Fines: No limits in cases of economic crime
The Solicitors Regulation Authority (SRA) has proposed that any fine it imposes on law firms should be at least £5,000, as well as ending fines for solicitors convicted of drink-driving.
It has also laid out how it intends to apply its new unlimited fining power in cases involving economic crime, which is likely to lead to more fines exceeding 5% of a firm’s turnover but fewer of these cases going before the Solicitors Disciplinary Tribunal (SDT).
At the same time, it said the combination of the various proposals it was making in a consultation issued on Friday was likely to lead to more referrals to the tribunal overall.
The power, given by the Economic Crime and Corporate Transparency Act 2023, came into force in March 2024 and the consultation aims to update the SRA’s fining framework to take this into account, as well as other changes to guidance that only came into force in May 2023.
The SRA can fine alternative business structures up to £250m and individuals working in them up to £50m, but the figure is just £25,000 for traditional law firms, and that was only increased from £2,000 in 2022.
If the regulator considers, applying the guidance, that a fine of more than £25,000 is needed, it currently has to refer the matter to the SDT.
An innovation last year was to introduce fixed penalties of £750 – and then £1,500 if repeated within three years – for certain administrative failures, such as breach of the transparency rules.
The consultation said any other fines issued “will be for more serious misconduct and should therefore be higher than these amounts”.
The guidance has four penalty bands for progressively more serious misconduct – although this is set to become six given the new power – and the SRA has proposed minimum fine levels for each.
For firms, this would be £5,000 in the lowest band, rising to £500,000 in the highest, and for individuals, £2,500 and £100,000 respectively.
“We recognise that minimum fine levels will have the greatest impact on smaller firms and individuals with lower salaries,” the consultation said. “However, we consider that minimum fines are necessary to reflect the seriousness of the misconduct for which the fine is being imposed.”
Firms and individuals will be invited to make representations on their ability to pay a recommended fine. The SRA’s general guide is to consider whether the fine could be paid within five years.
There has been concern over some hefty penalties handed out to solicitors convicted of drink-driving, especially as they have already been convicted in court.
While maintaining that “a conviction for any offence is likely to require a regulatory response, given the impact on public trust and confidence in the profession when a solicitor breaks the law”, the SRA has decided that a fine is no longer appropriate.
“This is because cases in which a warning or rebuke were not appropriate were those that involved repeated criminal behaviour, or serious aggravating factors in addition to the commission of the offence.
“We consider that this type of conduct raises serious concerns about integrity and public trust in the profession which we consider are matters best dealt with by the SDT.”
The 2023 Act allows the SRA to issue an unlimited fine where a solicitor or their employees at any type of firm failed to comply with requirements that relate to the prevention or detection of economic crime.
The consultation said: “The types of misconduct for which we now have unlimited fining powers include criminal offences involving the Money Laundering Regulations, violations of international sanctions, financial dishonesty, theft, and the improper use of client monies where this amounted to a fraud, or where there were inadequate controls in place to prevent or detect offences of this kind.”
To engage this power, the offences must have occurred after 4 March 2024.
The SRA uses a scoring framework to set an indicative penalty within each band based on the nature and impact of misconduct, taking into account aggravating and mitigating factors.
The reference figures within the bands range from 0.2% to 5% of a firm’s annual domestic turnover and from 2% to 97% of an individual’s income, although ultimately the SRA can impose higher fines than the guidance suggests where justified, so long as it is within the statutory limit.
The consultation has proposed two new bands, the first ranging from 6% to 10% of a firm’s annual domestic turnover and 113% to 145% of an individual’s income, and the second for anything higher, which would only be “for the most serious misconduct where a fine is appropriate”.
“For many of the firms and individuals we regulate, a fine of more than 5% of annual domestic turnover or 97% of annual income, will exceed £25,000.
“This means that where we impose fines for very serious misconduct using our powers under the [Act], we will likely be imposing fines on traditional law firms and individuals at levels that would have previously required a referral to the SDT…
“As such, it is likely that fines imposed by us of more than 5% of a law firm’s turnover, though still uncommon, will become more frequent in the future.”
At the same time, the consultation said that “the combination of our proposals will result in fining levels increasing overall, meaning that fines are likely to exceed our statutory limits more often. This may lead to an increased number of referrals to the SDT”.
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