The current form of solicitor regulation is now facing the same question as our prime minister: how long before the end? Last week was equally disastrous for both.
First, the Legal Services Board issued a statement on the Solicitors Regulation Authority. Gone are the halcyon days when the SRA was at the top of its class. Now, noting the approximately £100 million cumulative loss of client money associated with the failures of Axiom Ince and PM Law, and that the SRA is under three statutory enforcement measures, which is exceptional in the history of legal services regulation, the LSB states that it ‘is also concerned about the likelihood of further significant failures in this class of case, and the pressing need for urgent action to protect consumers’. The LSB is trying too late to recover its reputation.
Accordingly, the LSB announced a number of screw-tightening measures on the SRA.
Second, the SRA published its draft business plan and funding requirements for next year, proposing an overall funding requirement increase of £25m, or 29%, to £111.5m for 2026/27. Following those much-publicised law firm failures, other law firms will suffer practising certificate and compensation fund fee rises, with the impact obviously worse for small firms.
Also included in the draft business plan is a focus on client money. The SRA will be ‘examining the current model of solicitors holding client money and exploring alternatives, such as new opportunities raised by technological and system developments’.
(There was slightly better news, too. Given its focus on client accounts – which the SRA clearly sees as the cause of its troubles, although others disagree - it will ‘pause further work building on the evaluation of our transparency rules, and on quality indicators and digital comparison tools’ and ‘will not take forward any further work relating to any potential redelegation of the regulation of CILEX professionals’.)
As with the prime minister, we are approaching a cross-roads with the SRA, and decisions will soon have to be made. Before doing so, we need urgently to decide what has gone wrong. Prescription should follow diagnosis. But views on the diagnosis differ:
(1) Some think that the regulator has done a bad job so far, but with refocusing, some restructuring, and more resources, it will be able to do the job required of it. This is more or less the view of the SRA itself. If this is the case, then we don’t need to worry about the long-term, but should be prepared to suffer the financial pain that will ensure that we can soon be proud of our regulator again. Within this view, there will be differences of opinion, such as whether client money should be retained, whether compulsory continuing professional development should be revived, and whether the SQE needs to be improved. But supporters think these can be contained within the existing structure.
(2) A second view is that no regulator can do the job any more, no matter how much resource is thrown at it, because the current regulator, in loosening restrictions on what solicitors can do and how they should report on what they have done, has created an uncontrollable market which can no longer be effectively regulated by anyone. This is more or less my view, and if it is correct, we should be looking at the content of regulation before - or at the same time as - deciding on structure or resources. (I stress that this is my view alone, and not that of the Law Society.) It is unprecedented that there should be three large law firm failures within such a short space of time. Is it really a result of poor management and under-resourcing at a regulator which could otherwise succeed, or a sign that the core of the rule book is fatally flawed (and unable to be rectified by tweaks, even tweaks as large as removing client accounts)? I don’t believe that any other bar in the world is facing the crisis of regulation that we are facing – why not? What is the difference between us and them? We may have to conclude that it is the liberality of our market.
This debate needs to start urgently. We – or rather consumers and clients - were promised better outcomes through the Legal Services Act 2007, with its reliance on the separation of regulator from professional body, and a loosening of who could participate in the legal services market. When those who had concerns about the new settlement pointed to international markets where the Act’s innovations were not the norm, they were lambasted as old-fashioned and conflicted. But whose version of regulation has the better story to tell over the last 20 years?
Solicitors are rightly furious about recent events affecting the SRA. We owe it to them to pinpoint first the correct cause of the recent disasters, and then to propose solutions which will avoid them in the future.
Jonathan Goldsmith is Law Society Council member for EU & International, chair of the Law Society’s Policy & Regulatory Affairs Committee and a member of its board. All views expressed are personal and are not made in his capacity as a Law Society Council member, nor on behalf of the Law Society
No comments yet