Law firm closures rise sharply under SRA
By Law News
Law firm closures surge as SRA intensifies oversight on mishandling client money
Data released by Hazlewoods reveals that the Solicitors Regulation Authority (SRA) closed down 43 UK law firms in 2022/23 due to mishandling of client money—a significant 87% increase from the previous year. This stringent regulatory response reflects the SRA’s heightened scrutiny on financial compliance, as evidenced by the October 2023 intervention at Axiom Ince, where £64 million in client funds allegedly went missing. The SRA’s intensified oversight has extended across the sector, including a July 2024 warning notice emphasising the serious consequences of financial mismanagement.
Hazlewoods partner Ian Johnson notes, “The SRA has really stepped up its interventions. Law firms should be conscious of the extra regulatory scrutiny they’re under.” He attributes the SRA’s proactive approach to cases like Axiom Ince, stating, “The SRA will want to be seen to be taking decisive action and has made it clear they will shut firms down for this.”
The rise in closures aligns with mounting financial pressures across the legal sector. Of the 327 law firm closures in the past year, 44 firms were forced to close due to financial stress. High inflation and soaring salaries, especially in city law firms, have exacerbated costs for regional and high-street firms unable to raise their rates. According to Johnson, “Rapid salary inflation has rippled out from City law firms to regional and high street law firms – pushing up their overheads.” He warns that financial strain can lead firms to mishandle client money to cover costs, risking SRA intervention.
An additional 81 firms shut down due to partner retirements, often due to lack of succession plans or inability to sell the firm. Johnson explains, “Senior partners retiring has been the single biggest reason for closures – most of these will be small firms. Succession planning is still a struggle for smaller law firms.”
The report underscores a challenging landscape for law firms amid regulatory pressure and rising operational costs, highlighting the importance of strong financial practices and forward-looking succession planning.