack of risk-free alternatives to the increased costs for clients – and will be wheeled out again if the SRA comes for the client account. Less likely to be shouted about, but no less important to the profession, is the interest that is made on client funds.

But the SRA’s argument will be simple: the profession can no longer afford the reputational and financial damage inflicted by those who would take client money.

The obvious riposte is to say the SRA should do better at spotting warning signs and taking action to protect client money from fraudsters. But the regulator believes recent examples show that Minority Report-style regulation is not possible. Not all the rogues can be detected early enough.

These fee increases are a direct consequence of client account money not being as secure as it should have been. At what point does the clean-up bill start outstripping the financial benefits to firms?

And what untold damage are the likes of PM Law doing to the solicitor brand? That firm’s collapse was national news and will have dropped seeds of doubt among the public into the integrity of the legal profession more generally. There is already masses of unmet need out there: the SRA will point out that potential clients are being put off from accessing firms by the horror stories they read. Take the client account out of the equation, the argument goes, and you take away the possibility that bad apples ruin it for everyone.

There can be no doubt that client losses of £100 million from just two firms (Axiom Ince and PM Law) are completely unsustainable. Solicitors can expect to face the consequences, both now and in the not-too-distant future.