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A Lack of Discipline at the SRA

Papers presented by the SRA in October to its Regulatory Risk Committee revealed that the Authority’s Legal & Enforcement Directorate opened 90…

Adam Entwistle, Compliance Consultant at Compli, Weightmans examines the recent rise in SRA prosecutions and cites possible reasons for the increase.

Papers presented by the SRA in October to its Regulatory Risk Committee revealed that the Authority’s Legal & Enforcement Directorate opened 90 new disciplinary proceedings during the first eight months of 2014, 55% more than over the same period last year. And it may not stop there: according to the most recent regulatory outcomes report (published quarterly on the SRA website), the SRA referred 63 matters to the Solicitors Disciplinary Tribunal (SDT) in Q2 2014, the highest number of referrals since Q4 2011 and significantly higher than an average of 36 referrals across that period. Despite such sharp increases, the SRA has not cited any particular cause but stated that further analysis will be undertaken in this respect (although no timescale has been given).

Interestingly, the detailed statistical reports published from time to time never include a breakdown of how decisions to refer an individual to the Solicitors Disciplinary Tribunal (SDT) are made. This is but one example of the opacity which clouds the SRA’s supervision and enforcements directorates, plus it may offer some explanation for the increasing numbers. Following a regulatory investigation into the conduct of a firm or an individual, a respondent may be either rebuked or fined (or both), or the matter could be referred to the SDT. Whilst this decision may be made by either an adjudicator or a person ‘duly authorised by the SRA’ (commonly known as ‘authorised officers’), there are several key differences which carry serious ramifications for respondents.

Let’s consider a referral to SDT and compare the two, starting with the procedure for adjudication. Once the SRA caseworker has considered evidence such as a forensic investigation report and the respondent’s comments and representations in relation to the same, the decision would then be made for the matter to be referred for adjudication. A short report is prepared by the caseworker, summarising the issues at hand and explaining the caseworker’s recommended outcome with reference to evidence and supporting documentation, all of which is appended to the report.

Respondents are then given the opportunity to comment on the report and the recommendation before the matter is introduced to the Adjudicator. Whether or not the matter is put before an adjudicator at first instance or an Adjudication Panel will depend on a number of factors including the severity of any allegations, the value of any transactions and risks to the public interest. There is no right of appeal if the Adjudicator authorises a referral to the SDT, but the reasons for any decision are laid out. In addition, if the Adjudicator decides that the evidence provided is insufficient or flawed then s/he may stand over consideration of the matter, or suggest that the respondent is given the opportunity to make further representations. On balance, it is fair to say that the procedure is fair insofar as the respondent is made aware of how the decision to refer has been made, although the lack of a mechanism for appealing a referral is a significant drawback.

In contrast, the procedure for an authorised officer decision is heavily flawed. If, at any stage during a regulatory investigation, the caseworker decides – rightly or wrongly - that the allegations are serious enough and believes deviating from the procedure outlined above and sanctioning an immediate referral to the SDT would be proportionate, they can state their case to one of many authorised officers in the SRA’s supervision and legal departments. Assuming the recommendation is authorised, the respondent is informed of the decision to refer their conduct to the SDT. Once again there is no right of appeal against a referral and the respondent must appear before the SDT which has the power to impose unlimited fines and order costs (which invariably fall in the SRA’s favour).

Not only is there no right of appeal, the whole process is far from transparent and a search of ‘authorised officers’ on the SRA website will reveal very little. There is no publicly-available policy or guidance on when the regulator will make use of this method and despite our best efforts, the SRA is unwilling to provide the same. Furthermore, unlike the Adjudication process, the SRA is not obliged to provide respondents with a copy of the decision, details of what evidence was taken into account or how the conclusion was reached that both the evidential and public interests tests (both contained in the ‘Code for referral to the Solicitors Disciplinary Tribunal’) were satisfied.

One further issue which is arguably the most significant is that in our experience the SRA often refers respondents to the SDT by authorised officer decision after requiring them to respond to allegations and any evidence gathered as part of investigations to date. The effect of this is of course that respondents have just handed over their defence to a grateful regulator who can prepare for the hearing without fear of challenge.

So who are these authorised officers? Whereas the SRA website features profiles of the adjudicators, there is no mention of the powerful authorised officers. How are they chosen/elected/monitored and how is it so that they may unilaterally decide to refer an individual to the SDT? Nobody would argue that the regulator should possess the power to haul the most dishonest, avaricious solicitors before the SDT as soon as reasonably practicable, but to routinely exercise such powers without good reason and behind a veil of secrecy is dangerous and contrary to the public interest.

For the reasons outlined above, a pre-requisite to authorising the proposed increase in the SRA’s internal fining powers from £2000 to £10,000 (or higher by agreement) ought to be a detailed review of the regulator’s decision-making framework and enforcement strategy, which have not been updated since January 2012 and January 2011 respectively. Huge inconsistencies already trouble the SRA’s decision-making and it is concerning to contemplate the prospect of significant fines being sanctioned with such ease by a single authorised officer who cannot be held to account.

This article was produced by Adam Entwistle - compliance consultant at Compli - for the Manchester Law Society Messenger.

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