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Laying down the law: the SRA is on course for more powers

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By Clare Hughes-Williams & Tom Bedford

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Published 27 July 2023

Overview

The Solicitors Regulation Authority (SRA) already has wide ranging powers which it uses to regulate the profession and, in extreme cases, to close law firms.

Until last year, the maximum fine that the SRA could impose without referring a case to the Solicitors Disciplinary Tribunal (SDT) was capped at £2,000. In July 2022, the cap increased to £25,000 and may rise further when the Economic Crime and Corporate Transparency Bill is introduced. 

Two critical areas of focus for the SRA are anti-money laundering and the prevention of economic crime generally, and the Strategic Litigation against Public Participation or SLAPPs. 

The SRA issued a Warning Notice on SLAPPS on 28 November 2022, making it clear to firms that it will act if a solicitor appears to be using unnecessary or abusive threats of litigation on behalf of wealthy or powerful clients to stifle legitimate public scrutiny of the client’s affairs.

As solicitors, we are bound by the Code of Conduct to uphold the rule of law and proper administration of justice. Arguably, the use of litigation or threats to litigate as a means to intimidate and potentially stifle legitimate enquiry of our clients’ affairs offends the Code’s principles.

The SRA currently has 40 on-going investigations in this area, and that number is likely to increase.  Its current investigations may include the well-publicised case of Nadeem Zahawi whose tax affairs were the subject of an investigation by Dan Niedle.  More broadly, however, the SRA is actively seeking evidence of conduct on the part of solicitors practising in this area which may breach the Code.

It is understood to have approached the Coalition Against SLAPPs in Europe and the Foreign Policy Centre for evidence of allegedly abusive conduct and to have formed a dedicated team of investigators.

The SRA expects law firms and individuals to self-report if they become aware of a potential breach of the Code within their own organisation.  It is looking to strengthen its influence in this area and to encourage such reporting by seeking statutory designation as a “prescribed person” under the Public Interest Disclosure Act.  If the SRA is successful, a solicitor who makes a report to the SRA would enjoy the more advantageous employment rights available to whistle blowers. 

Solicitors should, therefore, be in no doubt about the SRA’s resolve in this area, and media and libel lawyers, in particular, will have to ensure they stay on the right side of the line if they are to avoid regulatory scrutiny.    

Economic Crime and the “failure to prevent” offence

The SRA is also likely to flex its muscles in relation to economic crime.  We predict that firms will be targeted where they have “failed to prevent fraud” or failed to “promote the prevention and detection of economic crime”.

The profession is an obvious target for criminals.  It holds billions of pounds of client money and conducts millions of real estate and corporate transactions every year, any of which could be an intended vehicle for fraud.

The offences outlined above are not specifically addressed, at present, in legislation but we expect that to change when the Economic Crime and Corporate Transparency Bill becomes law.

The new legislation is also very likely to prompt an increase in the SRA’s current fine cap of £25,000.  The Government regards the cap as too low, and the cases unnecessarily “time-consuming and resource intensive” for the SDT to handle, when the SRA could deal with them by increasing its powers.

There are also calls for the Government to make the law even tougher, by making the failure to prevent economic crime a criminal offence.  If this happens, firms and regulated individuals could face criminal sanction first, followed by serious regulatory sanction.  It is likely that any regulatory sanction would be at the most serious end of the sanctions regime and would probably amount to more than a financial penalty if a conviction is secured. 

Supporters of the proposed legislation believe this will drive a culture of compliance and lawfulness within law firms and among their clients, something the Government regards as imperative, given the conflict in Ukraine and the important role the profession plays in upholding the sanctions regime.

The Bill is currently progressing to the House of Lords and, once passed, the SRA will have to consult with the SDT and the LSB on the level of its fining powers.

Although she has welcomed a tougher regime on economic crime, the Law Society’s outgoing President,  Stephanie Boyce, commented recently that the Society is concerned about the proposals to increase the SRA’s powers.  Unlimited fines may reduce the number of cases being heard by the SDT but this will concern professionals who want the opportunity to exercise their right to a fair and independent hearing. It remains to be seen whether this approach serves the SRA’s open justice and transparency objectives.  The Society has noted that the FCA’s increased fining powers has not, on the available evidence, reduced financial crime.

As lawyers we operate in a highly regulated environment but the stringency of that regulatory framework and the penalties for transgression look set to increase.  As always, the profession will need to find a way to balance client interests with their duties under the Code, in order to avoid the Regulator’s scrutiny and the stress and adverse publicity that accompanies an investigation. 

 

This article was first published in New Law Journal.

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