SRA enforcement sanctions – the after effects!

In another case a firm was fined £3,500, the largest fine so far for non-compliance with the Transparency Rules; it was also sanctioned for failing to respond to the SRA’s letters and emails and to remedy the issues raised.    

It can clearly be seen that the SRA has had enough of firms that fail to take compliance seriously, especially when numerous warning notices have been issued; but is paying a fine the end of the story?

The short answer is, no!

What effects can SRA sanctions have on a law firm?

Along with the fines normally comes costs, which in some cases can be significant, but depending on the firm involved the after-effects of an SRA sanction can be disastrous!

Both of the above firms held Law Society accreditations, the first held CQS (Conveyancing Quality Scheme) and the other Lexcel, both of these accreditations are supposed to indicate that the holders meet stringent quality standards!

Both accreditations say that firms are required to achieve and maintain the requirements of the Core Practice Management Standards, and that compliance will be considered during desk-based and onsite assessments; it would be interesting to know whether the above firms were subject to such assessments during the period the breaches occurred!

The question on some peoples minds will be, can a firm that has been publicly sanctioned for such breaches retain its accreditations, either temporarily or permanently, and if it can, what confidence can people have in them as quality schemes?  

If the CQS accreditation is suspended or withdrawn, what impact would this have on a firm, as most lenders require firms to hold it as a condition of being on their panels?

The CQS firm above relied on conveyancing work for 75% of its income, so loss of the accreditation  could be disastrous and lead to its closure.

Turning to professional indemnity insurance, it is crucial for a firm to keep insurers happy, by ensuring its risk profile is as good as it can be, especially if dealing with conveyancing, but if it is found to have been in breach of its regulatory obligations this could drive up renewal premiums to an unsustainable level, or lead to its current insurer refusing to renew cover, and making it very difficult to get cover with a new insurer.

Firms work really hard to build up and maintain their reputations, but these can be lost overnight if they are found to be non-compliant by their regulator, especially when it is so easy for consumers and others with vested interests to check on their regulatory records and any enforcement action.

Three categories of non-compliance

As the SRA has observed, there appear to be three categories of solicitors, (i) those opposed to the rules in principle, (ii) those who were trying but not hard enough to comply, and (iii) those who were trying but not understanding what they had to do.

Although those in the first category are few and far between, they are the ones that are likely to face the biggest fines, or other sanctions like suspension or being stuck off; those in the second category clearly need to put aside more time, resource and finance to ensure compliance, whereas those in the last category need to do more to enhance their understanding of what is required in terms of meeting their compliance obligations.

The SRA has got clear plans to carry out more thematic reviews in 2023, covering areas like anti-money laundering, transparency and competency, so firms need to take heed of this, otherwise they could also end up in the headlines!

Finally, and don’t shoot the messenger, although the SRA recently enhanced its fining powers from £2,000 to £25,000, it is soon likely to be granted the power to levy unlimited fines for AML breaches; it would also like to see the fines it can levy on alternative business structures (£250m for the entity and £50m for individuals) applied across the board, so as the saying goes, ‘if you think compliance is costly, try non-compliance’!