It’s been over two years since the SRA has been empowered to impose increased fines upon both individuals and entities, and there seems to be more on the way, writes Sophie Cisler. Their powers to levy fines increased earlier this year and the consultation they opened over the summer, about how they will implement these, closed last month.
The SRA haven’t been shy about utilising their fining powers either. Several times a week the legal press reports on stories of solicitors or firms who have been fined, rebuked, suspended or struck off, for myriad reasons.
There has been a lot of focus on AML non-compliance but, of course, there are other reasons for the SRA to take action, whether that is breaches of the Accounts Rules, a failure to comply with an undertaking, or dishonest conduct. However, fines arising from AML compliance issues are very visible and firms who have experienced an SRA audit recently, whether desk-top or in-person, will no doubt be aware of what can follow if the SRA finds areas for criticism.
The expert view
In this light, the panel discussion between Jonathan Fisher KC and Jayne Willetts at the recent Law Society AML and Financial Crime Conference, about the approach of the SRA and the SDT, was timely and thought-provoking. In fact, despite the somewhat terrifying context, there was a sense of positivity about it. One thing to remember, counselled Jonathan Fisher, is that the SRA may not actually be correct. They may be mistaken in terms of their interpretation of the facts but also, and crucially, they may be mistaken in terms of their interpretation of the law.
We all saw that a few months ago in the decision on the Dentons case. Counsel for Dentons stated that the SRA was adopting a “2024 mindset” by trying to argue that current AML guidance and regulations should have been applied to the facts of the client and matter under scrutiny, between 2013 and 2017. The SDT dismissed the SRA’s case against Dentons.
There was further commentary on considering what is “appropriate” and what is “adequate”, specifically in relation to AML policies, controls and procedures. Jonathan Fisher pointed out that, just because there may have been a failing or a lapse in your screening, this, in itself, doesn’t necessarily mean they are inappropriate or inadequate. That may be a point to make to the SRA too.
War chest
More sobering, however, were the practical considerations of what to do if you – as an individual or as part of your firm – find themselves under investigation or prosecution by the SRA. Jayne Willetts referred to having a fighting fund, a pot of money to be put aside specifically to pay for defence costs. This would include suitable experts who were qualified to opine upon the relevant law. In the worst case scenario, this is the pot that would provide the means to meet any fine, as well as pay your legal costs.
This might be suitable for firms, although I suspect many firms, in particular following the challenging economic circumstances of the last few years, would find ring-fencing what would likely need to be tens of thousands of pounds difficult, if not impossible.
There may be defence insurance available as an alternative.
Damned if you don’t
The discussion between Jonathan and Jayne also revisited the precedent from the Baxendale-Walker case (Baxendale-Walker v The Law Society [2007] EWCA Civ 233), which holds that, as the SRA prosecutes in the public interest, it is generally not responsible for costs even where its case is defeated (barring very narrow circumstances). This adds significantly to the “inequality of arms” between the regulator and regulated.
Jayne and Jonathan discussed whether this position needs to be appealed, acknowledging however that it will take someone with “guts” (as well as deep pockets) to have a chance of overturning it.
It seems somewhat dystopian that you could be vindicated of any professional wrongdoing but, despite such vindication, find yourself with little to no chance of recouping any of your defence costs.
In these circumstances therefore, is there any realistic option for the vast majority of solicitors and firms to seek to defend themselves? Or is the only choice to pay the fine or accept the rebuke or suspension, on the basis that, hopefully, this will enable you to continue practising?
Many people have reflected on the SRA’s fining powers as similar to those levied by the FCA against institutions such as banks; these fines may simply become part of the cost of doing business. In any event however, it is worth managers of firms reassessing their contingency planning and making sure they can, if at all possible, have resources they can call upon if they need expert support.