Independent review reveals major change is needed by the SRA to improve consumer protection
An independent review of the Solicitors Regulation Authority’s (SRA) handling of the Axiom Ince (Axiom) fallout, commissioned by the Legal Services Board (LSB), reveals a catalogue of errors and missed opportunities on the part of the SRA.
By the time that the SRA finally acted, around £64 million had been taken from Axiom’s client accounts*.
In the wake of the SRA’s regulatory handling of these events, the LSB commissioned an independent law firm, Carson McDowell, outside of the jurisdiction of England and Wales to review the SRA’s actions. The 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
- the SRA’s actions and omissions in this matter necessitate change in its procedures to mitigate the possibility of a similar situation arising again
Richard Atkinson, Law Society president representing the profession, commented:
“The independent review paints a vivid picture of the SRA’s inadequate and ineffective handling of Axiom.
“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. 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.
“As part of the SRA’s consumer protection review*** we have identified areas where the SRA can make improvements, which will help reduce risk and provide clients and consumers with better protections in the event of things going wrong in a regulated firm. We hope to see the SRA acting quickly on these recommendations.
“The public and solicitors benefit hugely from a well-regulated legal profession. It is the foundation of the legal sector’s success nationally and internationally and it is a vital consumer protection.”
Key areas of failure identified in the LSB’s independent review
The SRA had multiple opportunities to prevent or limit Axiom’s collapse and its detrimental consequences.
Axiom was a relatively new and rare type of law firm, known as an ‘accumulator’. Prior to 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.
In its investigation, the SRA failed to follow its own procedures 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 that 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. They did this without any serious due diligence or investigation into Axiom and the source of its funds.
If they 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.
Notes to editor
- The SRA has total operational independence from the Law Society, but its members pay for the SRA from their Practising Certificate fees and also pay for the Compensation Fund which supports victims of dishonesty.
- Axiom was a so-called ‘accumulator’ firm, that is a small firm that expanded rapidly by buying other firms with external finance – sometimes, as was the case with Axiom, firms in financial difficulties.
*The Serious Fraud Office (SFO) is conducting a criminal investigation into suspected fraud at the collapsed law firm Axiom Ince.
**Read our response to the LSB confirming the rise to the Compensation Fund levy
***Read our response to the SRA consumer protection review discussion paper
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