Fines: level needs to be a credible deterrent
The Legal Services Board (LSB) has called on the government to support a bid by the Solicitors Regulation Authority (SRA) for a massive increase in the amount it can fine law firms.
As first revealed on Legal Futures, the SRA wants to increase its power to fine law firms from £2,000 to £250m, and to £50m for individuals, bringing traditional firms in line with rules which already exist for alternative business structures (ABSs).
It is up to the Ministry of Justice (MoJ) to sanction this and in response to a request for views, the LSB – while not specifying any figures – said there should be a “substantial” increase to a level that represents a “credible deterrent for the largest traditional law firms”.
There should be a level playing field between ABSs and traditional firms, it argued – if the SRA thinks a breach requires a fine of more than £2,000, it can levy that directly on an ABS, but currently has to take a traditional firm to the Solicitors Disciplinary Tribunal (SDT), a body which the LSB pointed out is not obliged to act in a way that is compatible with the regulatory objectives set out in the Legal Services Act or have regard to the better regulation principles.
In its call for views, the MoJ said the SRA’s proposals are based on the assumption that the risk posed by traditional firms is similar to that of ABSs. “This may be true for those ABSs which the SRA characterise as being only subtly different from traditional firms, but does not take account of the need to provide a higher ceiling for ABSs which involve significant corporate investment,” it said.
The LSB disagreed with the government on this. “We consider that the more proportionate and targeted approach is to consider the largest non-ABS law firms in setting an appropriate maximum penalty,” it said. “Only by doing that will the penalty operate as an effective deterrent (and thereby be consistent with the better regulation principles). For example, Allen & Overy’s turnover in 2009/10 was £1.05bn and profit per equity partner was £1.1m.”
Any argument that the current level is correct because there have not been any appeals to the tribunal – which has unlimited fining powers – is “spurious”, the LSB continued. “A firm is most unlikely to appeal against a penalty of £2,000, whatever reputational damage has been incurred, to a body that can increase the penalty.”
The LSB said the change would only be an interim step pending its broader review of the structure for penalties and appeals across the legal profession, which it described as “fundamentally flawed”.
Its response explained: “There are large differences in, for example, levels of penalties, standards of proof, appeal processes and appellate bodies. This is likely to be increasingly problematic as different lawyers practise together and as ABS develop. The LSB is therefore conducting work to analyse these issues but we consider that the issue for the SRA is sufficiently serious to justify a change now.”
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