The vexed question of how to protect the public without unfairly burdening regulated solicitors is at the centre of a review of consumer protection announced by the Solicitors Regulation Authority today.
The future of the compensation fund has come under scrutiny in the past six months following the revelation that more than £60m was missing from the client account of failed firm Axiom Ince. The profession is likely to have to cover losses suffered by former clients.
Consumer protection is a cornerstone of the safeguards that come with using a regulated solicitor. But given the scale of the Axiom shortfall – as well as the costs incurred through other interventions – it may be that the extent of the safety net needs to be looked at again.
The SRA said it wants to explore how to strike a balance between appropriate protections for consumers, while making sure this does not push the cost of legal services up by too much.
Announcing the review, chief executive Paul Philip said: ‘There will likely be strong arguments for maintaining the current level of protections, but we need to be sure that is proportionate in the face of evidence of escalating risks. Bolstering or maintaining consumer protections might not be in the public interest if it is unsustainable and leads to large increases in prices or reduced choice for consumers.’
Last year the SRA intervened into 65 firms to protect client interests, up from 25 the year before. Many of these have actions been bigger and more complex than previous interventions.
As well as the future of the compensation fund, the SRA also wants to look at how to reduce the risk of something going wrong in law firms and how to approve and monitor firms. Axiom Ince was a so-called ‘accumulator’ firm – defined as one which has grown quickly through acquisitions – but the SRA waited for three months after Axiom DWFM had bought the much larger Ince & Co before sending investigators in. The SRA’s response is currently under review by the oversight regulator, the Legal Services Board.
Inspections of accumulator firms have increased since the Axiom Ince affair, but the regulator is asking what more it can do to spot early signs of firms running into financial trouble and ultimately costing the profession as a whole.
Anna Bradley, chair of the SRA board, said: ‘We are coming at this with a wide lens – we want to hear as many views as possible. We don’t yet have the answers, but we are asking the fundamental questions. Is it affordable for the compensation fund to continue to provide such comprehensive protection? Should we continue a model where all firms can directly hold client money? Do we need more checks around firms that are buying-up others?’
In addition to consumer research, the SRA will be engaging with legal and consumer groups, including roundtables for high street firms (12 March), consumer groups (13 March), solicitor representative groups (21 March) and local law societies (26 March). An interactive webinar open to all will be held on 19 February.
Law Society chief executive Ian Jeffery welcomed the launch of the ‘timely’ review. TThe potentially far reaching changes under review require careful consideration and full and meaningful consultation with the profession, with an opportunity to consider a range of options that best serve the needs of consumers,’ he said. ‘We look forward to working with the SRA as it undertakes this work and ensuring that the views of our members are heard.’
