The biggest regional law societies in England and Wales have called for the regulator to reconsider its decision not to cap Axiom Ince claims from former clients.
Solicitors are likely to have to pay for any shortfall caused by claims against the compensation fund from former clients of the collapsed Axiom Ince. As of the end of November, the Solicitors Regulation Authority had received claims totalling £33m, but the fund has reserves of only £18m.
The regulator has said there will not be an immediate one-off levy against solicitors but suggested contributions are almost certain to increase later this year to cover the claims.
The SRA has the statutory power to limit total claims to £5m but has said it will not use its discretion to impose an overall cap.
Now the law societies of Birmingham, Bristol, Leeds, Liverpool and Manchester, collectively known as the Joint V, have written to the oversight regulator the Legal Services Board asking for the SRA’s decision to be looked at again.
The letter points out that the £5m cap was introduced to address the risk of ‘multiple applications… that relate to the same or connected underlying circumstances’. It adds: ‘The present circumstances fall fairly and squarely within that provision.’
Section 28 of the Legal Services Act requires that the SRA be accountable, and the Joint V said the scale of losses of client money is such that the profession needs ‘independent assurance that confidence in the SRA’s governance is warranted’.
The letters continues: ‘Section 28 requires that [the SRA] exercise its power in a manner which is proportionate. We are unable to see how failure to impose the cap where the claims may exceed it by 13 times might be proportionate.
‘The SRA states that the cap was introduced in a different context, investment fraud, but the rule which has statutory force is not restricted in its effect and the SRA has given no other reason not to apply the cap.’
The LSB has started a review of the SRA’s supervisory role in the build-up to the collapse of Axiom Ince. Former managing partner Pragnesh Modhwadia was suspended by the regulator in August and it then emerged that around £64m was missing from client accounts – thought to have been spent on acquiring law firms and property. The firm was shut down by the SRA in October.
The regulator has admitted it took three months to visit Axiom after the firm had purchased the much larger Ince & Co.
The Joint V letter says: ‘[Chief executive] Paul Philip has publicly expressed confidence that the SRA did everything it should have done according to its regulatory arrangements.
‘Many in the profession have expressed doubt whether that is so, believing that the 13-fold increase in the size of the firm from April to July 2023, including the acquisition of international offices, should have triggered review.’
The societies noted that the LSB chief executive Matthew Hill described the SRA in December as the ‘most sophisticated, mature and best-resourced and arguably most effective regulator in our sector’.
‘Having expressed such a view, we believe that the confidence of the public and the profession in any review requires that it be independent of the LSB as well as the SRA,’ they added.
