In June 2024, the SRA launched a consultation on proposed changes to its financial penalty regime. The consultation proposes changes to the SRA fining guidance that the SRA believe will help them ‘deliver a strong and credible deterrent’ against breaches of their standards. The consultation process ended on 20th September 2024, and the SRA is currently assessing the responses with a view to finalising changes to the regime to be approved by the Legal Services Board. In this article, we will look at why the SRA is considering changes to the financial penalty regime, what the consultation asked, and what we might expect to see in the way of meaningful change in the near future.
Background To The Financial Penalty Regime Consultation
The current approach to fining for SRA breaches was shaped by changes in 2022 and 2023. In July 2022, the SRA’s power to fine law firms and solicitors and others working there increased from £2,000 to £25,000.
Following this, in May 2023, the SRA issued updated guidance on how decision-makers should calculate appropriate financial penalties for regulated individuals and firms. This included a new schedule of fining bands (A to D), fines linked to income, fines for lower-level penalties, and clarification regarding the approach to harassment, discrimination and sexual misconduct.
The focus of the 2024 consultation was on ensuring that financial penalties remain an effective deterrent and provide a fair response to misconduct while continuing to protect the public and maintain trust in the profession. In particular, it aimed to take account of the Economic Crime and Corporate Transparency Act 2023 (ECCTA), which gave unlimited fining powers in cases of economic crime, in addition to learnings since the updated guidance was published in 2023.
What Are The Proposed Fining Guidance Changes?
Overall, the SRA is proposing greater levels of deterrence and transparency for financial penalties. To achieve this, they have recommended a range of measures including:
- Introducing Bands E and F for more serious misconduct, with penalties exceeding current maximums.
- Clear guidelines for how fines are calculated.
- Taking into account all mitigating factors when identifying an indicative fine, rather than having a separate step for considering discounts.
- Introducing minimum fines across all bands to ensure penalties are deterrents starting at £5,000 for firms in band A, ranging to £500,000 for firms in band F.
- Clarifying when other metrics are used instead of turnover or income.
- Ensuring fines remove all financial benefits and
- Clarifying penalties post-conviction for drink driving – this is included as an annexe to the consultation.
The SRA has also proposed changes to their fining guidance to make it clear that once fine levels have been determined, they will be further increased by the amount of any financial gain that resulted from the misconduct. This is because they are keen to ensure that anyone who breaches their rules does not benefit financially from their actions. The SRA is proposing that all financial penalties issued to firms and individuals should be the sum of the indicative fine plus the amount of any financial gain or other benefit that resulted from the misconduct. This will also ensure that firms and individuals cannot offset the cost of any fine they receive with any financial gain obtained by breaching the SRA’s rules.
Referring to the proposed changes, SRA’s Chief Executive Paul Philip said, “The majority of solicitors do a good job. However, when this is not the case, it is important that we have a robust approach in place which enables us to take action in a way that is fair, transparent and consistent to all…The changes we are proposing will help to ensure we can continue to do that, including for the most serious cases, which by their very nature can and will attract the most significant penalties”.
How Might Law Firms Be Affected?
Firms of all sizes will need to consider how these proposals might affect their compliance strategies.
The new minimum fines may have a greater impact on law firms with lower turnovers and individuals on lower incomes because the minimum fine in each band is likely to represent a larger proportion of the annual turnover or annual salary for these groups compared to other firms.
Law firms with serious breaches may find themselves facing fines in excess of the current maximum levels. This is because the SRA will be able to use its powers under the ECCTA 2023 for very serious misconduct and will no longer need to refer the matter to the SDT. As a result, fines exceeding the current amounts set out in band D (5% for law firms) will likely become more frequent but will still be uncommon. This is why more transparency and clarity will be provided when considering fines at the highest levels.
Final Words
It is likely that any changes to the financial penalty rules will not come into force until early 2025 once they have been approved by the Legal Services Board. The new rules, as with previous changes, will affect new and currently open cases as of the date of implementation. Any existing cases whereby the SRA has already written to the firm or individual setting out how they will deal with a breach will likely continue under the old rules. As soon as any changes are made, we will provide you with a full update.
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