The Solicitors Regulation Authority (SRA) now has 1,200 law firms on its financial stability watchlist, with more likely to join it shortly, it has emerged.
It follows the recent request for financial data from 1,500 practices that work in areas experiencing particular economic pressures, such as personal injury or legal aid, as well as around 500 ‘high impact’ firms – those whose failure would have a significant impact.
Some 700 of these firms were already under ‘active supervision’ because they were in trouble, and of the rest, 1,000 have so far responded; half had indicators of financial difficulty.
These 500 firms will now be contacted as part of supervisory engagement and according to the level of risk they pose.
The data requested focused on areas such as net profit (at the last financial year end), total borrowings, and highest and lowest bank balances for each of the last three months.
Mike Haley, SRA director of supervision, said: “We contacted these firms not because we know they are experiencing financial difficulties, but to build our understanding of the current position so that we can target our resources at those who most need our help. Engaging with firms at the earliest opportunity is the best thing to do, and this will allow us to know where we need to do this.
“We’ve already had numerous examples of better outcomes for firms and clients when firms in financial difficulty have come to us. By surveying firms in this way, we are able to make our approach even more risk-based, and hopefully avoid the disruption caused by intervention.”
The 300 firms that have failed to provide the requested information “will be encouraged to provide it before potential enforcement action is initiated”.
Mr Haley said: “Sadly, some firms refuse to acknowledge that they are in financial trouble until it is too late, which causes problems for clients, and can also lead to investigations into conduct.”