2024 started with uncharacteristically decisive action from the Solicitors Disciplinary Tribunal (SDT), when in January it issued its joint highest-ever fine against Clyde & Co, following a slew of anti-money laundering breaches. It was a bold move from the regulator, which in recent months has drawn criticism over its perceived lack of action during the collapse of Axiom Ince.
As the fallout from Axiom Ince continues, both the Solicitors Regulation Authority (SRA) and the Legal Service Board (LSB) have announced reviews into the handling of Axiom Ince in the run up to the SRA’s intervention. Both regulators have highlighted the need to centre consumer protection in their regulatory approach, as the scandal threatens to derail confidence in the profession.
More recently on 13 February, the Serious Fraud Office (SFO)’s new director has set out his stall for a more aggressive approach to tackling suspected fraud.
Anti-money laundering crackdown at the SDT
In January, the SDT fined Clyde & Co £500,000, and the firm’s former partner Edward Mills-Webb £11,900, for anti-money laundering breaches.
In its admissions, Clyde & Co admitted to breaching several anti-money laundering regulations including failing to carry out adequate customer due diligence (CDD) on a client and failing to carry out adequate ongoing monitoring of the same client.
Meanwhile, Mills-Webb admitted to materially contributing to Clyde & Co’s failure to carry out adequate CDD checks and materially contributing to Clyde & Co failing to take adequate steps to check what ongoing monitoring of the client was being carried out.
The £500,000 fine is the joint-highest fine ever issued by the SDT, matching the £500,000 issued against Locke Lord in 2017 after it failed to properly supervise partner Jonathan Denton. Denton was involved in potentially dubious investment schemes and was struck off in April 2018.
Prior to this, the highest fine given out by the SDT in relation to money laundering offences was in 2014 when Fuglers was fined £75,000 after allowing Portsmouth FC to use its client account as a bank account.
‘We don’t yet have the answers, but we are asking the fundamental questions. Is it affordable for the compensation fund to continue to provide such comprehensive protection?’ Anna Bradley, SRA
Commenting on the fine, Legal 500 Next Generation Partner for professional discipline, Andrew Pavlovic of CM Murray, notes: ‘The size of the fine is particularly significant considering the conduct was self-reported, and there was no evidence that the relevant transactions did actually facilitate money laundering or financial crime.’
‘However, there were clearly a number of risk areas associated with the work and the failure to undertake the required due diligence appears to have persisted over a number of years, notwithstanding repeat transactions,’ he adds.
In a changing regulatory landscape, firms will need to double down on anti-money laundering (AML) procedures or risk facing substantial fines. ‘This sets a precedent regarding the seriousness with which the SRA and SDT will assess AML failures. AML has been a consistent focus of the SRA for several years now and the size of this fine indicates the necessity of firms having robust due diligence and file opening procedures,’ Pavlovic explains.
‘Now that the SRA has the power to issue unlimited fines for failures to detect or prevent economic crime, this development serves as a timely reminder of the potential for large-scale fines,’ he adds.
In a statement Clyde & Co said: ‘Clyde & Co sincerely regrets any compliance failings – relating to a series of client shipping transactions that we identified in 2018 – which led to this hearing. Having reported the issue to the SRA, we fully assisted with its investigation and have sought to learn appropriate lessons.
‘Under the firm’s current leadership, we have significantly enhanced our risk management and regulatory compliance capabilities, including restructuring our in-house risk and legal functions; appointing a head of financial crime; and further enhancing our processes, policies, levels of oversight and training.’
The statement concluded: ‘We hold ourselves to the highest professional and ethical standards and take responsibility for ensuring we meet them. This SDT determination is a reminder that regulatory compliance and risk management requires continuous, diligent attention. Our senior management is fully committed to ensuring firm-wide adherence.’
SRA consumer protection review
In the wake of the Axiom Ince debacle, the SRA announced on 5 February that it would be conducting a consumer protection review.
Citing ‘shifting risks in the sector’, the SRA highlighted that it has experienced an escalation in the number of interventions it is conducting. In 2023 it undertook 65 interventions up from 25 in 2022. Added to this, the profile of the firms it is intervening in has changed. Historically, interventions tended to be carried out into smaller, high street firms. However, in recent years the regulator has increasingly intervened into larger firms such as Axiom Ince. As the SRA notes, in these instances ‘the scale of the impact on consumers is much greater’.
The review will consist of two parts. Firstly, it will look at how to ‘reduce the risk that something goes wrong at a regulated law firm that causes harm to consumers’. To achieve this, it is proposing to examine how it identifies risks, monitors and approves firms and its rules and controls around firms holding client money.
