ECCTA and the SRA’s unlimited fining power: how far does it really extend?

Without fanfare, the SRA has this month submitted a formal application to the Legal Services Board (“LSB”) seeking approval of revised guidance on financial penalties given to it by the Economic Crime and Corporate Transparency Act 2023 (“ECCTA”).

The guidance looks, at last, to bring into effect the SRA’s new power to impose unlimited financial penalties for certain conduct connected with economic crime, without referral to the Solicitors Disciplinary Tribunal (“SDT”). This applies to breaches that occurred after the enactment of the ECCTA, that is those that arose on or after 4 March 2024.

The SRA’s previous consultation proposals, in 2024 (can you believe it was that long ago?!) generated sufficiently strong (adverse) feedback from the profession that the SRA ultimately withdrew them and, rightly, reconsidered its approach. While much of the rhetoric around the implementation of the new powers has focused on the size of the penalties that will soon be available to the SRA, the more interesting question, for us at least, is the scope of the power conferred by the ECCTA.

A quick recap

Prior to the enactment of the relevant ECCTA provision (section 207(1)), the SRA’s fining powers for recognised bodies and solicitors were capped at £25,000, with referral to the SDT required for the imposition of higher fines. ECCTA changed that, giving the SRA the power to impose an unlimited financial penalty for certain conduct connected with economic crime, as defined by the ECCTA (referred to here as “economic crime breaches”).

As with its existing fining powers, the SRA has not lost the ability to refer economic crime breaches to the SDT, so the same economic crime breach may now be dealt with directly or by the SDT, entirely at the SRA’s discretion.

More discretion, less consistency?

Now that the SRA can impose unlimited fines for certain economic crime issues, the question of whether it deals with a matter itself or refers it to the SDT carries considerably more significance than it previously did.

As under the current fining framework, the SRA retains discretion to refer a case to the SDT where it considers it to be more appropriate (i.e. in more serious cases or where facts are disputed). In its application to the LSB, the SRA indicates that in future, where conduct falls within the scope of ECCTA and it determines such conduct to warrant a fine above £25,000, the usual approach will be for that fine to be imposed directly by the SRA rather than refer the matter to the SDT (paragraph 11 of the application): a presumption as to the use of internal fining powers.

In cases where the facts and matters alleged are accepted, the additional head room for internal fines may be advantageous for firms, allowing matters to be resolved quickly and at lower cost. The same cannot be said for a firm that disagrees with the decision maker’s assessment of seriousness or penalty. Given the size of financial penalty now available to the SRA, firms who dispute its findings may wish to have had the reassurance of an independent SDT decision. Whilst there exists a right to appeal most SRA enforcement decisions to the SDT, the nature of an appeal hearing is very different to a first instance one, not least because on an appeal the SDT is confined to reviewing the SRA’s sanctioning decision, rather than hearing the case afresh.

There is also a question over how the SRA will choose to resolve matters where there is a mixture of economic crime-related breaches which can be dealt with under the new power, and non-economic crime breaches for which it is limited in its ability to impose financial penalties.

Analysing the source of the new power

The SRA’s new discretion carries considerable implications and has prompted serious questions about whether the power will be used as Parliament envisaged.

The ECCTA does not create a new standalone fining power. Instead, it is parasitic upon the SRA’s existing power under s44D(1) of the Solicitors Act 1974, which provides that a reprimand or financial penalty may be issued if the SRA is satisfied that either a solicitor / employee of a solicitor has failed to comply with a requirement imposed by or by virtue of The Solicitors Act 1974, the Administration of Justice Act 1985 or rules made by the SRA, or that there has been professional misconduct by a solicitor.

To this provision, the ECCTA overlays a new power to impose an unlimited fine where the conduct additionally falls within one of three new grounds. It is important to note that the new grounds do not displace the gateway requirements in s44D(1).

Where does all of that leave us?

The manner in which the SRA exercises its new powers will rightly be subject to close scrutiny. Jurisdictional questions ought to feature in that analysis. That the regulated community is prepared to push back is clear: several high-profile challenges in the past year have demonstrated that they will not hesitate to challenge SRA action that strays beyond the lawful boundaries of its statutory powers.

Let’s not begin to consider the impact on all of this of the planned transfer of responsibility for supervision of the MLRs to the FCA…

If you need guidance on any of the issues outlined in this article, contact our legal services regulatory specialists.