Regulatory Pulse - 19 May 2025

Phew, it's been a busy couple of weeks! Let's bring you up to speed.

The Last Two Weeks

£3,984,440 – the fine levied on the dishonest owner of an ABS which was left with a £10m shortfall on client account following improper withdrawals. Action was also taken against an employee and the firm's HOFA. "'This is the largest fine we have ever issued" said Paul Philip in a press release. "Meanwhile, we continue to review how best to protect client funds, with further steps to be announced later this year."

Elsewhere, the SRA published its business plan for the year, a war-cry on AML compliance, and an interim position statement on financial penalties: read on below for further details.

A solicitor and barrister have been referred to their regulators for citing fake cases in an application for relief from sanctions. Mr Justice Ritchie said: "I consider that providing a fake description of five fake cases, including a Court of Appeal case, qualifies quite clearly as professional misconduct."

In a separate case, a solicitor appealing the SDT's decision to strike him off referred to 25 fake authorities in his submissions. The appeal was struck out as an abuse of process.

The SRA authorised "the first law firm providing legal services through artificial intelligence". The firm offers the use of an AI-powered litigation assistant to help clients recover unpaid debts. The regulator said that "Under our rules, named regulated solicitors will still ultimately be accountable for the firm delivering high professional standards. This means they will also be responsible for all the system outputs and for anything that goes wrong."

Meanwhile, the FT asked whether the case for junior lawyers is being undermined by AI. In good news for lawyers, it concluded that AI will increase demand for legal services, and regulating the technology will need lawyers too. "Budding legal bigwigs still have a case."

The Legal Services Board has stepped up enforcement activity against the Bar Standards Board, after identifying serious shortcomings in its performance back in March. The SRA has avoided further action for now, despite also finding itself on the naughty step for shortcomings relating to its authorisation, supervision and enforcement processes.

The SDT published its reasoned decision in the case of a solicitor who tangled with tax law blogger Dan Neidle on behalf of Nadhim Zahawi MP. The Tribunal found that breaches had taken place and imposed a £50,000 fine. The decision involves consideration of fine-textured issues concerning confidentiality, without-prejudice privilege and conduct in litigation, and is well worth a read for dispute resolution lawyers.

HMRC issued stop notices against a well-known former solicitor requiring him to stop promoting tax avoidance schemes.

The Post Office project published a report on the impacts of the Post Office Scandal. The authors report on the crushing impact of the scandal on sub-postmasters and their loved ones, and offers thoughts on how the official response could have been made better.

The Law Society launched an ethical practice framework for in-house solicitors. "The framework offers free tools, resources and templates to help the in-house community navigate ethical challenges in the workplace". The framework is intended to complement SRA guidance for in-house solicitors, launched in November last year.

There were the now-customary decisions on AML compliance: three more fines since our last edition, plus the SDT's reasoned decision involving a Southend firm which accepted a £120,000 fine for a variety of breaches.

As if that wasn't enough, a further slew of decisions was published by the SRA, the SDT and the Admin Court. We've only got space for a lightning summary:

The SDT published reasoned decisions in cases involving dishonesty in connection with suspicious financial transactions and a failure to disclose personal bankruptcy. The Tribunal also suspended a solicitor for undertaking work from an unregulated entity, and struck off a convicted rapist. A solicitor unsuccessfully appealed a striking-off order arising out of antisemitic tweets.

SRA decisions included: section 43 orders arising out of an ABH conviction and a dishonest attempt to recover costs on a pro-bono matter; referrals to the SDT for solicitors accused of dishonesty, including one whose firm acted for women bringing claims arising out of vaginal mesh implant surgery; and a firm rebuked for failing to return files and client money in a timely manner.

Insight

The Economic Crime and Corporate Transparency Act 2023 gives the SRA power to impose unlimited fines for breaches of rules designed to prevent or detect financial crime.

In July 2024, the regulator consulted on a new approach to financial penalties. It proposed to introduce minimum fines, increase penalties for the most serious breaches and, of course, start wielding its ECCTA powers. However, its proposals ran into significant opposition, forcing a change of approach.  

The regulator has now published an interim position statement on its financial penalties framework. In brief, it proposes to push through limited amendments to its existing guidance now, allowing it to start handing out unlimited fines, and come back to its broader proposals at a later date.

The plan is to consult with "key stakeholders" about "some limited technical changes to our fining guidance relating to ECCTA" this summer. "We will then seek approval of the changes from the Legal Services Board."

The SRA's existing guidance contemplates the imposition of fines of up to 5% of annual domestic turnover. The proposed amendments will allow the SRA to levy fines at that level for breaches taking place after 4 March 2024, when the legislation came into force.

These measures will be harder to challenge than the more ambitious proposals mooted last year. The SRA's fining guidance has been in place for two years already, and its unlimited fining powers are granted by primary legislation. So firms could be exposed to multi-million pound fines within the year.

The interim statement also:

• Confirms that the SRA will revisit its broader financial penalties framework in a further consultation later in the year.
• Abandons proposals to calculate fines for international firms with a small footprint in the UK by reference to global turnover.
• Formally confirms that drink driving convictions will not result in an SRA fine going forward.

Significantly, the SRA has indicated that during its further consultation"we and the Solicitors Disciplinary Tribunal (SDT) will explore potential opportunities for the alignment of our respective approaches financial penalties." A rapprochement between the two bodies would resolve an absurd inconsistency in the current framework.

Meanwhile, it seems as though the recent flurry of enforcement activity relating to AML breaches is set to continue. At the SRA media briefing last week, chief executive Paul Philip said: ‘We are concerned we are still finding fairly basic deficiencies in AML arrangements within firms. Fines have been continually going up. [Non-compliance] is probably not deliberate as firms may not have the capacity or may not have paid attention.

‘The fact is that not having a risk assessment in place does increase the risk of money laundering. We will continue to ratchet up the consequences if people don’t comply.’

Elsewhere, the SRA is planning a data-gathering exercise on AML, sanctions and suspicious activity reports, to run for six weeks from the end of June.

The SRA also published its draft business plan and budget for the following year. Highlights include:

• A proposed 32% increase in the regulator's investigation and enforcement budget.
• Reported year-on-year increases in the number of reports of solicitor misconduct (up 20%), new investigations (up a staggering 40%) and concluded investigations (a comparatively modest 18%). "It is not yet clear what is driving these increases, and we are looking into this".
• A new work programme on professional ethics, drawing on the Post Office Horizon scandal, SLAPPs and the experiences of the in-house sector. "At the core this work will be looking at what we can do to make sure ethics are front and centre of mind for all practising solicitors."

Q&A

We would love to hear your questions, comments and suggestions for future topics. Obviously we can't comment on ongoing cases, and the views expressed in RPC Pulse are not to be relied upon as legal advice.