SRA financial penalties consultation: why propose the unlawful?

The recent Solicitors Regulation Authority proposals on higher financial penalties have been widely criticised as being unlawful, unworkable and of failing to recognise the business structure of law firms. All damning enough, before considering that they additionally fail to adhere to basic rule of law principles. 

The public critics to date include the Solicitors Disciplinary Tribunal, Birmingham Law Society, City of London Law Society and the Law Society of England and Wales, none of which are prone to hyperbole.

When reviewing the policy proposals I was immediately struck by the blatant breaches of the principles of justice, the Legal Services Act 2007, the Human Rights Act 1998 and common law principles. The SRA’s proposals ought to attract the long term attention of the new lord chancellor and the new justice committee in the House of Commons. For respected professional groups to have identified systemic unlawfulness is rare.

The SRA’s proposals seek to build upon a system that is already in place in relation to financial penalties within prescribed limits. Inevitably the unlawfulness permeates the current regime, but the escalation of unlawfulness proposed risks judicial challenges for many years with the jurisdiction of England and Wales being undermined internationally. As the SRA raises the financial and reputational stakes, the interest in firms in overthrowing the system increases. The SRA should be bold: accept the proposals are flawed publicly and drop them, without further delay.

The SDT wryly observed as follows:

'Serious breaches should not, as a matter of principle, be retained by the investigator and summarily disposed of in the way envisaged.'

The polite phrasing notes it is so obvious it should not need to be stated. Section 1 of the legal services Act 2007 is binding upon the SRA and as Birmingham Law Society stated in its response the following provisions appear to be breached:

'(c) improving access to justice;

(d) protecting and promoting the interest of consumers; and

(f) encouraging and independent, strong, diverse an effective legal profession;'

I would go further and add:

'(h) promoting and maintaining adherence to the professional principles;'

Devising a disciplinary system which offends statutory and common law obligations should not be acceptable. Space precludes outlining the multiple human rights breaches. The failure to separate the investigative, prosecution and judicial functions harms the public interest, the profession and the SRA staff who are being set up to fail.

The principle that 'no one should be a judge in their own cause' is undermined as the SRA has deliberately developed a system whereby this is the norm. The SRA board has, I would argue, failed the executive and policy teams by permitting these obvious flaws. The latest proposals include excluding aggravating and mitigating factors, limiting the potential outcomes available and to restrict access to challenge the decisions before the SDT (given the limited grounds for such an appeal). These are each obviously unlawful. The SRA's proposals contain all the features of the 1933 Stalinist show trial involving Metropolitan Vickers, a British company following a diplomatic dispute between Russia and the United Kingdom. The trial was immortalised in the public consciousness and made the name of a young journalist by the name of Ian Fleming, who went on to create James Bond, with Russia a common villain. However the SRA system goes further than Stalin, by excluding the defence, the press and the public.

Why should solicitors be subjected to a harsher regime of professional discipline than other professionals? The City of London Law Society noted in its response as follows:

'… it is important to note that the regulatory regime itself is already more onerous than in other jurisdictions. In particular, few other jurisdictions have entity regulation of law firms and few jurisdictions use fines as an enforcement tool.'

Fines are not used in the US, France and Italy. In the jurisdictions where they are used they are of a very limited level. So the question for the SRA is why treat professionals in England and Wales in a manner which risks financial ruin with the mental health impact that entails?

The current financial penalty regime was only brought in in June 2023. The SRA cannot possibly have an evidence base to support such an extreme amendment in so short a time given their enforcement actions take a take a number of years. I've long argued that the SRA does a very good job in relation to public protection through the Standards and Regulations 2019 and the Solicitors Account Rules 2019 but the financial penalties regime undermines the good work and erodes confidence in the regulator.

At a time when the SRA is seeking a higher budget from the profession, giving law firms good reason to consider whether or not they should move to the unregulated legal services sector or transfer to the Bar Standards Board regime, which appears more proportionate, is unlikely to be in the SRA’s interest.

The question is: having backed itself into a corner by making blatantly unlawful proposals, can the SRA commit itself to doing less, doing it better and to support compliance with its standards and regulations regime through education rather than enforcement? As most offenders under the disciplinary scheme are one time offenders it's perhaps time for the SRA board to recognise that a different way is required.

Paul Bennett is a regulatory and partnership partner at Bennett Briegal LLP

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