SRA: supervision not “fully effective” without separation
The Solicitors Regulation Authority (SRA) has opened a second front in its campaign for full separation from the Law Society by appealing to the Treasury to intervene over the issue of money laundering.
The SRA argued that “rather than putting in place safeguards” to ensure sufficient separation between regulation and representation in anti-money laundering (AML) supervision, the Treasury should impose “actual separation”.
In its response to a call for information from the Treasury on plans to shake up the AML supervisory regime, the SRA went on: “AML supervisors should be independent from interference or control from any representative body operating on behalf of the profession.
“Without separate bodies for representation and regulation, we do not believe that there can be fully effective AML supervision. Public confidence is key and it is essential that vested interests are not able to, or are perceived as being able to, influence regulatory activities in this highly important area.
“Consumers have greater trust in professionals who are regulated by an independent regulatory body, rather than by the profession itself.”
Responding to the Treasury’s question on whether the government should “mandate” the separation of representative and AML supervisory roles, the SRA’s answer was “yes”.
The Ministry of Justice is expected to launch a consultation on the issue of separating legal regulators from their representative bodies after the EU referendum.
The SRA also used the consultation response to renew its calls for “robust fining powers” and a civil standard of proof.
The regulator complained, as it has previously, that section 44D of the Solicitors Act limited its in-house fining powers for solicitors and traditional law firms to £2,000, compared to the fine of up to £250m it could impose on an alternative business structure under the Legal Services Act.
“Swifter settlement by the SRA without tribunal involvement would reduce the overall regulatory burden, benefitting all regulated businesses. This would also reduce delay, uncertainty and cost from those facing the disciplinary process and would support fast, fair and firm regulatory action.
“In addition to the need to increase the SRA’s fining powers, we believe that there should be consistency of fining powers across AML sectors to prevent firms ‘shopping around’ for regulators with lower levels of sanctions, including fining powers.”
The SRA called for a single standard of proof across AML supervisors – the civil standard, rather than the criminal one currently applied by the Solicitors Disciplinary Tribunal (SDT).
The regulator complained that the higher standard of proof “incentivises” law firms to resolve their cases at the SDT “where it is more likely to be overturned and often removes the possibility of an early settlement which would reduce costs”.
Last month the Treasury and Ministry of Justice accepted the separate recommendations of the Insurance Fraud Taskforce, which also included reducing the burden of proof at the tribunal to the civil standard.
The SRA argued against the Treasury’s suggestion that a new body should be created to supervise AML supervisors, “along the same lines as the Legal Services Board”.
The regulator warned that this was “likely to place a considerable regulatory burden on supervisors and the regulated community”, the cost of which was likely to be passed on to consumers.
The SRA added that it did not advocate an alternative of extending the role of the LSB to include supervision of AML regulators, “as its core role and key strength is in driving better regulation and promoting competition rather than imposing detailed regulation”.
Any additional role “could push up costs and whilst being unlikely to have a meaningful impact on reducing the risk of ineffective AML regulators”.
Richard Gray 
The SRA’s position should be treated with caution. The SDT Annual report 2014 shows that there were no appeals against SRA fines in the relevant period, so the issue of incentivising appeals does not arise. The SDT conviction rate (approximately 85% in that report) would not encourage many to take their chance on an appeal in any event. The greatest cause of delay in my experience of defending solicitors against investigations, which I know is shared by others, is the SRA’s protracted delay in responding substantively to correspondence. A broad estimate is that it generally takes nine months to reply. That is where energy should be targeted. Justice delayed is justice denied, and I know of examples of solicitors suffering great stress due to protracted investigations in which they were subsequently cleared of misconduct.
The SRA response also supports thematic reviews, which must be right in principle. However, they should be published more promptly than happened with the SRA’s review which took 12 months to publish. If a review identifies action needed or lessons learned, these need to be shared far more promptly.