The Solicitors Regulation Authority has urged solicitors to move on from the Axiom Ince scandal despite last week’s heavily critical report into the watchdog's handling of the firm ahead of its 2023 collapse.
Speaking to an audience of more than 1,000 people at the SRA’s annual compliance conference, chair Anna Bradley said any problems experienced by the regulator were already in the past.
Last week’s independent report published by the Legal Services Board found that the SRA missed an opportunity in October 2022 to examine the Axiom accounts in detail and then allowed client money to be lost during the period of a ‘partial intervention’ where three directors were suspended but the firm was allowed to trade. The SRA responded that it did not agree with a lot of the report and did not understand the basis for enforcement action announced by the LSB.
Today’s conference in Birmingham was the first opportunity for the SRA leadership to address the issue, but neither Bradley nor chief executive Paul Philip apologised for the organisation’s role in the matter.
Asked whether the SRA had been asleep at the wheel, Bradley said: ‘This was a really complex fraud actually, which everyone who had been engaged with Axiom had failed to identify, whether directors in the firm or the accountants responsible for auditing the firm. We acknowledge there were some things we didn’t do right in terms of following processes and procedures and in many respects that is history for us. We have already taken the action that is required.’
Philip admitted that this year had not been easy and that the Axiom Ince collapse had damaged trust and confidence in the profession - though not as much as the Post Office scandal had.
But he warned of the potential for unintended consequences from asking the SRA to take a more pro-active or hands-on approach to regulation. If the regulator were to carry out more due diligence on firm mergers and acquisitions, for example, this would require a ‘significant scaling up’ in the skillset of staff and might cause selling firms to collapse if the SRA delayed the acquisition process.
While the SRA did not agree with some of the headlines of the LSB report, Philip said he ‘absolutely’ agreed that it raised issues around the risks of law firms running a client account.
‘Holding client money creates the potential for fraud and potentially criminal activity and Axiom is symptomatic of that,’ Philip said. ‘Looking at those wider questions about client account holding, the checks and balances we put on that and looking at the sustainability of the compensation fund are the important takeaways.’
He added that removing firms’ ability to run a client account would lift 95% of risks dealt with by the SRA and end the need for a compensation fund.
‘The reality is we couldn’t do that tomorrow because the marketplace needs to develop.’
The SRA will publish a consultation on consumer protection next week which will develop its proposals for the compensation fund and on how it is paid for by firms and individual solicitors.
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