Economic Crime and Corporate Transparency Act: the removal of the statutory cap on financial penalties for the Law Society, as delegated to the Solicitors Regulation Authority
Updated 1 March 2024
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Why is the government acting?
The Solicitors Act 1974 and the Administration of Justice Act 1985 include powers vested in the Law Society, as delegated to the SRA, to regulate solicitors and law firms in England and Wales. One of these powers includes the SRA directing a person to pay a penalty if they fail to comply with the requirements set out under the acts, or with the rules made by the Law Society or if a solicitor commits professional misconduct.
The financial penalty limit for the SRA is £25,000, as set out in primary legislation. Other frontline regulators are not bound by the same statutory limits and can amend the level of financial penalties without secondary legislation. As a result, the government wants to align the SRA more closely with other regulators to ensure the SRA has the necessary enforcement powers and can levy financial penalties that act as a credible deterrent in relation to economic crime matters. When the SRA believes a financial penalty above £25,000 is applicable to a case, the process of referring cases to the SDT is time-consuming and resource intensive due to having to participate in any hearings.
The crisis in Ukraine has put the legal services sector and regulatory regime in the spotlight, owing to the role the sector plays in upholding the sanctions regime. The legal services sector was assessed in HMT’s National Risk Assessment of money laundering and terrorist financing1 (2020) as at high risk of abuse for money laundering purposes, and to risks such as fraud or breaches of sanctions legislation. We need to ensure that legal services regulators have the powers they need to tackle economic crime.
What is the government going to do?
The government is removing the maximum financial penalty the Law Society, as delegated to the SRA, can direct a person to pay for disciplinary matters relating to economic crime. This will apply to traditional law firms, sole solicitor’s practices and regulated individuals. However, limits on financial penalties in the Legal Services Act 2007 (Licensing Authorities) (Maximum Penalty) Rules 2011 for alternative business structures, which apply to all ‘Licensing Authorities’, will remain unchanged.
This change does not affect the SRA’s current powers to impose non-monetary penalties, such as issuing rebukes. The SRA is required to consult with the SDT before making rules in relation to its enforcement powers and to engage with the Legal Services Board to agree the changes to regulatory arrangements.
Who will this apply to?
The removal of the statutory limit of financial penalties in relation to economic crime applies to the Law Society’s powers, as delegated to the SRA.
This will impact solicitors and traditional law firms as cases may be considered by the SRA, rather than the SDT.
When will this come into effect?
Implementation will proceed following Royal Assent of the bill.
Once the change comes into effect the SRA will consult with the SDT on the levels of financial penalty it can set, which will then require the LSB’s approval.