Monthly Archives: September 2013

SRA examines firms’ financial data

The Solicitors Regulation Authority (SRA) has started to evaluate the data on firms’ finances following a substantial fact-finding exercise.

As part of its programme of work designed to help firms struggling in tough economic times, the SRA contacted around 2,000 practices asking for key financial information. The Authority hopes to add to its picture of issues affecting firms so it can target resources through its financial stability programme.

Data requested focused on such things as net profit (at the last financial year end), total borrowings, and highest and lowest bank balances for each of the last three months. Firms included in the survey included those working in areas that are experiencing particular economic pressures, such as personal injury or legal aid, and around 500 ‘high impact’ firms, those which would have a significant impact on the regulatory objectives if they were to fail.

A number of these firms (around 700) were already being actively supervised by the SRA. For the remaining 1,300, emails were sent to the firms’ COLP (Compliance Officer for Legal Practice) at the beginning of August.

Mike Haley, SRA Director of Supervision, said: “We contacted these firms not because we know they are experiencing financial difficulties, but to build our understanding of the current position so that we can target our resources at those who most need our help. Engaging with firms at the earliest opportunity is the best thing to do, and this will allow us to know where we need to do this.

“We’ve already had numerous examples of better outcomes for firms and clients when firms in financial difficulty have come to us. By surveying firms in this way, we are able to make our approach even more risk-based, and hopefully avoid the disruption caused by intervention.”

Of the 1,300 emailed, around 1,000 firms (77 per cent) supplied the requested information or applied for an extension by the 3 September deadline. Of the firms that responded, around 50 per cent did not score at all on any of the financial indicators, suggesting there is no evidence of financial difficulty requiring engagement at this stage.

Those firms that are demonstrating indicators of financial difficulty will be contacted as part of supervisory engagement and according to the level of risk they pose. Those firms that have failed to provide the requested information will be encouraged to provide it before potential enforcement action is initiated.

Mike Haley added: “We rely on firms to look for help as soon as possible, such as talking to us through our Supervision function or seeking other forms of assistance, such as professional advice or contacting their Law Society Regional Manager. Sadly, some firms refuse to acknowledge that they are in financial trouble until it is too late, which causes problems for clients, and can also lead to investigations into conduct.”

The SRA has created dedicated web pages for firms as part of Chapter 7 of the Handbook to help keep a tab on finances, including a list of good and bad behaviours. The pages can be found here:

Go to the Financial Advice pages

Firms need own credit licence

Solicitors’ firms may need to seek their own consumer credit licence from the Financial Conduct Authority (FCA) if they want to continue with consumer credit activities, the Solicitors Regulation Authority (SRA) has advised.

The FCA will take over the regulation of consumer credit activity from the Office of Fair Trading (OFT) on 1 April next year. The group licence under which SRA-regulated firms currently operate will cease to have effect from that date.

Currently, the Law Society Group Licence allows firms regulated by the SRA to carry out certain consumer credit activities under the group licence conditions without the need to apply to the OFT. The FCA will not be continuing the group licence regime, so SRA-regulated firms wishing to continue in these activities, like debt collecting, may need to be licensed by the FCA, paying authorisation fees and regulatory fees

Firms that have their own OFT consumer credit licence already will need to apply for interim permission. The application process for this began on 1 September 2013.

Only firms with a current OFT consumer credit licence will be eligible to apply for the interim permission. Firms carrying consumer credit activities without this permission after 31 March 2014 will be committing a criminal offence and a breach of FCA regulations.

Agnieszka Scott, SRA Director of Policy and Strategy, said: “Firms will need to consider how the removal of the group licence regime is going to affect them and how they manage their business going forward. Firms may wish to apply for an individual OFT consumer credit licence to enable them to meet the criteria for the interim permission process, or they will need to consider the criteria set out in the Financial Services and Markets Act 2000 and are exempt from FCA authorisation.

“To help firms we have published some more information and links on our website. We will shortly be publishing a “questions and answers” section to help firms making decisions. We will keep our website up-to-date with links to the FCA website and publish any further information we obtain.”

The changes were consulted on by both HM Treasury and FCA during 2013 with the legislative changes being made in July 2013. The FCA has committed to publishing a detailed consultation, setting out its rules and guidance for regulating consumer credit activities later this year.

Forms and guidance on how to apply can be found on the FCA’s website here:

Go to the FCA website