Independent review reveals SRA needs major change to improve consumer protection

An independent review of the Solicitors Regulation Authority’s (SRA) handling of the Axiom Ince (Axiom) fallout, commissioned by the Legal Services Board (LSB), reveals a catalog of errors and missed opportunities by the SRA.

When the SRA finally acted, around £64 million had been stolen from Axiom* customer accounts.

Following the SRA’s regulatory handling of these events, the LSB commissioned an independent law firm, Carson McDowell, outside the jurisdiction of England and Wales, to review the SRA’s actions. The review found that:

• the SRA failed to act appropriately, effectively and efficiently
• the SRA did not take all the steps it could or should have taken, and
• The SRA’s actions and inactions in this matter require changes to its procedures to mitigate the possibility of a similar situation arising again.

Richard Atkinson, president of the Law Society representing the profession, commented:

“The independent review paints a vivid picture of the SRA’s inadequate and ineffective handling of Axiom.

“As a result of the SRA not taking all the action it could or should have taken, Axiom was able to act without intervention, resulting in the loss of money and great distress for its customers.

Ultimately, it has fallen to the profession as a whole – lawyers and law firms – to bear the cost by substantially increasing contributions to the Compensation Fund, which is a vital protection for clients and consumers**.

“While the events leading to Axiom’s collapse were unfolding, the SRA focused on increasing its powers to impose fines and propose regulatory expansion rather than addressing the known risks of accumulator-style companies and ensuring their operations were united and focused. in protecting consumers. The report makes clear that the SRA had the funds, staff and powers to take the necessary steps to prevent the alleged irregularities.

“The problems identified in the report can be fixed, but the LSB must insist that the SRA gets its house in order and that the SRA’s management and governance focus on its core responsibilities.

“As part of the SRA’s consumer protection review***, we have identified areas where the SRA can make improvements, which will help reduce risk and give customers and consumers better protection should something go wrong. bad in a regulated company. We hope that the SRA will act quickly on these recommendations.

“The public and lawyers benefit greatly from a well-regulated legal profession. It is the basis for the success of the legal sector at a national and international level and is vital consumer protection.”

Key areas of failure identified in LSB independent review

The SRA had multiple opportunities to prevent or limit Axiom’s collapse and its detrimental consequences.

Axiom was a relatively new and uncommon type of law firm, known as an “accumulator.” Before Axiom’s collapse, two other battery companies had also collapsed due to financial problems.

SRA staff raised concerns about the risks to customers of these companies, but little or no action was taken to ensure these risks were acted upon.

If they had been, the alleged fraud could have been stopped at a much earlier stage, dramatically reducing consumer losses.

In October 2022, the SRA investigated a report of unusual transactions involving an Axiom lawyer.

In its investigation, the SRA failed to follow its own procedures by failing to confirm details with Axiom’s banks.

This error was not detected by routine administrative monitoring. Had it followed the procedure, there is a strong possibility that inconsistencies between Axiom’s false claims about its banking holdings and reality would have been discovered sooner.

Two of the companies Axiom acquired in early 2023 were under the supervision of the SRA. Both were in financial difficulties and the SRA was overseeing a closure or managed sale process.

Within a matter of months, the SRA authorized the sale of both firms to Axiom. They did so without any due diligence or serious investigation into Axiom and the origin of its funds.

If they had done so, then any misconduct would have been identified sooner and losses to customers would have been reduced.

In July 2023, losses in Axiom customer accounts were finally discovered, largely due to the diligence of individual SRA staff. This discovery led only to a partial intervention by just three lawyers at the firm in August 2023.

The SRA’s failure to protect the client’s account resulted in the loss of a further £36 million of client money, leading to the dilution of remaining client accounts and increasing the number of victims who lost money.

The SRA only fully intervened in Axiom and closed the company in October 2023.

Notes to the editor

1. The SRA has complete operational independence from the Law Society, but its members pay the SRA from their Practicing Certificate fees and also pay into the Compensation Fund which supports victims of dishonesty.
2. Axiom was a so-called “accumulator” company, that is, a small company that expanded rapidly by purchasing other companies with external financing (sometimes, as was the case with Axiom, companies in financial difficulty).

*The Serious Fraud Office (SFO) is carrying out a criminal investigation over suspected fraud at collapsed law firm Axiom Ince.

**Read our response to the LSB confirming the increase in the Compensation Fund rate

***Read our response to the SRA’s consumer protection review discussion paper.

About the Law Society

The Law Society is the independent professional body working globally to support and represent solicitors, promoting the highest professional standards, the public interest and the rule of law.

Press Office Contact: Meera Khanna | 020 8049 3957 or Naomi Jeffreys | 020 8049 3928