The Solicitors Regulation Authority (SRA) has started to evaluate the data on around 2,000 firms’ finances following a fact-finding survey.
Firms included in the survey included those working in areas that are experiencing particular economic pressures, such as personal injury or legal aid, and around 500 ‘high impact’ firms, those which would have a significant impact on the regulatory objectives if they were to fail.
It is hoped the data will give a clear picture of issues affecting firms so that it can target the resources in its financial stability programme accordingly.
The data requested focused on net profit (at the last financial year end), total borrowings, and highest and lowest bank balances for each of the last three months.
Around 700 of the firms surveyed were already being actively supervised by the SRA.
Of the 1,300 contacted, around 1,000 firms supplied the requested information or applied for an extension by the 3 September deadline. Of the firms that responded, around 50 per cent did not score at all on any of the financial indicators, suggesting there is no evidence of financial difficulty requiring engagement at this stage.
Mike Haley, SRA Director of Supervision, said: "We contacted these firms not because we know they are experiencing financial difficulties, but to build our understanding of the current position so that we can target our resources at those who most need our help.
“Engaging with firms at the earliest opportunity is the best thing to do, and this will allow us to know where we need to do this.
"We’ve already had numerous examples of better outcomes for firms and clients when firms in financial difficulty have come to us. By surveying firms in this way, we are able to make our approach even more risk-based, and hopefully avoid the disruption caused by intervention."
Firms demonstrating indicators of financial difficulty will be contacted as part of supervisory engagement and according to the level of risk they pose.
Those firms that have failed to provide the requested information will be encouraged to provide it before potential enforcement action is initiated.
The SRA has created dedicated web pages for firms as part of Chapter 7 of the Handbook to help keep a tab on finances, including a list of good and bad behaviours. The pages can be found here.