Not a single compliance officer from a ‘high-impact’ firm has reported any financial difficulties at their practices in 15 months, the SRA has revealed.
Speaking at the 360 Legal conference in London on Friday, SRA regulatory manager Sam Palmer admitted ‘very low levels’ of self-reporting from COLPs and COFAs, who are required to tell the regulator if there any compliance problems.
The officers have been in place since January 2013, but despite concerns about the financial security of medium and large firms – dubbed ‘high-impact’ because of the potential effects on the profession of their collapse – nobody has yet made any contact over the issue.
‘When you read the evidence that firms have failed because they have run out of cash you will understand the gravity of the situation,’ said Palmer.
‘The focus [of COLPs and COFAs) was on suitable people having suitable credibility and standing to be aware of the financial position and to be able to have a genuine self-reporting, but the levels around financial viability have been so very low.’
Palmer admitted that enforcement action is likely against financially unviable firms this year. This could include intervention. However she emphasised that firms that have engaged early with the SRA about their problems have, in some cases, been able to turn their situation around.
The SRA last year published a list of poor behaviours shown by firms in financial difficulty, often headed by drawings exceeding profits. Palmer said one London firm was last year found to have drawings of £41m and profits of £23m. Another firm, which the SRA is visiting next week, has been found to be drawing £80m but posting profits of just £50m.
Palmer said the SRA was ‘aware of the debate’ surrounding pre-pack administrations, where firms are able to arrange a buyer by offering exclusivity at a reduced price, but she was keen to stress that the regulator does not endorse this option.
‘The most we will do is not intervene on commercial grounds where the parties have got together,’ she added. ‘Our concern is the public interest and in this circumstance the most we do will be to write to the court and say we’re not proposing to intervene.’