SRA on lookout for solicitors “borrowing” from client money to pay bills

Clive Myrie, Paul Philip and Anna Bradley in action and on the big screen at the ICC in Birmingham

The Solicitors Regulation Authority (SRA) is braced for solicitors looking to borrow from client account to help pay their bills in the face of a worsening economy, its chief executive said yesterday.

Paul Philip told the regulator’s annual compliance conference in Birmingham that “when things get hard, we need to pay close attention to the client account because there is a natural tendency to try and use it to get by – not stealing, but using it to pay electricity bills, staff wages [and so on] and then putting it back. It happens quite a lot”.

Using client money in this way is still a breach of the accounts rules, even if it is replaced.

Mr Philip told Legal Futures that there was no current evidence of this happening but the experience of previous downturns made it a likely trend.

SRA chair Anna Bradley also expressed concern that the cost-of-living crisis “may tip some small law firms over the edge”.

In September, the SRA’s head of forensic investigation and intelligence, Sean Hankin, reported that it had seen a sudden spike in the number of law firms of all sizes reporting that they were facing financial problems.

However, Mr Philip said financial stability was not a major issue on his desk right now.

In a wide-ranging interview with their pair conducted by BBC presenter Clive Myrie, Ms Bradley said there was a “live debate” about shifting the model of legal regulation to a single regulator.

“There is an appetite among legal regulators, Whitehall and Westminster to move in that direction,” she said, pointing to the recent move by CILEX to investigate delegating its regulatory functions to the SRA instead of its current regulator, CILEx Regulation Ltd (CRL).

“It goes with that flow of ‘Should we be moving to something a bit simpler?’, quite frankly, and that’s worthy of note.”

Mr Philip agreed that it might be time for a single regulator – “If you were setting up a new legal regulatory regime, you wouldn’t start from here,” he said – but suggested that it was not high up the political agenda.

Speaking to the media afterwards, Ms Bradley said the SRA had told CILEX “that we can’t see any reason why we couldn’t do this operationally”. Mr Philip noted that, while the SRA has a budget of £85m and hundreds of staff, CRL’s budget is about £1.7m and it has around 21 staff.

Ms Bradley said “the bigger question is whether it has a fair wind politically, both with a big and little ‘p’”. The Law Society “will need to be content” with the SRA taking over the regulation of CILEX members, she added.

Mr Philip said Chancery Lane has not yet reached a decision.

Subject to this, Ms Bradley said the SRA board would likely discuss CILEX’s proposal next spring, by which time a Legal Services Board investigation into the disputes between CILEX and CRL should have been completed.

On other issues, Mr Philip said the SRA was currently looking into about 25 cases relating to SLAPPs (strategic lawsuits against public participation) and it would shortly publish a warning notice to “articulate what we think a SLAPP is” and highlight the “more egregious types of behaviour”.

He also acknowledged that the regulator still has “some issues” with delays in its enforcement activities, with cases taking longer than they should.

Ms Bradley said the board has taken a close interest in this and that the number of “aged cases” has fallen. While there has been “significant progress”, she acknowledged that this was “the one piece of our operational activity that’s not quite as good at as the rest”.

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