The Solicitors Regulation Authority has been ordered to explain how it allowed up to £40m of client money to go missing from the PM Law group.
Oversight regulator the Legal Services Board said today it was ‘deeply concerned’ about the PM Law case, a failure which takes the cumulative total of recent client losses to more than £100m.
The SRA is already approaching its deadline, set by LSB directions, for showing how it improved its risk assessment of firms and safeguarding of client money following the 2023 collapse of Axiom Ince.
Now the solicitors’ regulator has been asked to commission an independent external audit to evaluate its compliance with these directions, particularly in the light of the PM Law debacle. The group and its various trading names was intervened into in February after shutting overnight. The case is being treated as a suspected fraud.
The SRA has already commissioned an independent review into its handling of PM Law, due within the coming weeks.
This latest action by the LSB adds to the unprecedented level of scrutiny being poured into the actions of the SRA. The LSB will exercise formal information-gathering powers under section 55 of the Legal Services Act to obtain further information fon how the SRA will handle and manage higher-risk firms, how it will mitigate such risks, and how it will protect consumers at known risk of harm.
Three statutory enforcement measures are now in place relating to the SRA (the other being in relation to SSB Law) and the LSB said it wants to see ‘urgent and immediate’ action to address concerns.
This week, the LSB board asked the SRA board to provide assurance, in an in-person meeting before the end of this month, that it has the necessary expertise and oversight approach to deliver the urgent reform needed to address the challenges and complexities of the sector.
Monisha Shah, LSB chair, 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.’
The LSB will not comment further on statutory enforcement matters until it has concluded discussions with the SRA and considered next steps at the board meeting on 21 July.
In a statement, the SRA today said it shares the LSB’s concerns around the business model of high growth, highly acquisitive firms and the level of consumer harm that failures can cause. It added: ‘We have made significant progress in areas such as our risk and data capability to help us spot risks earlier and increasing our capacity to respond to them. But it is not sufficient on its own. PM Law Ltd has emphasised this.
‘We need both immediate action to control known risks and a focus on long-term change to prevent this in the future. We are now fast-tracking tighter controls on client money, we have launched our supervision pilot on firms with complex business structures, and we are working on high-volume consumer claims to get more on the front foot in tackling areas of the market that are high risk.’
In the longer term, the SRA is looking to shift to an intelligence-led, proactive supervisory model to support firms into compliance and reduce instances of significant harm and costs further down the line. More details will be released in the business plan due to be published on Friday.
In response to the LSB update, Law Society 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.’
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