How have the SRA’s fining powers changed?
From 20 July 2022, the SRA’s power to fine ‘traditional’ law firms (i.e. those not authorised as ABSs) and the solicitors who work in them was increased from £2,000 to £25,000. This is a substantial increase, although leaves the SRA’s fining powers for traditional firms still well below that afforded to it for ABSs, in respect of which the SRA can impose fines of up to £250m.
Although solicitors in traditional law firms may take some comfort that the SRA’s fining cap has not reached the lofty heights applicable to ABSs, the reality is that firms and solicitors (both traditional law firms and ABSs) are each subject to potentially unlimited fines, which may be imposed by the Solicitors Disciplinary Tribunal (‘SDT’). In theory, the end result for any firm or solicitor should be unchanged as a result of the SRA’s increased fining power, with the main outcome being that the SRA will need to refer a far smaller proportion of its cases to the SDT to secure the imposition of a fine.
The SDT may still however become involved in fines within the SRA’s limits, as fines can be appealed to the SDT or, ultimately, the High Court.
Why might fines be issued?
Fines may be issued by the SRA to a regulated firm or individual where they do not meet the professional standards which are expected of them. Financial penalties are often used to sanction a firm or individual for a serious breach in cases where the conduct is sufficiently serious to warrant this approach, rather than a warning or rebuke, but where alternative measures such as suspension or strike off are not required in order to protect the public from ongoing risk or to maintain public confidence in light of the nature of the misconduct and its impact.
By taking the SDT out of the process for relatively low-level fines, the SRA is now free to implement a policy of fining for more serious breaches, although SRA guidance has made clear that financial penalties will only be considered in exceptional circumstances for cases involving sexual misconduct, discrimination or any form of harassment, with restrictions on practice, suspension or strike off deemed the more appropriate sanction in such cases.
Why have the powers increased?
Research by the Ministry of Justice found that nearly 90% of all fines issued by the SDT between 2014 and 2021 were under £25,000, meaning that this increase of powers to the SRA should substantially reduce the workload of the SDT. The ex-Lord Chancellor, Dominic Raab, has suggested that this change should enable the SDT to concentrate on fewer, more serious, allegations.
The SRA will continue to be able to refer matters to the SDT where it may be appropriate to impose a financial penalty of any sum above £25,000, or where it deems that a matter is in the public interest to be determined by the SDT, even if the quantum of the fine may be within the SRA’s fining powers.
The SRA is also in the process of establishing a schedule of fixed penalties (proposed at an initial level of £750) for ‘low-level’ breaches of regulation. Such breaches are likely to include matters such as failures to comply with information requests or failure to comply with the requirements under the SRA Transparency Rules. The SRA has in recent years focused on firm record keeping and consistency between its MySRA and Companies House records and this is an area where fixed penalties may be introduced.
The SRA is currently seeking consultation on this schedule and the associated arrangements. The consultation is set to end on Monday 14 November 2022, further details of the relevant proposals can be found here if of interest.
SRA’s three-step fining process
During the consultation period concerns were raised that the SRA’s increased fining powers, which are not subject to public scrutiny (unlike the independent SDT) could cause concerns for the transparency of the decision making.
In an attempt to ensure transparency and consistency in exercising its statutory powers, the SRA has stated its decision makers will follow these three steps when determining the quantity of the financial penalty:
- Step 1 – determining a basic penalty taking into account the seriousness of the conduct
This step will include an assessment of the nature of the conduct as well as its impact. Based on this assessment a broad penalty bracket will be determined in relation to breach(es) being considered.
Once the penalty bracket has been identified, the specific quantum of the penalty will be determined by the relevant decision maker with guidance from the aggravating and mitigating factors which are set out in the SRA’s Enforcement Strategy. This includes considering matters such as the culpability of the regulated person, the impact of the conduct and any harm caused to clients or to others, the means of the paying party and ensuring the penalty is of an amount which will achieve credible deterrence.
Fines imposed upon individuals will generally be assessed as a fixed monetary sum. If a fine is to be imposed upon a firm with annual domestic turnover of £2 million or more (“a firm of greater means”) then the decision maker will be guided to determine the penalty as a percentage of annual domestic turnover.
- Step 2 – adjusting the penalty to account for mitigating factors
The next step for a decision maker to consider is all the circumstances surrounding the breach and any subsequent investigation in order to establish whether it is appropriate to take into account any mitigating factors which may justify a reduction of the penalty amount. Mitigating factors may include the granting of a discount for early admission or where the harm has been remedied (to the satisfaction of the SRA) by the regulated person or firm. A decision maker will not generally discount a basic penalty by a sum of more than 40%.
- Step 3 – eliminating financial gain or other benefit obtained by the regulated person as a result of the misconduct.
The final step for the relevant decision maker to consider is whether the quantum of the penalty which has been determined following steps 1 and 2 will adequately eliminateing financial gain or any other benefit obtained by the regulated person as a result of the misconduct. To the extent this has not been eliminated the decision maker shall consider increasing the quantum of the penalty to ensure this is achieved.
It is worth noting that the SRA has indicated that its longer term goal is to align itself with other legal regulators whose fining powers are unlimited so it is possible that these fining powers may be increased in the future. The direction of travel is clear: the SRA expects to fine firms and solicitors more frequently and in larger amounts.
If you have any questions about these issues in relation to your own organisation, please contact a member of the professional services team