Hey, hey, SRA, how many firms didya catch out today?

It’s fair to say that the Solicitors Regulation Authority (SRA) lost a lot of credibility among much of the legal community last year when it got its nose very publicly bloodied in the Axiom Ince debacle.

A quick refresher for those that need it: after being beset by audit delays, fire sales of its assets and the suspension of its shares on the London Stock Exchange, the venerable yet terminally beleaguered Ince Group was placed into administration in April 2023. It was subsequently bought up by Axiom DWFM, which shortly thereafter also bought Plexus Legal from its administrators and merged the three firms to form the ill-fated Axiom Ince.

Just a few months later, in October 2023, Axiom Ince was shut down by the SRA, triggering a police inquiry into allegations of fraud involving ￡64m missing from the firm’s client account. The former managing partner of Axiom Ince, Pragnesh Modhwadia, made the astonishing admission in an affidavit that he had spent most of the money, and has since had a ￡1.07m bankruptcy order made against him by the High Court.?

The SRA was left with questions to answer in the aftermath, especially in terms of what it knew about the firm’s apparent accounting ‘peculiarities’ before it rubber-stamped Axiom’s acquisition of Plexus. Though not strictly required to approve acquisitions, the regulator does need to know details of residual balances and outstanding undertakings when a practice is taken over, according to the SRA’s own guidelines.

To be caught asleep at the wheel like this was not a good look for the SRA, especially not when the deal in question came apart at the seams in such a public way. And the fact that the regulator has subsequently imposed a 200% increase (from ￡30 to ￡90) in solicitors’ individual contribution fees to the compensation fund, left severely depleted by the Axiom Ince fiasco, could be construed as a case of making others pay for the SRA’s own cockup.

Nearly a year on from this black-swan event and it looks to me, as an outside observer, as if the SRA is doing a fair bit of compensating in order to be taken seriously again as the legal sector’s regulator, doubling down on a rough-and-tough approach that has seen it appear in the legal-news headlines with much greater regularity of late, as in the sample of stories below:

• Simpson Thacher to face SDT over “compliance shortcomings”
• Post Office scandal: SRA chief vows “serious consequences” for solicitors
• Hamlins partner set for SDT hearing over alleged “improper” litigation threats

In fact, if you scan through the most recent news articles published on the website of the Law Society Gazette, you will see that there is a steady drumbeat of SRA interventions virtually every day at present, with the regulator seemingly targeting individuals as much as firms. And often at much smaller firms. And this is in August when we’re all on holiday – Heaven knows what it’ll be like in September when everyone is back at the coalface.

So what is going on? Is it just a case of me and the TBD gang suddenly becoming more aware of something that has in fact been going on long before the Axiom Ince saga happened? Has the SRA always been taking solicitors to task over pernickety things like not displaying the regulator’s Digital Badge on their company website??

Or am I correct in feeling that the SRA is trying to play catchup after publicly getting egg on its face, and is therefore throwing its weight around more – possibly in an attempt to look good in the eyes of a new Government whose front bench is peppered with lawyers and whose head honcho is a KC?

Either way, it looks to me as if the regulator’s current approach isn’t really working, in that it’s trying to fix the roof in torrential rain, having failed to do so while the sun was shining.

Now, to many of those working in the legal sector, the SRA is probably something of an irrelevance – that is, if they work at a top-200 law firm. If you’re a lawyer at Clifford Chance ce, or 年利达 , or A&O Shearman , how often does the SRA feature in your thinking on a day-to-day basis? The answer is probably ‘almost never’. However, if you’re the founder of, say, a ten-lawyer, SRA-regulated practice, the answer is likely to be ‘most days’. And to you, the SRA is probably a proverbial pain in the fundament.?

That’s because small firms are seemingly regulated to the same degree as Magic Circle firms, which creates an unequal amount of work for boutiques. This is a reflection of the fact that a single body is as responsible for ensuring that the billion-dollar deals of rain-maker masters of the universe at top City firms are above board as it is for overseeing the conduct of boutique employment-law firms, family solicitors, criminal solicitors, and any and all assorted smaller firms operating within the SRA-regulated segment of the legal sector.

To my mind, this amounts to an impossible attempt at regulating several different and diverging professions from a single nexus with a one-size-fits-all approach. Which makes me wonder whether the SRA is picking the right fights at the moment? If not, this begs a much bigger, and possibly quite controversial, question: is the SRA in its current incarnation still fit for purpose? Or has the time come for it to be split up into a B2B and a B2C regulator within the legal sector? Or maybe even three regulatory bodies, with the third dedicated to criminal law?

I don’t have any answers. Hell, I’m just a legal marketeer, with no skin in the game as such. But I do have many dear friends, colleagues and clients whose work falls under the aegis of the SRA, and who are therefore affected by the current situation.?

I know that it has to do its job, and yet, maybe it also has to justify its own existence? The SRA’s average number of full-time equivalent staff was 766 during 2022/23. If it were a law firm, today, this would put it somewhere between Penningtons Manches Cooper LLP per and Clarke Wilmott in terms of its size.

What are your thoughts? Answers on a postcard, please – or, perhaps more practically, in the comments section below or via DM for anonymous attribution if we follow this topic up here at Si’s Matters.

In other news

An admonishment from a legal practice manager

In her recent LinkedIn post, the founder of Aries Legal Practice Management, Kirsty Pappin, called on law firms to update the legal ombudsman's address on their website. See Kirsty’s post for the current address.

Do law firms have a sexual harassment problem?

A Daily Telegraph article this week highlighted the fact that dozens of sexual harassment allegations have been made against staff at UK law firms, with the SRA currently investigating 95 cases of sexual misconduct as of May this year. Maybe get to the bottom of these and let the dust gather on the website badges and price transparency bureaucracy matters for a while?

Resurgent mergers and acquisitions market sees billings soar

According to The Times, lawyers are set for a record-breaking year after the sector saw more than 12% growth over the past 12 months, massively outperforming the wider professional services market. Most of this growth is down to increased activity at City law firms and large national commercial practices as the result of a rapidly recovering mergers and acquisitions market. The legal profession is on track to generate nearly ￡52bn for the current financial year, adding about ￡8bn to the previous year’s total.

HMRC reforms see debt rise across UK’s top 200 firms

It’s not all good news on the financial side, writes The Lawyer, as firms are currently experiencing a surge in borrowing as they prepare themselves for equity partner tax reforms. According to the article, at least 20% of the UK200 firms (43 of 200) increased their borrowings last year, while 29 firms have cut cash reserves.

Episode 3 is out

My podcast But Is It Legal? is back with another episode, this time featuring the inimitable Dr. Trevor D. Sterling (Hon.causa) . He talked to me about his incredible and inspiring journey into the law, how he almost left the profession, and the importance of lifting up others as we climb.

You can listen here:

YouTube: https://lnkd.in/eJ9qkXxc

Spotify: https://lnkd.in/e-d7Z_B3

Podben: https://lnkd.in/epsJJhXt

Amazon Music: https://lnkd.in/eTZsvrzK

PlayerFM: https://lnkd.in/e46q4ZDp

I hope you’ve enjoyed this week’s edition!

Si

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