New risk-spotting plans
Law firms could soon be forced to tell the SRA before they merge with or acquire rival outfits, under fresh proposals from the regulator aimed at identifying potential risk before it blows up into the next big scandal.
The Solicitors Regulation Authority (SRA) has launched a consulation on a new rule that would introduce a list of “prescribed events” firms must flag in real time. Top of that list is M&A activity, with firms required to notify the regulator when they plan to merge with or swallow up another practice. They would also have to give the SRA a heads-up when they start holding or receiving client money for the first time.
The thinking is that these moments are exactly when a firm’s risk profile can shift, and the SRA wants eyes on them as they happen rather than picking up the pieces afterwards.
Aileen Armstrong, the SRA’s executive director for strategy and policy, said the whole point was “gaining earlier visibility of potential risk”. She added that having the right information at the right time would help the regulator proactively spot problems and step in where necessary to prevent harm, including the loss of client money.
“We are initially targeting two areas where stakeholders agree there should be greater visibility of changes in real time,” Armstrong said. “Law firms acquiring other firms and firms starting to hold client money.” She urged the profession to engage with the proposals.
The move is the latest in a run of reforms focusing in on client money. Earlier this month the regulator unveiled new rules requiring every firm holding client money to submit accountants reports, alongside a change stopping those who make big decisions about how a firm is run from doubling up as its compliance officers for legal practice and finance and administration.
Hanging over all of this are the now familiar names of PM Law and Axiom Ince, collapses that the SRA says underline why it needs earlier sight of merger and acquisition activity and other developments taking place behind law firms’ doors.
The consultation is open now and runs until 17 August.
