Enforcement action begun against SRA following Axiom Ince review

An independent review of the Solicitors Regulation Authority’s (SRA) actions before it closed law firm Axiom Ince Limited has led to the Legal Services Board (LSB) initiating enforcement action against the SRA.

When Axiom Ince stopped trading in October 2023, approximately £60 million in client money was missing and approximately 1,400 people lost their jobs.

The LSB commissioned Carson McDowell LLP, a Northern Ireland firm of solicitors not regulated by the SRA, to carry out an independent review into the SRA’s handling of Axiom Ince. The aim of the review was to provide assurance to the LSB in the interests of public and professional confidence and to identify any learning based on an independent assessment of the facts.

The review found that, in the lead-up to the SRA closing Axiom Ince in October 2023:

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

The LSB Board has considered the independent report and its findings. In the light of the impact on the achievement of the regulatory objectives set out in the Legal Services Act, which include promoting the public interest and protecting the interests of consumers, the Board decided to initiate action in accordance with its enforcement policy. Having considered all the options available to it, the Board agreed to initiate the process to set directions under section 32 of the Act. The directions, if imposed, would be aimed at requiring the SRA to make changes to better achieve the regulatory objectives.

Under the Act, the LSB must consult the Lord Chancellor, the Competition and Markets Authority, the Legal Services Consumer Panel and the Lady Chief Justice before imposing directions. The SRA and the Law Society will have opportunities to make representations before any final decision is taken as to whether directions should be imposed, and if so, in what terms. Alan Kershaw, Chair of the Legal Services Board, said:

“The Axiom Ince case has caused significant consumer detriment. Our decision to commission a thorough independent review reflected the importance of understanding the SRA’s actions leading up to its intervention in the firm. It was essential to uncover what went wrong to reduce the risk of it happening again. The review found that the SRA did not act efficiently and effectively or take all the steps it could and should have, to lessen the impact of what had occurred. The SRA’s actions and omissions have in our view adversely impacted on confidence and trust in the regulation of legal services.

This review shines a light on issues that may have a bearing across the wider regulated sector. We will continue working closely with the SRA and the other regulators we oversee in the public interest to protect consumers and to uphold confidence in the way in which legal services in England and Wales are regulated.”

The LSB will now act in accordance with the statutory process applicable under the Act and will not comment further until the conclusion of that process. The LSB will also consider what learnings can be applied to its own approach to assessing regulators’ performance in future. Richard Atkinson, Law Society president 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’s failure to take all the steps it could or should have taken, Axiom was able to act without intervention, leading to money going missing and huge distress to their clients. Ultimately, it has fallen to the profession as a whole – solicitors and law firms – to shoulder the cost through a substantial increase in contributions to the Compensation Fund, which is a vital protection for clients and consumers.

While the events leading to Axiom’s collapse were happening, the SRA was focused on increasing its fining powers and proposing regulatory expansion rather than tackling the known risks from accumulator style firms and ensuring its operations were joined up and laser focused on protecting consumers. The report makes it clear the SRA had the funding, staff and powers to take the necessary action to prevent the alleged wrongdoing.
“The problems identified in the report can be fixed, but the LSB must insist that the SRA puts its house in order and that the SRA’s management and governance concentrates 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 provide clients and consumers with better protections in the event of things going wrong in a regulated firm. We hope to see the SRA acting quickly on these recommendations. The public and solicitors benefit hugely from a well-regulated legal profession. It is the foundation of the legal sector’s success nationally and internationally and it is a vital consumer protection.”

Philip Barden, partner at Devonshires, who acts for the remaining Axiom directors and the administrators, said:

“It’s important for people to understand that the remaining 12 Axiom directors are completely innocent and knew nothing about any misconduct or fraud that was happening at the firm. They spent six weeks working around the clock to mitigate the impact of the fraud on clients and staff, and through their efforts clients were rehoused and more than 1,100 jobs were saved.

Action is being taken to recover as much of the £64 million losses as possible and we are hopeful of a significant recovery although the process is complex and may take some time to achieve.”