“How many legal regulators does it take to fix a lightbulb?”
“Just one… but only after an independent review finds that it’s broken.”
The long-overdue independent report commissioned by the Legal Services Board (LSB) into the Solicitors Regulation Authority’s (SRA) oversight in the Axiom Ince affair has unearthed a series of troubling lapses in regulatory judgement and process.
This feels like a defining moment for the SRA, not least because the report prompted the LSB to confirm it is taking unprecedented enforcement action.
The findings of the review have led to considerable scrutiny, not only of the SRA’s approach to managing high-risk firms but also unfortunately of the regulator’s public response to the report. This writer looks forwards to the upcoming SRA conference on 5 November as an opportunity for genuine reflection and reform.
Key findings of the LSB’s independent report – A system in disrepair
The independent report into the SRA’s role in the Axiom Ince debacle paints a concerning picture of regulatory failure. One that, according to the report, left both clients and the integrity of the legal profession exposed to undue harm.
Some of the most salient findings from the review include:
- Failure to conduct regular inspections: A primary criticism was the SRA’s lack of engagement with Axiom Ince, despite its objectively high-risk business model. The SRA does not have a system of routine check-ins, so many firms go largely unchecked for years, creating a regulatory vacuum where red flags can go unnoticed. The SRA’s “light touch” approach to supervising client money – for example, by only requiring qualified accountants reports to be filed – also came in for criticism.
- Inadequate risk assessment: The SRA’s systems for identifying and monitoring high-risk firms came under significant scrutiny. Despite signals that should have triggered early intervention, there was an apparent lack of a robust framework to identify these risks in real-time. Axiom Ince was categorised as a medium-risk firm, despite its concentration of control and aggressive expansion.
- Inconsistent application of regulatory processes: These inconsistencies translated into a system where firms of similar risk profiles received vastly different levels of scrutiny, exposing vulnerabilities in the SRA’s risk-based approach to supervision. The SRA’s decision to only partially intervene into Axiom Ince directors, rather than taking control of the entire practice as part of a full investigation, left client funds exposed and led to further depletion before full intervention.
- Delayed response to warning signs: The SRA was also criticised for its sluggish response to the growing evidence of red flags related to Axiom Ince. Enforcement action was delayed, indicating an organisational culture that struggles with urgency when addressing threats to consumer protection and the legal profession’s reputation.
These findings are, in essence, a call for the SRA to not only enhance its internal processes but also to take a hard look at its organisational culture and commitment to proactive regulation.
Recommendations – A blueprint for change
In light of these findings, the report offers several pointed recommendations aimed at fortifying the SRA’s oversight capabilities and ensuring a greater degree of accountability. Among the most interesting recommendations are:
- More engagement with high-risk firms: The review strongly recommends that no firm—especially those deemed high-risk—should go years without a visit from the SRA. Regular, on-site inspections of firms with heightened risk profiles would not only serve as a deterrent to potential regulatory breaches but would also allow the SRA to proactively address concerns before they escalate into major crises. Notably, the holding of client money is identified in the report as posing one of the greatest risks to clients, a point that will no doubt add weight to the SRA’s recent fixation on regulating to remove client money from firms altogether.
- More scrutiny on law firm mergers and consolidator firms: The report identifies a specific risk category within the legal profession: “accumulator” firms that expand at a rapid pace, as well as firms undergoing rapid growth through mergers and acquisitions. These types of firms present unique regulatory challenges due to their complex structures and accelerated expansion, which can create blind spots for monitoring and oversight. The recommendation is clear: the SRA must establish targeted, proactive oversight for these firms to prevent unchecked risks arising from their swift growth and structural changes. This oversight would include developing tailored criteria to monitor growth, assess financial stability, and review governance practices within firms that are rapidly merging or expanding.
- A review of the SRA’s approach to interventions: It was also suggested that the SRA consider a less drastic alternative to full intervention in cases where dishonesty is suspected among certain individuals but may not affect the entire firm. A balanced approach could involve targeted interventions for specific individuals alongside temporary monitoring of client accounts while a full investigation is conducted, thereby protecting client money whilst keeping the firm under the spotlight.
