The Solicitors Regulation Authority (SRA) has decided against testing the financial stability of thousands more law firms despite concerns about how widespread problems are in the profession, it announced yesterday.
As first reported on Legal Futures earlier this month, the replies of 5% of the 2,000 firms quizzed in the summer revealed high-risk indicators of financial instability, with a further 46% displaying some to a greater or lesser degree.
The SRA said this “confirmed our view that financial difficulty is a widespread current risk”, meaning it was “considering our next steps in terms of collecting data from a wider selection of firms”.
However, speaking at yesterday’s meeting of the SRA board, executive director Samantha Barrass said there were now no plans to extend the programme. “We don’t have sufficiently good reason to go out to the other 8,000 [firms],” she said.
The 100 or so identified by the work are now in “intensive engagement” with the SRA. Only 10 firms did not reply to the request for information in the summer, and all are being visited by the SRA as a result, she added.
Meanwhile, SRA chief executive Antony Townsend revealed that at the end of the 2012/13 financial year on 31 October, the anticipated overspend on interventions was £4m. Half of this is being met by other internal savings, leaving £2m to be covered by the compensation fund, substantially less than had been expected earlier in the year.
“This is positive news for reducing the burdens on the regulated sector,” he said.
Less positively, Mr Townsend said that 20% of new issues being dealt with by the SRA are assessed as high risk, compared to 7.5% in January. He ascribed this in part to the economic climate and also to a response to the SRA encouraging increased reporting.
The SRA will be keeping a “very close eye” on this trend over the coming months, he said. “The level of demand inevitably constrains our ability to deal with lower risk matters, and illustrates the importance of the work we have undertaken to develop a risk-based approach.”
This has also led to the SRA being shortlisted for the ‘building risk management capability’ award at the Institute of Risk Management Global Risk Awards 2014.