Independent review has found SRA’s handling of Axiom Ince to be inadequate and ineffective

By the time the SRA finally intervened in October 2023, approximately £64 million had been withdrawn from Axiom Ince customer accounts.

The LSB, the regulator for legal services in England and Wales, commissioned an independent review into the SRA’s regulatory approach to these events.

An independent law firm outside the jurisdiction of England and Wales, Carson McDowell, was appointed to review the SRA’s actions.

The independent review found that:

• The SRA did not function appropriately, effectively and efficiently
• The SRA failed to take all the steps it could or should have taken, and
• his actions and omissions require changes in procedures to reduce the possibility of a similar situation occurring again

What this means for lawyers, clients and companies

“The independent review paints a vivid picture of the SRA’s inappropriate and ineffective handling of Axiom,” said Law Society president Richard Atkinson.

“As a result of the SRA failing to take all the steps it could or should have taken, Axiom was allowed to operate without intervention, resulting in the loss of money and enormous suffering to customers.

“Ultimately, it is the profession as a whole – solicitors and law firms – that has borne the costs by significantly increasing contributions to the Compensation Fund, which provides vital protection for clients and consumers.

“While the events leading to the collapse of Axiom were taking place, the SRA focused on increasing its financial penalty powers and proposing an extension of regulation, rather than eliminating the known risks from battery-style companies and ensuring their operations were connected and laser-focused on protection consumers. “

What should happen next?

The report makes it clear that the SRA had the financial resources, staff and powers to take the necessary action to prevent the alleged abuses.

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

The SRA is the independent body that regulates the solicitor profession. Its role is to regulate the activities of solicitors and law firms in the public interest.

As a professional body for solicitors, we represent and advise on behalf of the profession and engage with decision-makers on key issues.

Under the Legal Services Act 2007, although the Law Society has the title of “Approved Regulatory Authority”, the decisions and actions of the SRA in carrying out its regulatory functions are fully independent of the Law Society.

We welcome the LSB’s decision to initiate a process to take enforcement action against the SRA.

As the professional body for solicitors, we will make representations to the LSB in the normal way.

How consumer protection can be improved

As part of the SRA’s review of consumer protection, we have identified areas where the SRA can make improvements. This includes:

• conducting more effective horizon scanning, which allows for earlier identification of potential threats
• review of intelligence sharing with third parties
• reviewing the process by which the SRA monitors and supervises companies
• better regulatory oversight of customer accounts, including regular review of companies’ accounting reports (regardless of whether the reports indicate issues of concern)

We have raised concerns with the SRA that it has not reviewed the financial statements of several companies over several years.

We hope that the SRA will act quickly on these recommendations and those in the independent review report.

Making these improvements will help prevent problems from occurring, help reduce risk and give customers and consumers better protection if something goes wrong at a regulated company.

While the concerns raised by the review are serious, they can be addressed provided SRA management refocuses its energy on carrying out its core responsibilities of protecting consumers and ensuring confidence in the legal profession.

Key areas of failure identified by the independent review

The SRA had many opportunities to prevent or limit the collapse of Axiom Ince and its harmful consequences.