The Solicitors Regulation Authority is to begin ‘intense engagement’ with at least 55 firms identified as being at high risk of financial instability in a move that will include immediate visits by the regulator, it revealed today.
So far 1,100 firms have responded to a survey targeting 1,300 firms working in ‘at-risk’ sectors such as personal injury and legal aid.
Of those around 495 are being kept on the regulator’s watch list, with the rest showing no indication of financial difficulty.
Speaking at the SRA’s regulatory risk committee this morning, Mike Haley, SRA director of supervision, said the regulator would target its resources on the 5% of high-risk firms identified.
‘This is about ensuring we are putting our resources into the highest risk areas,’ he said.
Carol Westrop, head of legal policy at the SRA, said the regulator would mitigate risks through its new powers of supervision as well as intervention. ‘Parliament has given us interventionary powers and our contact with other regulators suggests that is sometimes the best way,’ she said. ‘But engagement through supervision has been effective so far. It has led to significant cost savings.’
Encouraging struggling firms to seek insolvency advice and create contingency plans were essential in focusing attention on financial difficulties, she said.
The move follows a report to the regulatory risk committee, which found firms that have gone out of business to be ‘very naïve’ in their financial management.
Firms could be subject to further risks as they emerge from the downturn if they make overconfident investment decisions, added Haley. ‘Financial stability will change with the market,’ he said.
‘Different firms will come into [the high-risk category] in the next 6-12 months.’