The Solicitors Regulation Authority has promised tough action against failing firms that do not wind down efficiently, including putting conditions on the practising certificates of those responsible.

SRA director Samantha Barass (pictured) told a conference on compliance today that the regulator is seeing increasing numbers of firms at risk of collapsing due to financial instability. She said the SRA has identified about 150 firms that are experiencing ‘very significant financial difficulty’.

Barrass said that a ‘toxic combination’ of factors, including the economic climate, civil litigation reforms and lenders tightening on borrowing is causing a ‘perfect financial storm’.

As a result, she said it is more important than ever for firms to ensure that they are taking appropriate steps to manage their exposure to financial risk.

She pledged to take a ‘hard line’ on compliance officers and other senior individuals responsible who fail to try to combat these risks.

Where firms do find themselves in financial difficulty, she said the SRA is taking a ‘robust approach’ to supervision.

She stressed the importance of early engagement and full co-operation with the SRA and need for firms to act quickly, removing or suspending individuals who have failed to act with integrity.

Firms in insolvency, she said, are expected to wind down ‘responsibly’, taking proactive steps to deal appropriately with archived files and seek arrangements for the transfer of live files to other firms.

If firms do not, Barrass warned there will be ‘serious consequences’ for the senior individuals responsible.

‘We will not tolerate the reckless trading of firms into insolvency and where this happens we will pursue enforcement action under Principle 8 [covering the proper running of a firm], including referral to the Solicitors Disciplinary Tribunal where appropriate,’ she said.

Barrass said the SRA will also look at putting conditions on practising certificates to prevent individuals responsible for difficulties at one firm from moving to another without any consequences.

She said there need to be ‘strong deterrents’ for those putting the interests of their clients at risk and imposing costs on the rest of the profession.

‘We fundamentally do not think it is right that firms that are run responsibly, diligently and effectively pick up the tab for those that aren’t - which is what happens when firms in financial difficulty do not do all they can to ensure an orderly wind-down,’ she said.