Axiom Ince: SRA faces enforcement action by LSB following damning report

The solicitors' regulator is to face unprecedented enforcement action under the Legal Services Act following the discovery of a catalogue of failures in its handling of the 2023 collapse of law firm Axiom Ince. A long-awaited independent review of the Solicitors Regulation Authority's actions, published today, found that in the run-up to the SRA's closure of Axiom Ince, the regulator:

• Did not act adequately, effectively and efficiently
• Did not take all the steps it could or should have taken, and 
• The SRA's actions and omissions 'necessitate change in its procedures to mitigate the possibility of a similar situation arising again'.

Axiom Ince, formed by a series of mergers involving Axiom DWFM and struggling practices Plexus Legal and Ince, ceased trading following an SRA intervention in October 2023. About 1,400 people lost their jobs in the closure and investigators found that more than £60 million of client money was missing. The loss will be covered by the profession through a 270% rise in contributions to the Compensation Fund. 

At the end of last year, oversight regulator the Legal Services Board commissioned an independent review of the SRA's handling of the affair by Carson McDowell LLP, a Northern Ireland firm not regulated by the SRA. The review report was originally promised for spring 2024. However in May, the LSB revealed that publication would be set back because of the July general election. 

Following today's publication of the report, the LSB said it had agreed to initiate the process of set directions under section 32 of the Legal Services Act. The act empowers the LSB, in the event of a regulator's failure to comply withy the act, to take 'such steps as the board considers will counter the adverse impact, mitigate its effect or prevent its occurrence or recurrence'. 

It is the first activation of these powers since the LSB's creation under the 2007 act. In its response, the SRA said it did not understand the basis of the enforcement action. 

Alan Kershaw, LSB chair, said: ‘The Axiom Ince case has caused significant consumer detriment. Our decision to commission a thorough independent review reflected the importance of understanding the SRA’s actions leading up to its intervention in the firm. It was essential to uncover what went wrong to reduce the risk of it happening again. The review found that the SRA did not act efficiently and effectively or take all the steps it could and should have, to lessen the impact of what had occurred.

'The SRA’s actions and omissions have in our view adversely impacted on confidence and trust in the regulation of legal services,' Kershaw said. 

 In a statement responding to the announcement, Paul Philip, SRA chief executive, said: ’At the heart of this issue is a suspected complex and well-hidden fraud carried out by a solicitor, with an ongoing criminal investigation by the Serious Fraud Office. The report recognises our "excellent work" in uncovering the suspected fraud. But there are things we could have done better. We moved quickly last year to tighten up some of our processes.

‘There is a lot in the report that we don’t agree with, and we don’t understand the basis for enforcement action. However, we think it is important to focus on working with the LSB and others to tackle future challenges in the legal sector.

‘With the market changing rapidly, we need to respond. We will be consulting soon on changes to better protect clients’ money. This will include exploring the more radical solution of whether we should stop law firms holding client money.’

In a futher response, Philip Barden, partner at Devonshires, who acts for the remaining Axiom directors and the administrators, said: 'It’s important for people to understand that the remaining 12 Axiom directors are completely innocent and knew nothing about any misconduct or fraud that was happening at the firm. They spent six weeks working around the clock to mitigate the impact of the fraud on clients and staff, and through their efforts clients were rehoused and more than 1,100 jobs were saved.

'Action is being taken to recover as much of the £64 million losses as possible and we are hopeful of a significant recovery although the process is complex and may take some time to achieve.'

Meanwhile the Legal Services Consumer Panel expressed ‘profound concerns’ about the findings of the independent report. It urged the SRA and LSB to take decisive action to enhance oversight and accountability, protect client money, review consumer protection measures and mandate more transparency in firm operations.

Read the report here.

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