In the second part, it will consider its compensation fund arrangements. With the SRA’s compensation fund facing a significantly higher number of claims following the Axiom Ince fallout, the SRA is being forced to consider how to ‘get the balance between appropriate protections for consumers’ and ensuring that its approach does not ‘push the cost of legal services up by too much’.
Anna Bradley, chair of the SRA board, said in a statement: ‘We are coming at this with a wide lens – we want to hear as many views as possible. We don’t yet have the answers, but we are asking the fundamental questions. Is it affordable for the compensation fund to continue to provide such comprehensive protection? Should we continue a model where all firms can directly hold client money? Do we need more checks around firms that are buying up others?’
‘This is the right time for a comprehensive review to make sure we can maintain confidence and trust in legal services,’ she added.
Ian Jeffery, chief executive of the Law Society of England and Wales, said of the move: ‘We welcome the launch of this review which is timely in light of the serious consequences of the collapse of Axiom Ince. It is right that consumer protection and the compensation fund are the two main points of focus.’
LSB review
The SRA’s consumer protection review follows the LSB’s 20 December announcement that it would be reviewing the events leading up to the SRA’s intervention into Axiom Ince.
Acknowledging that Axiom Ince’s collapse caused ‘considerable consumer detriment’, the LSB’s board said: ‘It will be important for public and professional confidence that any learning can be identified with independence, and that any conclusions that may be drawn are based on an objective assessment of the facts.’
The full terms of reference for the review were published on 24 January. They include a remit to consider ‘the adequacy of the SRA’s relevant rules and policies with regard to the supervision of Axiom Ince, and the extent to which they were implemented’ and ‘the SRA’s policies and procedures in relation to “accumulator firms”, the manner in which the SRA assesses firms and transactions to determine whether they are high risk, and the extent of oversight which the SRA has over higher risk firms and transactions.’
The LSB’s report findings are set to be published in the spring.
Hardline approach
Meanwhile, over at the SFO, which is currently investigating Axiom Ince for suspected fraud, Nick Ephgrave, the former senior Metropolitan Police officer who took over from Lisa Osofsky as head of the regulator in September 2023, set out a tougher stance on tackling fraud in his inaugural speech on 13 February.
‘The size of the SDT fine is particularly significant considering the conduct was self-reported, and there was no evidence that the relevant transactions did actually facilitate money laundering or financial crime.’ Andrew Pavlovic, CM Murray
‘The SFO will be bolder, more pragmatic, more proactive. This means we won’t be afraid to shut down investigations, if it is increasingly apparent it is never going to reach the threshold for charge. We can redirect those resources to cases that have momentum, where there is a greater chance of us getting the person in front of a jury. That has got to be a good use of resources if you ask me. We have to be bold and make these decisions, that’s my message to you,’ Ephgrave said.
‘This is a hard message to you, but we have to do it, otherwise we end up in decade-long investigations. This means more dawn raids and swifter action – we have already gone through more front doors in the last three months than in the last three years.’
Market commentators have been sanguine about Ephgrave’s prospects. Robert Dalling, investigations, compliance and defence partner at Jenner & Block said: ‘The tone of Nick Ephgrave’s speech, with the emphasis on the swift resolution of cases and taking a pragmatic approach, is to be welcomed. It will take time for any new enforcement action strategy to take root. But the circumstances are favourable. In particular, recent reforms to the corporate criminal liability regime, introduced by the Economic Crime and Corporate Transparency Act 2023, should support the new director’s strategy.’
John Binns, a white-collar crime partner at BCL Solicitors observed: ‘The SFO’s name has not always been synonymous with good prosecuting. We’ve seen a hard few years of high-profile errors and worse, and all of us hope that this trajectory can be turned around. Good prosecuting needs expertise, fairness, and resourcing, as well as legal powers. The SFO’s toolbox has never been more packed, with compulsory disclosure, deferred prosecution, and “failure to prevent” offences. But it’s crucial that it uses these wisely.’
‘Will Nick Ephgrave be the man to turn the SFO’s fortunes around? Strange as it seems, defence lawyers are among those keenest to see that come about. A prosecutor that is both efficient and fair, pursuing the right cases and achieving safe convictions, is a result in all our interests,’ he added.
Having laid out uncompromising objectives, the pressure is now on for the SFO, SRA and LSB to deliver on their promises and ensure that consumer confidence in the profession is regained. The question now is whether the approaches set out are all hot air or if the regulators will be able to deliver tangible results.