SRA approach to financial penalties – Law Society response

The proposals

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

The SRA has now set out its final position on financial penalties (PDF) and is consulting on detailed plans to implement the decisions.

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

This increase impacts solicitors, traditional law firms and their staff, who can all be subject to SRA fines.

The SRA is seeking views on proposals including:

• panels to decide the most serious category of fines instead of single adjudicators
• guidance to clarify behaviours that are unsuitable for a fine
• taking the means of respondents (both firms and individuals) into account when setting a fine and proposed updated fining bands
• raising the maximum fine it will impose on a firm to 5% of turnover
• the introduction of a fixed-penalty scheme for firms for a limited number of low-level breaches of its rules

Our view and what the proposals means for solicitors

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

"There needs to be a clearer functional separation of the roles of investigators and adjudicators to maintain the confidence of the profession and the public," said Law Society president Lubna Shuja.

"Adjudicators, as decision makers, need to be completely independent and not act as investigators."

We support, in principle, the proposal that adjudication panels, instead of sole adjudicators, should consider matters which fall into the SRA’s most serious category of fines (Band D).

Panels should be made up of both legally qualified members and lay members, but legally qualified members should be the majority and chair the panels.

We do not agree that annual turnover is the most reliable indicator of profitability.

However, if the SRA is still inclined to use turnover as a metric, the regulator's proposal to increase fines by up to 5% of turnover is "excessive and unjustified", Lubna said.

Concern for reputation is the prime motivator of good behaviour, and that this will operate regardless of the level of any potential fine. The proposed increase is therefore unwarranted.

There are inconsistencies in the consultation about how the SRA will calculate turnover, either on an annual domestic turnover or global turnover basis. We believe that it should be based on domestic turnover in all cases.

The fining framework is also too complicated, and the SRA should consider simplifying it.

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

We do not agree that this the appropriate indicator to base the affordability of a fine. While this may be the simplest model for the SRA to administer, we contend that it would fail to reflect an individuals’ real economic circumstances.

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

We do not agree with the proposal to publish the percentage of income a fine represents of a person’s income, as it entails use of that individual’s sensitive data and is disproportionately intrusive.

In our detailed response, we make practical suggestions about the SRA’s proposed fixed financial penalties scheme.

"We urge the SRA to reconsider these points to achieve the aims of justice, fairness, transparency, proportionality and consistency," Lubna said.

Next steps

The consultation closed on 14 November 2022.

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

Read the consultation on the SRA website