On twenty eighth June this 12 months the SRA revealed on its web site a session paper on plans to replace its method to monetary penalties within the gentle of latest powers obtained below the Financial Crime and Company Transparency Act 2023.
The session’s title ’Monetary Penalties: additional creating our framework’ might make this appear easy. However the 32-page doc holds the potential to considerably enhance the SRA’s energy over the legal professionals it regulates. It deserves shut consideration.
Elevated fines
Probably the most vital change is the SRA’s plan to increase its inner powers to permit for limitless fines for all types of misconduct (not simply monetary).
The SRA first gained the power to high quality legislation companies and particular person solicitors with out restrict for misconduct associated to financial crime in March this 12 months. 5 months later (and earlier than an analysis of how these modifications have operated in apply) it desires to use this energy throughout the board.
While it’s true that another skilled regulators have limitless fining powers, it’s startling to see such a fast escalation within the SRA’s capability to high quality.
The SRA says the change ’will assist us to ship a powerful and credible deterrent towards breaches of our requirements’. However it’s unclear that such a rise in most fines will obtain this. I’m unaware of empirical research exhibiting both that solicitors are behaving worse than earlier than, or that present sanctions aren’t a adequate deterrent.
The SRA desires to introduce two new greater fining bands for what it considers to be essentially the most critical examples of misconduct.
Underneath the present system, a agency present in breach of SRA Requirements and Laws could be hit with a most high quality of 5% of its annual home turnover; whereas essentially the most a solicitor could be fined is 97% of annual gross revenue.
Underneath the proposed new band E, the utmost penalty for a agency would double to 10% of its annual turnover. For people it could attain as much as 145% of annual revenue. Underneath proposed new band F there could be no higher restrict on the monetary penalties on both companies or particular person solicitors.
Every fining band has a minimal high quality stage. The bottom attainable high quality below band F could be £500,000 for a agency and £100,000 for a person.
The SRA acknowledges that the brand new fines may disproportionately affect smaller companies and people who earn much less cash (together with these from a BAME background) and states this shall be mitigated by ’extra specific’ steerage on affordability.
There are implications for worldwide legislation companies within the SRA proposals too. The regulator is contemplating fines primarily based on international quite than home income. If this plan is adopted, we may see legislation companies with even a small London presence going through mammoth monetary sanctions primarily based on the actions of solely its UK employees.
Impression on the Tribunal
One rationale for the SRA extending its inner powers has been to cut back the variety of circumstances referred to the Tribunal. The affect of this paper, nevertheless, might be the alternative.
It has lengthy been the case that companies and solicitors have most well-liked to settle with the SRA quite than threat the difficulty, expense and unfavourable publicity of a listening to on the Tribunal. Nonetheless, the methodology at the moment utilized by the SDT to calculate fines would lead to decrease penalties than below the SRA’s proposed new scheme.
There might be some circumstances through which particular person solicitors and legislation companies take the view that the distinction in potential high quality is so nice that it’s price going through the dangers of a Tribunal listening to quite than settling. Curiously, the likelihood that would occur is accepted by the SRA in its session.
Additional to this, one wonders what the SRA would do if the Tribunal continues to make use of its personal fining rules quite than observe these of the SRA. Would the SRA enchantment? And, in that case, how would the Excessive Court docket select between the totally different approaches?
Drink driving
Lastly – however not insignificantly – the SRA makes use of its session to make clear its place on drink driving.
There has lately been some controversy about solicitors who pleaded responsible to (and self-reported) a drink driving offence, with out obvious aggravating elements, given fines by the SRA many occasions higher than these imposed by a Court docket.
In its up to date steerage on this subject the SRA states that “the presence of mitigating options with none aggravating options might lead to no motion being taken. Within the majority of circumstances, the place a sanction is required, a letter of warning or a rebuke shall be acceptable. The suitable sanction will rely upon the character of the irritating options and the balancing of these towards any mitigating options. Nonetheless, we is not going to impose a monetary penalty following a conviction for drink driving.”
For my part, the SRA must be given credit score for being ready to alter a coverage that’s plainly improper. Whereas it stays unclear how the SRA will take care of present drink driving circumstances or these referred earlier than any new steerage is applied, I hope that frequent sense prevails.
The SRA’s session on its proposal is open for submissions till Friday twentieth September. I’d urge all solicitors and legislation companies to learn and contemplate its plans fastidiously.
Andrew Katzen is Head of Regulatory Legislation at Hickman & Rose
