SRA consults the legal sector on proposed changes to their fining framework

Guest article written by Will Sefton and Victoria Lawman at RPC

First published on RPC's website on 30 July 2024. 

The SRA is conducting a consultation from the 28 June to 20 September 2024 on their proposed changes to the SRA Fining Guidance. The regulator is seeking feedback in response to the new unlimited fining powers granted under the Economic Crime and Corporate Transparency Act (ECCTA 2023).

The ECCTA 2023 grants the SRA unlimited fining authority for misconduct related to economic crimes, a significant increase from their previous limit of £25,000. 

Under the current finding guidance, fines are determined based on the nature and impact of the misconduct, categorized into bands A to D, with A capturing the least serious misconduct and the subsequent bands capturing progressively more serious misconduct. The guidance also considers mitigating and aggravating factors separately after identifying an indicative fine. The SRA may reduce an indicative fine by up to 40% for mitigating factors. If the indicative fine exceeds £25,000, the case must be referred to the SDT, which has unlimited fining powers.

The SRA is now contemplating updates to the fining guidance to strengthen the deterrent effect of fines. They have raised concerns that the current guidance lacks clarity and fails to adequately differentiate between conduct that is "intentional, grossly negligent or reckless, continued after it was known to be improper, or formed a pattern of conduct" and conduct without these characteristics. The proposed updates aim to enhance the deterrent impact of fines and increase their punitive nature for serious misconduct.

In summary, the proposals include the following changes: 

• Introduction of two new penalty bands, E and F. Previously, fines for misconduct under Band D could reach up to 5% of annual domestic turnover. Now, fines for misconduct under Band F could invite an indicative fine ranging from 11% to >25% of annual domestic turnover. The open ended indicative fine in Band F reflects the SRA's new unlimited fining powers and the discretion of decision makers to issue fines as they see fit in the circumstances.
• Updating the scoring framework that assigns a score based on the nature and impact of misconduct. The cumulative score determines the appropriate penalty band. The SRA proposes updating the framework to include scores for misconduct causing "severe" or "very severe" loss or impact. These higher scores would place such misconduct into the new penalty bands E or F, resulting in significantly more punitive fines.
• Implementing minimum fines for each penalty band, with a minimum fine of £5,000 for the least serious misconduct in Band A.
• Enhancing clarity on when the SRA may base fines on metrics other than annual domestic turnover. Currently, fines can be based on global turnover in "exceptional circumstances." The SRA proposes introducing illustrative examples to clarify when this may occur.

Although the SRA's unlimited fining powers are limited to economic crimes, the proposed changes to the fining framework would affect the assessment of all types of misconduct, including non-economic misconduct. The SRA consultation papers reads: 

Many of the cases in Band E and F are likely to be for serious misconduct involving economic crime, although other serious misconduct might also fall into these bands.

According to the consultation paper, such 'other' serious misconduct may include that which jeopardises the public trust in the legal profession, such as misconduct relating to SLAPPs.  Indicative fines identified by the SRA in the higher bands, E and F, could result in recommended fines of over 25% of global revenue. While the SRA will not have the authority to issue these fines in relation to 'other' serious misconduct, they will be able to refer such cases to the SDT. The consultation paper paints a picture of a radically re-imagined enforcement landscape which will no doubt alarm firms across the board.