Hurry if you want to respond to the SRA consultations on fining powers and SIF closure

Rachael Eyre summarises the important regulatory changes proposed in the latest SRA consultations, closing soon. 

SRA Consultation 1: Financial penalties

The SRA is consulting on their fining. You can respond here. The consultation closes on 11^th February, so you have a week or so to respond at the time of writing.

Who Does it Affect?

It applies to law firms, sole practitioners and individual solicitors.

Currently, the SRA’s fining power is limited to £2,000 for solicitors or ‘traditional’ firms without referral to the Solicitors Disciplinary Tribunal (SDT).

This is different for Alternative Business Structures and their managers, who can be fined up to £250 million and £50 million respectively without an SDT referral.

What you need to know about the fining penalties consultation

Firstly, it is very detailed. For a background discussion about the proposals, see this recording (from about halfway through) of a recent Legal New Wales event, where our own Rachael Eyre put some concerns to the SRA.

There are 5 main areas to the consultation:

1. The proposed increase in the SRA’s fining power from £2,000 to £25,000
2. The proposal to take into account turnover for a firm and income for an individual when handing out fines
3. The introduction of fixed penalty fines for low level breaches
4. The approach to more serious conduct
5. The disproportionate number of disciplinary cases involving some groups

Increase in fining powers from £2,000 to £25,000

The SRA says that 75% of fines issued by the SDT are under £25,000. In their view, being able to dispose of more cases without a full hearing would have several benefits.

For example, the SDT could focus on the serious cases where more than a fine is appropriate. They also say that swifter case conclusion would reduce the stress of a full hearing – although we take this with a pinch of salt. In all other areas of regulation the SRA is explicitly a public interest regulator. They are not generally concerned with supporting the profession.

In terms of safeguards, the SRA says that all ‘internal’ fines would be subject to an automatic right of appeal to the SDT.

They also point out that other regulators, such as the Gambling Commission and Information Commissioner’s Office, have similar fining powers.

Our view:

• SDT cases are a stressful experience for any solicitor. Not only the hearing itself, but the amount of time it takes to get there. A solicitor could have a case hanging over their head for years before it is concluded, so any reduction in that has to be positive.
• However, we have concerns that whilst £25,000 might be a drop in the ocean for some lawyers, it could be devastating for others.
• More fundamentally, does anyone trust the SRA to be judge, jury and executioner?
• With the crippling defence costs involved in SDT hearings (rarely recoverable), will we see solicitors begrudgingly accepting fines as a the least worst option?
• Who at the SRA will be making these decisions? What is their experience and seniority? Where is the scrutiny of investigators’ work? How transparent will the regulator be about how it came to a decision?
• Will automatic fines reduce solicitors’ willingness to self report?

Proposal to take into account turnover and income

This formalises some guidance that the SRA already follows, and puts the fining regime in line with the ICO and FCA. It recognises that there is a significant wealth gap in the legal profession. In the City there are partners on £2 million salaries and newly-qualified solicitors on £100,000. In contrast, some legal aid practitioners are just about scraping by.

The SRA’s proposal is to make fining decisions more proportionate by looking at the ability to pay.

Our view:

• The level of a fine is a balancing act. It has to hurt enough to punish the ‘crime’, but should not be disproportionately punitive. For that reason, in principle this appears to be a sensible proposal.
• We have some concerns that the level of fine (which is public information) will inadvertently reveal an individual’s financial position.
• Also, will the financial position of the individual or firm be properly means tested? If you just look at the top line (personal income or firm turnover), you might not get the entire picture. A high earner does not always have much left at the end of the month. A business with a high turnover might still be making a loss or have little cash in the bank.

Fixed Penalties

The SRA is looking to make a number of ‘administrative breaches’ subject to a tariff of fixed fee penalties. This would include breaches of the Transparency Rules and failure to provide information or self declarations on request.

The fines would be between £800 and £1500, subject to Legal Services Board approval. The SRA already sets fixed band rates for many lower fines on an informal basis.

Our view:

• The principle of certainty does have its appeal.
• However, it is inconsistent with the previous proposal (taking into account personal circumstances). £1,500 is nothing to a Magic Circle lawyer but much more significant to a legal aid solicitor.
• We also have concerns that some in the profession might view administrative fines as a cost of doing business, incentivising the wrong sorts of behaviours.

The approach to more serious behaviours

The SRA believes there are some misconduct is not suitable for a fine, such as sexual misconduct, discrimination and harassment. They say that those accused should not be able to ‘buy their way out’ of more serious sanction.

Our view:

• Bad apples do need to be removed from the profession, with due process followed. In most cases, serious misconduct is unlikely to be suitable for a fine.
• However, there is a risk that this strict approach misses the nuances often involved in disciplinary cases. What of the solicitor under immense pressure who ends up making poor ethical decisions or ‘snaps’.
• Automatic career-ending sanctions would sit more comfortably were the burden of proof at the SDT still ‘beyond reasonable doubt’ rather than ‘the balance of probabilities’, as it is now.
• And what of firms with toxic cultures? There have been many cases recently where more junior lawyers have been disciplined, but the firm that pushed them to breaking point escapes without prosecution. We understand the SRA is soon to issue some guidance on this, but as things stand it remains an anomaly.

Disproportionate representation of groups

The SRA consultation asserts that some groups are disproportionately represented in the disciplinary process. This includes solicitors who are men, Black and Asian and the over-45s.

Our view:

• It is not clear to us how these proposals seek to address this imbalance.
• The SRA uses information from enforcement compared with data from its diversity monitoring exercise to come to these conclusions. As a word of caution, we know that the diversity exercise is not entirely accurate because many respondents use the ‘prefer not to say’ option.
• We recommend that anyone interested in this part of the consultation should read the excellent work carried out by Leigh Day recently, which can be found here.

SRA Consultation 2: Post six year run-off cover and the Solicitors Indemnity Fund

The second open consultation is far more technical. It is concerned with the insurance position after the 6 year run off period when a firm closes its doors without a successor practice.

You can respond here. The consultation closes on 15^th February 2022.

The Law Society has very strong views on this topic, and encourages the profession to consider using its template consultation response.

Background to the consultation

The Solicitors Indemnity Fund (SIF) currently provides an additional 6 years of insurance cover for closed firms, following the 6 years run off. The SRA is responsible for the scheme.

The SIF is running out of money to maintain the required cover, so the status quo cannot remain. It was due to close entirely last September, but was given a 12-month stay of execution after heavy lobbying by the Law Society.

About 33 members of the public benefit from the scheme per year. The average claim is around £35,000. So not many claims, but significant payouts.

As a public interest regulator, it is anomalous for the SRA to propose a blanket removal of protection. Not to mention the lack of sleep for retired solicitors.

In a nutshell, the options are:

1. Allow SIF to close, leaving no protection for post-run off claims
2. Create a master insurance policy or alternative indemnity fund
3. Increase the scope of run off or rely on the open market
4. Keep the SIF open, increasing the profession’s contribution

Insurance experts are concerned about the timing of these proposals. We all know how hard the PII market is currently. Insurers already dislike the exposure of mandatory run off cover, especially since they are on the hook even if the premium is not paid. If the SRA were to amend the Minimum Terms to include a longer run off period, we understand that more insurers will leave the market, making PII even more expensive.

There are also doubts about the ability of the open market to come up with a suitable policy.

As for keeping the scheme open, we understand that the likely figure required would be along the lines of £16 per solicitor per year.