AN INDEPENDENT review has revealed that regulators 'missed opportunities' to intervene ahead of the collapse of PM Law, the company which owned Cumbrian firm Butterworths.
The report found that the Solicitors Regulation Authority (SRA) missed opportunities to identify issues at PM Law earlier because it failed to bring together information held across the wider PM Law Group.
As a result, decisions were made using incomplete information and without a full understanding of the level of risk involved.
The review also concluded that capacity pressures within the organisation limited the SRA's ability to respond to emerging concerns as quickly as it should have, although it noted that operational staff were generally skilled, dedicated and collaborative.
The report was published by the SRA, and conducted by law firm Jenner & Block LLP.
Anna Bradley, chair of the SRA Board, said: "The PM Law report makes for difficult reading.
"We are particularly sorry for the impact this has had on former clients of the firm and accept we should have done better by them.
"The board is disappointed that we missed opportunities to act on PM Law sooner given the work we have already done to change the way we regulate.
"We will publish a draft three-year strategy later in the year, which will incorporate the lessons from these reviews and map out our plans for further change."
Commenting on the findings, Law Society of England and Wales president Mark Evans said: “The independent review paints a bleak picture of the regulator missing several opportunities to act sooner on the risks PM Law presented.
“Once again, the profession as a whole – solicitors and law firms – has had to shoulder the financial consequences through a substantial increase in contributions to the Compensation Fund, costing approximately £30million.
"The Fund provides vital protection for clients and consumers, but the cost of regulatory failings should not continue to fall on the wider profession.
“It is clear from the report that the SRA needs to take urgent action. While steps are already being taken by the SRA, meaningful reform needs to be delivered swiftly to prevent yet another failure of this scale from happening again.
“The public and solicitors benefit hugely from a well-regulated legal profession. It is the foundation of the legal sector’s success nationally and internationally, but repeated failures by the regulator chip away at the confidence in our sector.”
PM Law collapse
The PM Law Group collapsed on February 5, which resulted in the closure of Cumbrian solicitors firm Butterworths.
Following the closure, the SRA launched an investigation into potential fraud and misappropriation of money.
After the investigation, the SRA announced that Jonathon Bostock was banned from working at law firms.
Bostock was head of finance and PM Law's compliance officer. He had allowed improper client account withdrawals and had fabricated account balances, according to the SRA.
Bostock, who is not a solicitor but a chartered accountant, was also ordered to pay £1,350, the SRA said, with its wider investigation "ongoing".
The SRA previously said as much as £39.5million in client money could be missing from the PM Law group, which entered voluntary liquidation on March 3.
South Yorkshire Police also confirmed a review of the case is ongoing.
Next steps
The SRA has published an independent assurance review, conducted by the Berkeley Partnership.
The body said it is already implementing reforms in response to the PM Law findings, focusing on tighter oversight of client money, greater use of data and intelligence to identify risks earlier, and organisational changes to improve capacity and decision-making.
Measures include new rules around client money, enhanced monitoring of firms holding large sums for clients, development of data-led supervision tools, and a review of litigation and enforcement processes to improve efficiency and ensure risks are identified and addressed more quickly.
Anna Bradley said: "The independent assurance report from the Berkeley Partnership illustrates the progress we have made. But we always knew that this programme of work was going to take significant organisation-wide change, and the Jenner & Block findings make it clear that we have much further to go."
Sarah Rapson, chief executive of the SRA, said: "Our focus, first and foremost, is on protecting consumers affected by criminal conduct and making sure they are properly supported. However, this case and this report also reinforce the need to reset the way the SRA regulates.
"Too often, action has been taken only after consumers have experienced harm. This exposes the limitations of a regulatory model that remains too dependent on enforcement after the event rather than prevention before it occurs.
"Work to shift the SRA to a more proactive footing was underway when I arrived, but it became clear quickly that we needed to go further and faster. The findings from the independent review further reinforce the priorities the organisation has set and accelerate the need to shift away from a reactive, enforcement-led model to become a modern, proactive and effective regulator. This will take time but it is the priority."
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