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Solicitor's Pulse - 6 June 2025

06 June 2025. Published by Tom Wild, Senior Associate

Bringing you up to speed on developments in solicitors' regulation every fortnight.

The Last Two Weeks

I was very sad to learn of the death this week of Tim Dutton KC, a lovely person and excellent lawyer who led the field in this area for many years. Read a touching obituary here.

The Legal Services Board has taken enforcement action against the SRA in connection with its handling of the collapse of Axiom Ince. The LSB's directions provide for the SRA to play a much more active role in monitoring transactions and financial stability in the legal sector. Read on below for more details.

The SRA and BSB are both consulting on proposed changes to their requirements for the handling of client complaints. The proposals are directed towards making complaints procedures more prominent and accessible for clients, including requiring firms to tell clients about their complaints procedure at the end of a matter. Both regulators are also considering a more rigorous approach to collecting, analysing and publishing complaints data. The proposals come against a backdrop of a significant increase in the number of complaints to the Legal Ombudsman – feel free to speculate whether the proposals are likely to increase or decrease the LeO's workload. The consultations come to a close on 25 July (SRA) and 6 August (BSB).

The Civil Justice Council published its final report on its review of litigation funding. The CJC recommends reversal of the PACCAR decision by legislation, to take litigation funding agreements outside the scope of the rules governing DBAs. Other recommendations include establishment of a formal regulatory scheme for litigation funding, and measures to increase access for justice in small claims and manage risk associated with portfolio funding.

At the time of going to print, the SRA has published decisions to fine 12 more firms a total of £212,000 for AML breaches since our last edition on 19 May. The largest fine was £77,784, imposed on a licensed body. One firm received a £25,000 fine – the maximum which can be imposed on traditional firms until changes to the SRA's approach to financial penalties come into effect.

In the meantime, the Property Lawyers Alliance launched a campaign to reduce the burden of AML compliance on conveyancers, describing the regulatory regime as "oppressive" and solicitors as "fearful" of a "punitive fining regime".

Other SRA decisions include:

  • A rebuke for a solicitor who acted without client instructions and accepted funds into client account in breach of the banking facility rule.
  • A rebuke for a solicitor who communicated settlement offers under which the other side was to agree not to make a complaint to the SRA.
  • A s.43 order in relation to a non-solicitor who signed lasting powers of attorney for a client who lacked capacity.

The SDT published reasoned judgments in cases involving:

The Law Society responded to the LSB's consultation on upholding professional ethics. " While the LSB’s intention to reinforce public confidence in legal services is understandable, there is a failure to acknowledge the robustness of the current regulatory system... The LSB risks drawing disproportionate conclusions that in turn have the potential to lead to overregulation", said Law Society president Richard Atkinson.

Insight

In April 2023, a smallish firm with a charismatic managing partner and a track record of acquiring rivals pulled off its most ambitious move to date. Axiom DWFM had quadrupled its turnover in just three years, but it had its sights on a bigger prize – the venerable but ailing Ince Group, which it bought in a pre-pack deal for a little over £2m. The newly rebadged Axiom Ince bought Plexus out of administration three months later, and was on the cusp of another acquisition when the music stopped. The SRA discovered a £60m hole in client account, launched an intervention, and less than 6 months after the Ince deal, Axiom was no more.

Pragnesh Modhwadia, Axiom's owner and chief executive, admitted that the money was gone. The SFO got involved. The compensation fund levy trebled in anticipation of a wave of claims by Axiom clients. The SRA started to face uncomfortable questions. How had a virtually unknown entity been able to swallow up two much larger firms only to collapse months later? Why didn't it raise alarm bells that Mr Modhwadia was acting as the firm's COLP, COFA and MLCO? What was the SRA doing while the client account was being drained?

Not enough, according to an independent review commissioned by the LSB. The SRA did not act adequately, efficiently and effectively. The episode necessitated changes in its procedures to mitigate the possibility of a similar situation arising again.

Following that review, in the first case of its kind, the LSB has imposed binding directions on the SRA. The SRA appears to have become more diplomatic during the consultation, following its spiky response to the independent investigator's report ("with hindsight, the report has highlighted things that we could – rather than just should – have done"), with the LSB praising the regulator for its "constructive engagement with us during this statutory process".

The directions require the regulator to put arrangements in place to identify and assess risks arising from, amongst other things:

  • Firm structures
  • The sale and acquisition of firms
  • Single individuals holding more than one role in a firm
  • Firm's financial stability

The SRA has 12 months to comply with the directions, and is required to update the LSB on its progress every 3 months.

At first glance, the directions appear capable of transforming regulatory oversight of the legal sector. Some of the LSB's requirements might suggest a high degree of supervision, including provision for:

  • the regulator to obtain and review firms' financial information to assess their financial stability
  • the giving of advance notice of proposed mergers and acquisitions.

However, the SRA has broad discretion in how to comply with the directions, and the devil may well prove to be in the detail. The SRA's representations during the process indicate that it wants to take a flexible and risk-based approach rather than taking on a wider supervisory role:

  • 'proportionate' reviews of changes to firm structures, although "we don’t think this means that we should look at every sale merger or acquisition in the sector"
  • a 'risk-based approach' to monitoring the financial health of firms. "A step up in monitoring financial stability of players in our regulatory scope would be a vast and complex, and potentially not very illuminating, endeavour"
  • the SRA also proposes to apply greater scrutiny to firm structures, with high volume consumer claims firms likely to be first under the microscope, although "no set of arrangements can identify every risk or detect every piece of intelligence"

For now, we will need to wait and see how the SRA proposes to implement the directions.

For more insights from the RPC team into solicitors' regulation, plus in-depth analysis of developments in lawyers' liability, please sign up to our big sister Lawyers Covered.

This month's edition discusses a Supreme Court decision on limitation in construction negligence claims, a Court of Appeal decision on valuer negligence, a barrister's appeal from a Bar Tribunals and Adjudication Service decision and more.

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.

 

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