New SRA fining powers: Unlawful?

A proposal for a new framework of fining powers has been published by the Solicitors Regulation Authority (SRA). The SRA already have unlimited fining powers in relation to financial crimes. However, they have applied to the government for unlimited fining powers in relation to all matters. The new framework sets out the approach to be taken if this comes into effect.

The scheme looks to increase fines overall, sets out minimum fines for each of the bands, and also introduces two new bands for the most serious types of misconduct. The minimum fines range from £5,000 for firms and £2,500 for individuals, to a minimum of £500,000 for firms and £100,000 for individuals in the highest band.

Concerns have already been raised by a number of bodies, including the City of London Law Society, who expressed “grave concerns” about the scheme, and stated that it has no regard for those it regulates or the potential impact on those receiving sanctions.

In a press release dated 26 September 2024, the Law Society of England and Wales has also opposed the reforms, citing them as “potentially unlawful, confusing, flawed and inconsistent with the principles in the Legal Services Act and undermine the role of and authority of the Solicitors Disciplinary Tribunal (SDT) without rationale.”

Why is it potentially unlawful?

Concerns about the proposed scheme centre around the lack of transparency, proportionality, fairness, and the potential effect of the increased fines on businesses and individual practitioners.

Transparency

SRA decisions on financial penalties are made by a range of “authorised decision makers”. Notably, these decisions are not made in disciplinary proceedings that members of the public can attend. As such the new framework curtails the role of the Solicitor’s Disciplinary Tribunal which imposes sanctions that are fully reported and can be scrutinised.

This is inconsistent with the requirement outlined in s28(3) of the Legal Services Act 2007 to ensure work is “transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed”. Since the decisions made are not transparent, it is not possible to properly scrutinise whether they are proportionate, consistent, and targeted only at cases in which action is needed.

Proportionality

The use of minimum fines means that many fines may be disproportionate to the damage caused and the paying ability of the firm or individual. This is likely to have a devastating effect on small firms who may have to close if subject to a fine which is not proportionate to their revenue. Individual practitioners may become bankrupt if subjected to fines that are disproportionate to their income.

Fairness

The principle of fairness is also engaged as the minimum fine may vastly exceed the damage caused. This does not seem fair, particularly if the result of the fine is to leave a solicitor or firm in extreme financial hardship.

In addition, the richest firms may be seen to evade justice on the basis that SRA fines will be seen as merely business decision. In this respect, the fines arguably offer little in the form of credible deterrence to offending behaviour for the richest law firms.

Access to justice

The SRA’s regulatory objectives, as outlined in s1 of the Legal Services Act 2007, includes improving access to justice. Putting smaller firms and practitioners at risk of bankruptcy is a huge danger to access to justice.

Small law firms, who often charge less and offer legal aid, are avenues by which less advantaged members of society can have access to justice. There has already been a reduction in areas covered by legal aid in the last 10 years and many people are already not able to get the support they need. Putting smaller firms at risk of fines that may leave them bankrupt is therefore in contravention of s1 of the Legal Services Act 2007.

Purpose

The SRA claims that the intended purpose of the increased fines is to provide an effective deterrent to solicitor malpractice, and to maintain public trust in the profession. However, they have provided no evidence that increasing fines will achieve these objectives. In actual fact, if the increased penalties lead to firms and individuals closing business, there may actually be a reduction of public trust in the profession. 

Currently, the Solicitors Disciplinary Tribunal has the power to issue a wide range of sanctions, including reprimand, restriction orders, and suspensions. There does not appear to be any legitimate purpose to the SRA curtailing the remit of the SDT and focusing solely on financial penalties for all misdemeanours.

What can you do about it?

The framework consultation has now closed.

Since the proposed scheme inhibits transparency, proportionality, fairness and access to justice, it is arguable that the scheme represents regulatory overreaching.

The Legal Services Act 2007 states that the Solicitors Regulation Authority is responsible to Parliament. As a public interest regulator, their decisions are vulnerable to challenge by judicial review. This would be on the grounds of illegality, that the SRA has acted “ultra vires” and in breach of legitimate expectations that their decisions would be transparent, proportionate and fair.

In addition, a defence to any fine could be the lawfulness of the scheme.