Solicitors Regulation Authority bosses noticeably bristle when it is suggested they could have done more to prevent the Axiom Ince disaster.
Indeed, such is the sensitivity around this issue that during the Q&A with SRA management at the compliance conference yesterday, an audience member’s question of ‘were you asleep at the wheel’ was watered down to a simple enquiry about the latest with the collapsed firm.
The regulator’s chief and repeated contention is that it did what was expected of it. Rather than when firms merge to create a new entity, the growth of Axiom Ince was through swallowing up other troubled firms that themselves were on the brink of collapse. These acquisitions are not subject to anywhere near the same checks from the SRA, which requires only to be told who has taken over a practice and who can be contacted.
There is a belief in the SRA that it acted as quickly as it could be expected to, suspending Axiom Ince directors within three weeks of the Plexus Legal deal over the summer after that acquisition raised red flags. One wonders why the same warning signs were not picked up earlier this year following the acquisition of Ince & Co – another firm being absorbed into a much smaller one.
In fairness, there is also an alternative scenario where the SRA stepped in during the negotiations over Ince or Plexus and asked searching questions of where the money is coming from. But these were distress purchases, with administrators counting down the hours to the point where the whole deal collapses, staff are made redundant and the SRA has to intervene (of course, lighter touch regulation produced this outcome in any case).
In those circumstances is possible to see the SRA being attacked (perhaps by me and other commentators) for putting up too much red tape, interfering with market forces and putting rescue deals at risk. The regulator, it would argue, cannot win.
The idea of the SRA involving itself in financial matters of firms has been mooted before, particularly around the time Cobbetts and Halliwells went under. Those arguments may be raised again, but the SRA's many critics will have to decide if they are happy with a regulator being more pro-active and almost certainly having to ask for more resources to fund this approach.
Should the SRA have done more? Almost certainly. Could the SRA have done more? It would argue not.
What we know for sure is there is a potentially enormous financial burden about to be placed on the compensation fund. Reserves currently stand at around £18m, and the SRA believes that claims from Axiom Ince clients alone will outstrip that. The intervention alone may end up costing £15m. The regulator will hope to recoup money from insurance payouts or perhaps even selling properties that appear to have been bought in the firm’s name, but options in the meantime are limited.
Either you ask the profession for more money or you tell clients to expect less. Solicitors will rightly be furious at the first option but should think carefully about accepting the second. The safety net of the compensation fund is one of the aspects that sets regulated professionals apart. Cast that protective net aside and the benefits of using solicitors start to erode. The profession has been watered down enough by a succession of questionable regulatory choices and this would only make that worse.
The whole sorry situation is a mess. But perhaps the worst outcome of all might be to tell clients (and the wider world) that there’s nothing we can do for them.
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