This writer’s view is that Axiom Ince should also be a prompt to revisit the pros and cons of principles-based regulation (PBR), a system which bakes-in uncertainty and grey areas that could be exploited by bad actors. The entire point of PBR is that it outsources some of the regulator’s responsibilities to those that it regulates. Given recent experience, is PBR the right model to protect the public interest?
Closing the loopholes in the Accounts Rules – which currently make it unlikely that the SRA will detect a firm that has failed to commission an accountants report – would however be an obvious client money safeguard.
There is of course an element of ‘be careful what you wish for’ in all of this. More rules and regulation is rarely the answer to addressing risk, it tends to just add layers of inefficiency. Here’s looking at you, AML.
It would also be naive to think that, as far as law firm mergers and acquisitions are concerned, the SRA is best placed to assess business plans and complex financial models. They do not have the skills and resources, and we could be in danger of slowing down the M&A process, which very often relies on taking fast action. Requiring the regulator to sign off acquisitions in advance could lead to more failed deals and the loss of jobs and additional risks to clients resulting from law firm failure.
The SRA’s response – What’s the opposite of contrition?
In the aftermath of the report’s release, the SRA’s public response has so far been…defensive. Instead of acknowledging the gravity of the findings and recognising the need for substantial reform, the SRA focused on defending its performance, attributing the oversight lapses to the “complexity” of the Axiom Ince situation.
There is no indication yet that any of the executive team feels the need to step down. Which is surprising, given the SRA’s often holier-than-thou attitude to lawyers. If a law firm was found to have failed to “adequately, effectively and efficiently” deal with risks on the scale of Axiom Ince, you can just imagine the outcome.
This response has left many people within the legal profession questioning the SRA’s willingness to engage in genuine introspection. For an organisation tasked with upholding the integrity of the legal profession, such a reaction is, frankly, disheartening. A true regulatory ethos requires humility, a commitment to improvement, and an openness to constructive criticism. Defensiveness in the face of such a comprehensive review risks eroding public trust further and suggests an organisational culture more concerned with protecting itself.
The SRA has an opportunity to change this perception by addressing these criticisms openly at its upcoming conference on 5 November. With fireworks in the air and the profession looking on, the conference is an ideal moment for the SRA’s leadership to acknowledge its shortcomings, commit to change, and take meaningful steps towards the recommendations laid out in the report.
The road ahead for regulatory accountability
The LSB’s role in commissioning this review has led some people in the profession to reconsider its place in the regulatory landscape. If the LSB’s role is merely reactive, stepping in only after a crisis has occurred, what impact does it truly have on regulatory accountability?
Going forward, it’s likely that the LSB will push for more robust oversight mechanisms to ensure that the SRA, and other legal regulators, meet their statutory responsibilities. This could take the form of enhanced reporting requirements, where regulators are held to account not only for their successes but also for the risks they manage and the steps they take to mitigate them.
In a broader sense, the profession must ask itself what it wants from the LSB. A proactive, hands-on supervisory body could serve as a much-needed accountability mechanism in a sector where public trust is paramount. Alternatively, a passive role relegates the LSB to the position of a post-crisis auditor, only surfacing when things go wrong.
But then again, who should regulate the super regulator…?
Conclusion: Towards a culture of accountability and humility
The Axiom Ince affair is a stark reminder of the importance of accountability and transparency in legal regulation. While the LSB’s review has provided a roadmap for reform, it is up to the SRA to turn these recommendations into tangible actions that restore trust and credibility in the profession. The SRA’s initial response to the report, unfortunately, suggests an organisational culture out of touch with the need for humility. It must fix that first.
With the conference on 5 November approaching, the SRA’s leadership has an opportunity to acknowledge its limitations, accept the findings in full, and commit to a new era of transparency and accountability. This is a chance to show the profession and the public that the SRA takes its responsibilities seriously—and is ready to change. This is not a time to circle the wagons.
The LSB, too, must clarify its own role. If it cannot act as a proactive supervisor of legal regulators, the profession should question its purpose. Is it simply there to issue reports after the fact, or can it take an active role in preventing regulatory failures in the first place? Answering these questions is vital if the legal profession is to build a robust, accountable regulatory framework that serves both the public and the profession itself.
