SRA financial penalties framework consultation – Law Society response

The SRA consulted on proposals to develop its financial penalties framework.

This consultation follows the Economic Crime and Corporate Transparency Act 2023 (ECCTA), which gave the SRA unlimited fining powers for economic crime-related misconduct.

The proposals

The SRA's proposals include:

• the introduction of new fining bands (adding bands E and F)
• increasing fines overall as well as introducing minimum fine levels for all bands for both firms and individuals
• updating the guidance on identifying the appropriate band and a non-exhaustive list of aggravating and mitigating factors
• illustrative examples of using different metrics
• how it proposes to treat gains from misconduct
• proposing an alternative approach following drink driving convictions

Our view

We oppose the majority of the SRA's proposals.

As the professional body representing the interests of over 200,000 solicitors, we have serious concerns about the proposals. They are not only confusing but appear flawed and inconsistent with the principles set out in the Legal Services Act 2007.

We have raised concerns about the potential unlawfulness of the proposals.

The SRA's attempt to have a single framework for all misconduct not only conflates separate policy issues but also causes problems in its proposed application due to the SRA's limited fining powers for non-economic crime matters for traditional firms and individuals (up to £25,000).

We maintain our strong opposition to the SRA's ambitions for any further extension to its fining powers.

At a time when the SRA itself is under scrutiny for the exercise of its existing powers and regulatory responsibilities in respect of the Axiom and SSB cases, we question the timeliness of it advocating for even greater powers in the absence of applying the lessons learned from these reviews.

There are several flaws in the proposed framework, which are demonstrated by the illustrations in the consultation.

We also question the logic behind the proposed increases in fining levels.

Higher fines do not necessarily provide a credible deterrent or maintain public trust, and the SRA has not provided empirical evidence to support this claim.

No evidence has been provided that the level of fines the Solicitors Disciplinary Tribunal (SDT) has levied are inappropriate or an ineffective deterrent.

The SRA appears not to fully appreciate the different models and structures of regulated bodies and how they operate and the potentially adverse impact (particularly on smaller firms and individuals with lower incomes and protected characteristics) when it proposes the introduction of minimum levels of fines and increased fines overall.

We recommend the SRA reconsider its proposals and strongly recommend a proper impact assessment is carried out and published before any proposals are progressed.

The SRA’s approach could lead to unjustified inflation in fining levels, potentially adversely affecting the economic viability of firms and the ability of individuals to practise.

For these reasons, we do not consider the proposal to be fair, reasonable or proportionate.

We also have strong concerns about the fairness of using turnover or gross income, and different metrics in exceptional cases beyond domestic turnover and an individual’s income from non-legal work to assess fines respectively. We question whether the latter are within the regulator’s remit.

The monitoring of, and safeguards for, respondents advanced by the SRA are inadequate. For instance, senior SRA staff reviewing the decisions of junior staff illustrates a clear conflict of interest, as well as the risk to independent decision-making.

There needs to be greater transparency and fairness in the SRA’s decision-making processes, including the opportunity for solicitors and firms to be able to make representations through an independent process that can deal with challenges to SRA decisions, especially given the gravity of matters under the ECCTA.

The SRA’s plans for a ‘one size fits all’ fining framework is not fit for purpose. The proposals are inadequate to deliver a fair, robust, transparent and independent framework.

We strongly recommend that there be a separate financial penalties framework for economic crime, with specific guidance and examples.

The SRA should work with members in the profession with specialist knowledge to help develop the framework, due to the complex and distinct nature of economic crime, especially money laundering.

There are several alternatives to the SRA’s proposals that should be explored, including:

• improving awareness of professional obligations
• positively promoting good standards of compliance as well as detection and enforcement mechanisms
• greater monitoring and supervision by the SRA where there are concerns around certain regulated entities and individuals
• better training and guidance
• the introduction of a suspended fining system
• a separate financial penalties framework for economic crime
• a proper impact assessment should be carried out in any event

All serious cases of misconduct should continue to be referred to the SDT, which has extensive expertise and safeguards in the decision-making and reporting process as well as the necessary powers, including unlimited fining powers, to deal with the most serious cases of misconduct.

Convictions for driving with excess alcohol

We are pleased the SRA has reviewed its position in relation to cases where a person has been convicted of driving with excess alcohol.

The SRA’s proposals are in the right direction, bearing in mind the widely reported inconsistencies in its current decision-making process on this issue.

However, the SRA appears to be proposing that any drink drive offences with “aggravating factors” should be referred to the SDT and not be dealt with by financial penalty.

The SRA cannot recommend a particular penalty or outcome to the SDT. It is unfair to exclude one category of sanction from the range of sanctions available to the SDT decision maker.

What this means for solicitors

Law Society vice president Richard Atkinson said "we are strongly opposed to these unfair, disproportionate and potentially unlawful proposals.

"Should they go ahead, they would have serious repercussions for the legal profession and access to justice.

"We have grave concerns about the impact these proposals could have on the public and our members."

Next steps

The consultation closed on 20 September 2024.

Read the consultation on the SRA website

The SRA will consider responses to the consultation before deciding on next steps.