Independent review finds SRA handling of Axiom Ince inadequate and ineffective
By the time the SRA finally intervened in October 2023, around £64 million had been taken from Axiom Ince’s client accounts.
The LSB – the oversight regulator for legal services in England and Wales – commissioned an independent review in the wake of the SRA’s regulatory handling of these events.
An independent law firm outside the jurisdiction of England and Wales, Carson McDowell, was appointed to review the SRA’s actions.
The independent review found that:
- the SRA did not act adequately, effectively and efficiently
- the SRA did not take all the steps it could or should have taken, and
- its actions and omissions necessitate change in its procedures to mitigate the possibility of a similar situation arising again
What this means for solicitors, clients and firms
“The independent review paints a vivid picture of the SRA’s inadequate and ineffective handling of Axiom,” said Law Society president Richard Atkinson.
“As a result of the SRA’s failure to take all the steps it could or should have taken, Axiom was able to act without intervention, leading to money going missing and huge distress to their clients.
“Ultimately, it has fallen to the profession as a whole – solicitors and law firms – to shoulder the cost through a substantial increase in contributions to the Compensation Fund, which is a vital protection for clients and consumers.
“While the events leading to Axiom’s collapse were happening, the SRA was focused on increasing its fining powers and proposing regulatory expansion, rather than tackling the known risks from accumulator-style firms and ensuring its operations were joined up and laser focused on protecting consumers.”
What should happen next?
The report makes it clear the SRA had the funding, staff and powers to take the necessary action to prevent the alleged wrongdoing.
The problems identified in the report can be fixed, but the LSB must insist that the SRA puts its house in order and that the SRA’s management and governance concentrates on its core responsibilities.
The SRA is the independent regulator for the solicitor profession. Its role is to regulate solicitors and law firms in the public interest.
As the professional body for solicitors, we represent and advocate on behalf of the profession and engage with decision makers on the issues that matter most.
Under the Legal Services Act 2007, while the Law Society holds the title of “approved regulator”, the SRA’s decisions and actions in the exercise of its regulatory functions are fully independent of the Law Society.
We welcome the LSB’s decision to initiate the process for taking enforcement action against the SRA.
As the professional body for solicitors, we will make representations to the LSB in the usual way.
How consumer protection can be improved
As part of the SRA’s consumer protection review, we have identified areas where the SRA can make improvements. This includes:
- conducting more effective horizon scanning to help identify potential risks sooner
- reviewing intelligence sharing with third parties
- reviewing the process by which the SRA monitors and supervises firms
- better regulatory oversight of client accounts, including regular checks of firms’ accountant’s reports (regardless of whether the reports indicate issues of concern)
We have raised concerns with the SRA that it has not viewed the accounts of several firms for several years.
We hope to see the SRA acting quickly on these recommendations and those set out in the report of the independent review.
Introducing these improvements will help prevent problems from occurring, help reduce risk, and provide clients and consumers with better protections in the event of things going wrong in a regulated firm.
While the concerns raised by the review are serious, they are fixable, provided the SRA’s leadership refocuses its energies on executing its core responsibilities of protecting consumers and ensuring confidence in the solicitor profession.
Key areas of failure identified by the independent review
The SRA had multiple opportunities to prevent or limit Axiom Ince’s collapse and its detrimental consequences.
Axiom was a relatively new and rare type of law firm, known as an ‘accumulator’.
Before the Axiom collapse, two other accumulator firms had also collapsed due to financial problems.
SRA staff raised concerns about the risks to clients from these firms, but little or no action was taken to ensure these risks were acted upon.
If they had been, the alleged fraud could have been stopped at a much earlier stage, dramatically reducing consumer losses.
In October 2022, the SRA investigated a report of unusual transactions involving a solicitor at Axiom.
The SRA failed to follow its own procedures in its investigation by failing to confirm details with Axiom’s banks. This error was not picked up by routine management oversight.
If it had followed procedure, there is a strong possibility that inconsistencies between Axiom’s false assertions of its bank holdings and the reality would have been discovered earlier.
Two of the firms Axiom took over in early 2023 were under the supervision of the SRA.
Both were in financial difficulties and the SRA was overseeing a process of managed closure or sale.
In a matter of a few months, the SRA authorised the sales of both firms to Axiom. It did this without any serious due diligence or investigation into Axiom and the source of its funds.
If the SRA had done so, then any misconduct would have been identified earlier and the losses to clients would have been reduced.
In July 2023, the losses to Axiom client accounts were finally discovered, largely due to the diligence of individual SRA staff.
This discovery led only to a partial intervention into just three solicitors in the firm in August 2023.
The SRA’s failure to ringfence the client account resulted in the loss of a further £36 million of client money, leading to the dilution of the remaining client accounts and adding to the number of victims losing money.
The SRA only intervened fully into Axiom and closed down the firm in October 2023.