In this interview, Anthony explains his experiences at the SRA, how effective regulation works, methods and premises for imposing sanctions and ways regulatory control could improve.
Anthony Armitage was the head of regulatory management at the SRA for 18 months. He is currently the director and managing partner at First Law, a professional consultancy advising organisations on regulatory and compliance functions, generating value through in-house legal teams, and legal services frameworks.
Can you tell us about your time at the SRA?
During my tenure I had occasion to reflect deeply on the purpose of regulation.
Regulatory Management (RM) at the SRA comprises a small, specialist team, with a broad reach and a wide range of skills. The team’s role is to manage the SRA’s relationship with the largest City, national and international law firms and to help develop regulatory approach. The focus of our activities derived from the SRA’s first corporate objective - to set and maintain high professional standards – where the SRA spends 92 per cent of its budget.
As I talked with colleagues, I came across several different iterations of what the core regulatory purpose was, is and should be. I researched the question further and discovered official narrative on mechanisms that are needed to assure ongoing competence of practitioners, and ways to identify poor practice. Strategy papers I studied asked whether more regulatory tools are needed, recognising that initiatives should be evidence and intelligence led. In my mind the key question was, how does an effective regulator gather the evidence needed to exercise regulatory control.
At that point I decided to reach out to colleagues in other sectors, and I picked two regulators who adopt similar models of assessment and grading to inform their decisions on whether to take regulatory action.
The Regulator of Social Housing (RSH) conducts In Depth Assessments (IDAs) on the largest social housing providers, to assess compliance with specific regulatory standards. IDAs involve a mix of desk-top research and on-site work. The outcome is a published report with a graded score ranging from one to four, with one being the highest and four being non-compliant. The biggest success of IDAs, even though they are only carried out on a small cohort of the largest providers, is they drive up standards of compliance, and the whole sector learns from them. They also allow registered providers to showcase their best work.
The Financial Reporting Council (FRC) is the other regulator I looked at. The FRC carries out Audit Inspections to assess and grade specific audits. The inspections involve a file review and interview. Like the RSH a report is published and graded using the same simple range of scores from one to four. The success of Audit Inspections is they hold firms to account, and they encourage firms to remedy deficiencies themselves, without the need for further investigation or enforcement action.
What conclusions did you draw from your research about other regulators?
I concluded that these were two remarkably similar approaches to regulation across two very different sectors. When comparing these tools with the kinds of early-stage assessments used by the SRA, I felt there were significant opportunities to develop new preventative measures to drive up standards of compliance across, not only the RM cohort of the largest law firms, but also to impact on the wider profession.
There is a lot that law firms and the SRA agree on. Both want the profession to be held in high regard, for the public to have trust in them and the advice solicitors give, and that solicitors do a good job by upholding the rule of law, doing the best for their clients and maintaining high professional standards. In this sense, regulators and the regulated have a common interest and for that relationship to work best it must engender a high level of mutual respect. Effective regulation happens when there is a clear understanding of the market sectors in which regulated firms operate and by adapting regulatory approach accordingly.
To understand the importance of flexing regulatory approach, it is helpful to look at the origins of the RM team at the SRA. In 2009, The City of London Law Society (CLLS) issued a considered response to the Call for Evidence of Regulation of Corporate Legal Work. It argued that a ‘one size fits all’ approach is insufficient because of the huge range in types of clients needing legal services, from members of the public to sophisticated corporate entities requiring advice on complex and often multi-jurisdictional matters. That consultation led to the creation of the SRA’s RM team, that understood and had experience of the market in which RM firms operate, and the needs of those firms’ clients.
What do you think is the main purpose of regulation, and how do you achieve that?
Control is the term most used in the definition of regulation. Control can be exercised in two main ways. Through investigation and enforcement, or by prevention and cure. By any measure prevention and cure is a far better option. When regulating lawyers, the most effective means of doing this is through deterrent. The CLLS’s response to the SRA’s financial penalties consultation in 2021 articulated this principle well, by explaining reputation is integral to legal professionals and the SRA should not underestimate the impact of adverse publicity as a lasting deterrent, irrespective of the amount of any fine that may be appropriate in any given case.
For a deterrent to operate effectively, the regulated community must have confidence in the regulator’s ability to identify and act on misconduct. By setting its expectations with clarity the regulator can frame its rules and guidance to help practitioners regulate themselves, furnishing the evidence needed to prosecute through cooperative reporting of alleged breaches when they arise.
There are probably more words devoted the reporting obligations in the SRA’s Codes of Conduct, than any other obligation, contained in six different paragraphs (7.7 and 7.8 of the Code for Solicitors and 3.9, 3.10, and 9.1(d) and 9.1(e) of the Code for Firms). This is not surprising because it is one of the most important professional conduct duties. In the RM team we learned that the quality of reports could vary widely amongst firms, and that an industry of consultants had grown specifically to advise firms on how and when to make reports. Solicitors must be able to justify their decision to report. As a team, we would regularly field queries from firms about how they should determine a serious breach, and whether they should err on the side of caution and make a report, even if in some doubt. If uncertainty creeps into the understanding of the need to report, the extent of regulatory control diminishes.
What role does reporting play in gathering evidence?
