Fines: need to be credible deterrent
Alternative business structures (ABSs) with a turnover of more than £2m face fines of up to 2.5% of their turnover in cases of serious misconduct, under plans being considered by the Solicitors Regulation Authority (SRA).
Following a consultation which received just seven responses, the SRA’s regulatory risk committee will today consider approving new indicative guidance on how the authority will approach financial penalties.
With the SRA currently limited to fining regular law firms £2,000, the guidance effectively only applies to ABSs, which it can fine up to £250m (£50m for individuals). SRA efforts to bring the levels for non-ABSs into line have so far been rebuffed by the government.
The draft guidance would only apply when the SRA decision-maker has determined that a fine is the appropriate penalty. “The aim of the guidance is to provide a consistent and transparent mechanism for determining penalties which will support a credible deterrence,” a paper before the committee explains.
As proposed, the decision-maker has to go through a three-step process to reach a figure: first there are detailed guidelines to determine a basic penalty taking into account the seriousness of the conduct; then the figure is adjusted to account for mitigating factors – generally by no more than 40%; and finally it is adjusted to eliminate the financial gain or other benefit obtained as a result of the conduct.
For individuals, the basic penalty would range from £500 to £50,000. For firms where their annual domestic turnover exceeds £2m, it would usually be a percentage of that figure, from 0.5% to 2.5%.
The SRA had consulted on whether the top figure should be as high as 10%, but concluded that 2.5% should still produce a sum that would act as a “significant deterrent for firms of greater means”; however, assuming the recommendations are accepted, this will be reviewed in two years to ensure that it is proving a credible deterrent.
The paper added: “Further, the potential for improper benefits arising from the misconduct to be removed in addition would also increase deterrent value and increase public confidence in cases where otherwise there may be concern… In practice it is anticipated that it is this third step of the fining guidance which will result in the highest penalties being imposed rather than fines within the parameters of the basic penalty at step 1.”
The committee will have the choice of either finalising the guidance itself or asking the SRA board to sign it off first.
