Money laundering: Questions over reach of new power
The Legal Services Board (LSB) has approved the Solicitors Regulation Authority’s (SRA) amended guidance that will allow it to issue unlimited fines in cases of economic crime.
We reported yesterday [1] that the SRA had quietly made the application and the oversight regulator has now confirmed that it was dealt with under the exemption procedure, which meant it did not go through the full scrutiny it affords to rule changes.
This was because the move is simply implementing the power given by Parliament in the Economic Crime and Corporate Transparency Act 2023 (ECCTA), rather than a change the SRA initiated itself.
The LSB did, however, scrutinise the SRA’s readiness and ability to implement the new power effectively.
The approval notice explained that there were no changes to the SRA’s methodology and framework for how fines were determined.
It can already issue fines of more than £25,000 to alternative business structures – the power is granted under a different statute to traditional law firms – meaning “the SRA already has adjudicators trained to be able to assess cases where fines above £25k are levied and a fining framework where mitigating and aggravating factors are taken into account”.
The LSB said it expected the SRA to “monitor and keep under review” whether this continued to be the case with the new power.
The other issue raised was about the continued over-representation of certain cohorts of solicitors in the SRA’s enforcement processes – particularly men, ethnic minority solicitors and older solicitors.
The LSB said the SRA did not except a specific group of solicitors to be more affected as a result of having the new power.
“The SRA has shared that it plans to continue annual monitoring of individuals in investigations and enforcement, to implement commitments addressing minority ethnic solicitors’ overrepresentation, and to evaluate the impact of expanded fining powers through a dedicated internal group,” it said.
In a commentary on the new power [2], legal regulatory specialists at City law firm Kingsley Napley said that, in cases where the facts and matters alleged were accepted, “the additional head room for internal fines may be advantageous for firms, allowing matters to be resolved quickly and at lower cost”.
However, the same could not be said for a firm that disagreed with the decision maker’s assessment of seriousness or penalty.
“Given the size of financial penalty now available to the SRA, firms who dispute its findings may wish to have had the reassurance of an independent SDT [Solicitors Disciplinary Tribunal] decision.
“Whilst there exists a right to appeal most SRA enforcement decisions to the SDT, the nature of an appeal hearing is very different to a first instance one, not least because on an appeal the SDT is confined to reviewing the SRA’s sanctioning decision, rather than hearing the case afresh.
“There is also a question over how the SRA will choose to resolve matters where there is a mixture of economic crime-related breaches which can be dealt with under the new power, and non-economic crime breaches for which it is limited in its ability to impose financial penalties.”
Associate Tarah Morris and partner Julie Norris wrote that there may also be a technical problem with the SRA using the new power to impose fines of more than £25,000 for breaches of the 2017 Money Laundering Regulations.
The ECCTA did not create a new standalone fining power; rather, it was “parasitic” on the SRA’s existing power under section 44D(1) of the Solicitors Act 1974.
This allows it to issue a fine if a solicitor or an employee of a solicitor has failed to comply with a requirement imposed by the 1974 Act, the Administration of Justice Act 1985 or rules made by the SRA, or that there has been professional misconduct by a solicitor.
“It is far from clear however how MLR breaches would properly fit within the scope of this provision,” they said. “The MLRs are made under separate primary legislation, entirely independent of the Solicitors Act 1974 and the Administration of Justice Act 1985 framework; nor is there an SRA rule which directly gives effect to them.”
If this was right, it meant that the category of conduct caught by the new power “may be considerably narrower than it first appeared”.