The SRA’s thematic review on conduct in disputes in February 2023 found there was widespread misunderstanding and misinterpretation of the existing rules for reporting misconduct. Those rules had been published in 2019, at the same time as the introduction of the new Standards and Regulations, and the guidance around them had not been updated since then. Out of 25 Heads of Department interviewed, more than half were not even aware of the 2019 guidance, and amongst those that did know of it, most found it confusing. The review encourages solicitors to read and understand the existing guidance, without considering the cause of such lack of knowledge.
The review goes on to talk about taking strong action where the SRA finds evidence of misconduct. The evidence the SRA needs to take enforcement action nearly always comes from reports. It is the duty of all solicitors to supply evidence through compliant reporting that acts as the deterrent. However, if the reporting bar is set too low, cases flood in and clog the system, leading to long delays. If the bar is set too high, the ability to evidence allegations of misconduct is lost and public protection is put at risk.
As a trial in 2022, the RM team decided to compare the effectiveness of reports made by firms directly to the investigation team at the SRA, with reports made with RM support before they were officially submitted. We found that an excellent way to balance the competing requirements of reporting promptly and justifying the decision to report, was to remind firms of the specific paragraphs of the Codes of Conduct they were reporting under, and the need for considered analysis and presentation of the evidence available.
From the sample of submitted reports during the trial, all those that had been prepared carefully in this way were recognised by investigation officers as being comprehensive, so that virtually no more evidence was needed to conduct the investigation, or to decide to close the matter. Making investigations easier and quicker through better quality reports enhances the SRA’s function as a regulator, it gives solicitors the confidence to report, and it engenders mutual trust and respect with the profession.
How does the SRA’s ability to impose sanctions impact on its effectiveness as a regulator?
When the SRA was consulting on its fining powers in 2022, an important factor to garner government support for increasing the level of fines the SRA was able to impose on law firms, was the recognition in the Call for Evidence on SLAPPs that regulatory intervention can be as effective as new legislation to control conduct.
The fining power for traditional law firms was subsequently increased from £2,000 to £25,000, just three months later. This was the first time an increase had been sanctioned since the 1970s.
The SRA’s power to impose fines of up to £50m for an individual or up to £250m for a regulated Alternative Business Structure (ABS) has been in force for more than 10 years, and it has operated as a highly effective deterrent during that time, with very few cases of fines being imposed, and none close to the maximum figures. In contrast, having a fining power 10,000 times lower for traditional law firms has virtually no deterrent effect at all, even with the 12-fold increase in 2022. It is very hard to think of any other regulator operating such dramatically different penalties for the same offence, by accident of the status of the regulated entity.
The simple measure of increasing the limit for traditional firms to a figure comparable to the maximum fine for an ABS, would create a powerful and universal deterrent and it would drive-up standards of compliance, at no cost. It would win the respect of the public and of law firms themselves, because by its very nature as a deterrent, it would be understood that its value was in maintaining standards, rather than enforcing against them. It would also make sense of the ongoing narrative, which talks about parity and deterrence as its major themes.
If the sanction does not match the breach, or if there is a perception of disproportionate, unequal or unfair treatment at the enforcement stage, solicitors may not have the requisite underlying motivation to report, and much of the effort expended on educating the profession on its reporting obligations is liable to be wasted.
Do you think there is anything the SRA can do to improve or operate more effectively?
There has been much media commentary asking how the SRA allocates its resources and whether it delivers value for money. Criticism has been directed at the outcome of hearings at the Solicitors Disciplinary Tribunal, over which the SRA has no direct control. The SRA does, though, have a choice on whether to refer cases to the SDT in the first place. Questions have been asked whether the regulatory process is fit for purpose, by highlighting how enforcement is more successful at the junior end of the profession, and there are calls for fundamental reform of how the SRA regulates.
Against this backdrop, it is worth reminding ourselves that there are opportunities for the SRA to improve the way it regulates, by taking a leaf from the book of other regulators. Investigations like In-Depth Assessments and Audit Inspections are obvious examples. The critical output from these is the gathering of evidence and the grading of compliance. There is in fact already a precedent from the SRA – AML Supervisory Visits to law firms. These involve a site visit and an examination of client files, and they can result in guidance and recommendations to the firm, or further investigation and enforcement action.
Such assessments serve the dual purpose of driving up standards through a degree of self-regulation and by deterring future breaches. Together these benefits fulfil the parallel advantage of enhancing the regulated provider’s professional reputation. It is a win-win approach that can be adapted to suit many different regulated sectors.
If a regulator can demonstrate its grounding in the three Rs of regulation it has made a big leap towards the goal of good regulation.
Rigorous: gather evidence needed for investigations through professional assessments and reporting
Robust: create deterrent by defining where the compliance threshold lies
Respected: gain the profession’s respect by setting and applying proportionate sanctions
Angela Jack dissects the recent ruling in Lidl Great Britain Ltd & others v Tesco Stores Limited & others  EWHC 873 (Ch)
Billions of pounds in NHS damages claims could have been avoided had recommendations from past reviews been followed by action, argues Kerstin Scheel
Laurence Howland explores the mechanisms of Chinese underground banking and the red flags
Chris Marston explores the ways in which law firms can establish a powerful collaborative culture
The Solicitors Journal spoke to James Fulforth, Kingsley Napley’s newly appointed Senior Partner, about his experiences in the law, his thoughts on the UK’s tech sector and what he hopes to achieve in his new role
Sophie Cameron takes a look at the news in the April Foreword