SRA’s Detailed Approach to Financial Sanctions – Law Society’s Response

Proposals

The Solicitors Regulation Authority (SRA) was first consulted on changes to its financial sanctions regime in November 2021.

The SRA has now defined its final position on financial penalties (PDF) and consults on detailed plans to implement decisions.

From July 2022, the SRA’s internal fine powers have been increased from £2,000 to £25,000.

This increase impacts solicitors, traditional law firms and their staff, all of whom may be subject to fines from the SRA.

The SRA is seeking views on proposals such as:

  • panels to decide the most serious category of fines instead of sole arbitrators
  • tips to clarify behaviors that do not lend themselves to a fine
  • taking into account the means of respondents (companies and individuals) when setting a fine and proposing updated fine installments
  • increasing the maximum fine it will impose on a company to 5% of turnover
  • the introduction of a fixed penalty regime for companies for a limited number of minor breaches of its rules

Our point of view

The safeguards offered by the SRA to increase the transparency and accountability of its enforcement processes do not go far enough.

There must be a clearer functional separation of the roles of investigators and adjudicators to maintain the confidence of the profession and the public.

Arbitrators, as decision-makers, must be completely independent and not act as investigators.

We support, in principle, the proposal that Arbitration Panels, instead of Sole Arbitrators, should consider cases that fall within the SRA’s most serious fines category (Tranche D).

Committees must be composed of both lawyer and lay members, but lawyer members must constitute the majority and chair the committees.

We do not agree that annual turnover is the most reliable indicator of profitability. However, if the SRA is still inclined to use this metric, then we consider the 5% increase in revenue to be excessive and unwarranted.

Concern for reputation is the primary motivator for good behavior, and it will work regardless of the level of any potential fines. The proposed increase is therefore unjustified.

There are inconsistencies in the consultation on how the SRA will calculate turnover, either based on annual domestic turnover or based on global turnover. We think it should be based on domestic turnover in any case.

The framework for fines is also too complicated and the ARS should consider simplifying it.

The SRA proposes that the base penalty level for individuals be set as a percentage of an individual’s gross income.

We do not believe this to be an appropriate indicator on which to base the affordability of a fine. Although this is perhaps the simplest model for the SRA to administer, we argue that it would not reflect an individual’s true economic situation.

Instead, an individual’s means should be considered to determine affordability.

We disagree with the proposal to publish the percentage of income a fine represents relative to a person’s income, as it involves the use of that person’s sensitive data and is disproportionately intrusive.

In our detailed response, we make practical suggestions about the SRA’s proposed lump sum financial penalty regime.

Next steps

The consultation closed on November 14, 2022.

The SRA will review the responses to the consultation before deciding how to proceed.

Read the consultation on the SRA website