150 firms in 'very significant financial difficulty', SRA says

Samantha Barrass, SRA executive director, has said the regulator has identified around 150 firms "experiencing very significant financial difficulty".

Speaking at the Managing Partner COLP and COFA conference in London this morning, Barrass said firms needed to act quickly when they got into financial difficulty, including "removing or suspending individuals who may have failed to act with integrity".

She warned: "We will not tolerate the reckless trading of firms into insolvency and where this happens we will pursue enforcement action under Principle 8, including referral to the Solicitors Disciplinary Tribunal where appropriate.

"We will also look to other actions, such as conditions on individuals' practising certificates designed to prevent those individuals responsible for exacerbating difficulties at one firm to simply move to another without any consequences."

Barrass went on: "Yes we are taking a hard line on this, and our actions reflect the risks. We believe there need to be strong deterrents for those putting the interests of their clients at risk and imposing costs on the rest of the profession.

"In particular, we fundamentally do not think it is right that firms that are run responsibly, diligently and effectively pick up the tab for those that aren't - which is what happens when firms in financial difficulty do not do all they can to ensure an orderly wind-down."

Barrass also warned that regulator would take "appropriate action" against firms which decided to take a 'wait and see' approach to the referral fee ban, and made no effort to change non-compliant practices.

She said a website which offered to find solicitors for members of the public would be caught by the ban if it gave firms "potential client information", rather than simply forwarding their details to consumers.

Barrass said she was concerned that joint marketing schemes could be used "unintentionally or deliberately" to hide payment of prohibited referral fees.

"Simply re-badging an arrangement with, for example, a claims management company as a joint marketing scheme on the basis that the CMC does some advertising, and possibly changing the charging structure from a payment per case to a lump sum, will not be enough.

"We expect firms to be able to demonstrate that the payments they make can be justified on the basis of the services they are receiving (be that marketing or any other service).

"We will be looking at the substance of the arrangement rather than just how it is labelled."

Barrass added that the SRA wanted to give COLPs and COFAs "maximum flexibility" to carry out their duties in a way that suited their business.

She said that was why the regulator recently announced that it would not require recognised bodies to report non-material breaches, but merely record them.