Regulator in the dock

The Legal Services Board — the super-regulator that oversees the work of nine front-line legal regulators — announced yesterday that it would be initiating unprecedented enforcement action against the Solicitors Regulation Authority, which regulates solicitors in England and Wales.

Carson McDowell LLP, a firm of solicitors based in Belfast and Dublin which is outside the Solicitors Regulation Authority’s ambit, had been commissioned by the Legal Services Board to review how the solicitors’ regulator dealt with a law firm whose owner is suspected of large-scale fraud. When Axiom Ince Ltd was finally closed down by the Solicitors Regulation Authority last October, as much as £66 million in client money was allegedly missing.

That will be repaid by more than doubling the contributions that all practising solicitors have to pay into a compensation fund.

Last November, seven people were arrested during a series of dawn raids by the Serious Fraud Office. Investigators from the prosecuting authority would examine how funds had passed from the firm’s client accounts with Barclays to the State Bank of India, it said.

The review commissioned by the Legal Services Board found that

• the Solicitors Regulation Authority had not acted adequately, effectively and efficiently;

• it did not take all the steps it could or should have taken; and

• there needed to be changes in its procedures to reduce the risk of anything like this happening again.

In particular, an unconnected investigation of the firm’s accounts two years ago failed to identify alleged misappropriation of clients’ money going back to 2019. It was not until the beginning of last year that the Solicitors Regulation Authority started looking at the risks posed by what are called accumulator firms — small practices that swallow up larger firms which are on the brink of collapse. The Legal Services Board was told by Carson McDowell that these failing service providers can be “attractive to individuals or groups seeking to gain access to funds held in a firm’s client account”.

Should the Solicitors Regulation Authority have moved more quickly? It discovered the alleged misappropriation of client funds in July 2023 and intervened in the practices of Axiom Ince’s directors during the following month. But it was not until October that the solicitors’ regulator closed down the firm itself. In a response yesterday, the Solicitors Regulation Authority claimed it did not understand why the Legal Services Board had now begun enforcement action against it.

The leading academic in the field of legal services regulation is Stephen Mayson, honorary professor of law at UCL (pictured above). For the latest episode of A Lawyer Talks, I interviewed him yesterday about his latest report on legal regulation. He was highly critical of solicitors who put the interests of their clients ahead of the public interest.

However, we spent much of the interview discussing the Legal Services Board’s unexpected announcement. Mayson reminded me that the super-regulator had used its censure powers in 2018 when it criticised the Law Society’s governance arrangements. But this was the first time it had announced the use of its directions powers.

A technical problem for the board is that these powers can be used only against an “approved regulator”. Strictly speaking, that’s the Law Society — though the representative body has to delegate its responsibilities to an autonomous regulatory organisation.

The Law Society was understandably furious yesterday at what it described as the regulator’s “inadequate and ineffective handling” of the case. “As a result of the Solicitors Regulation Authority’s failure to take all the steps it could or should have taken,” said the solicitors’ leader Richard Atkinson, “Axiom was able to act without intervention, leading to money going missing and huge distress to their clients.”¹