The SRA has received heavy criticism since the firm shut down in 2023, as a result of around £64 million going missing from their client account. Around 1,400 people subsequently lost their jobs.
The Legal Services Board (LSB) has released its report on the SRA’s involvement in the situation and has taken enforcement action as a result.
Northern Irish firm Carson McDowell, who are not regulated by the SRA, produced the report, where they found several key failings that led to the closing of Axiom Ince last year:
The report stated that the SRA was called into Axiom Ince in October 2022 after the firm reported concerns about the conduct of a former employee.
In this instance, the SRA should routinely check compliance with account rules, which they did not do. Carson McDowell found that the regulator “did not carry out an effective inspection of Axiom’s client account” and didn’t confirm client account balances directly with the corresponding bank.
As a result, “it therefore missed an opportunity at that stage to identify the alleged wrongdoing at the firm.”
Despite the issue at Axiom Ince being flagged internally in 2014, it was only in January 2023 that a member of the SRA authorisations team produced a briefing note on the firm.
Carson Mcdowell denoted that this demonstrated the methods that the SRA used to manage risk at these kinds of firms:
The Northern Irish firm reported that the watchlist was of little use even if Axiom had featured on it and that the data shared about Axiom within the montly meeting did not indicate that any action was necessary.
Axiom was discussed due to complaints made to the SRA, not because it was recognised as an ‘accumulator’ firm.
The report noted that the SRA paid no attention to the fact that the group chief executive had a 100% shareholding in the firm and held all of the compliance roles. This is extremely unusual for a firm of this size.
There was also little understanding of the workings of the business from any other directors, including a statement from the managing partner that “indicated she had no engagement with the firm’s bank.”
The takeovers of Ince Gordon Dadds in April 2023 and Plexus Legal in July 2023 exposed further failings on the SRA’s behalf.
Carson Mcdowell found that the SRA had no procedure in place to assess the risk of acquisition of law firms by other authorised firms. The report stated that they gave “limited consideration as to whether this proposed transaction was appropriate.”
Once again, the possibility of Axiom Ince being an accumulator firm was overlooked.
Carson McDowell said: “The SRA, across the organisation, had information which, if drawn together, should clearly have flagged a potential risk to clients and consumers.”
Overall, the report concluded that the SRA did not act “adequately, effectively and efficiently, and nor did it take all the steps it could or should have taken and that the SRA’s actions and omissions in this matter necessitate change in its procedures to mitigate the possibility of a similar situation arising again.”
The failings of the SRA in relation to the collapse of Axiom Ince present important lessons for the Bar, especially regarding its oversight and regulatory approach to barristers and chambers.
One of the key lessons from the SRA's failings in the Axiom Ince case is the critical importance of communication between the regulator and the regulated entities—in this case, chambers. The report highlights that its poor communication and lack of consistent engagement with Axiom Ince contributed to the firm's collapse.
For the Bar, this underscores the need for more transparent, regular, and collaborative communication between the Bar Standards Board (BSB) and chambers. Regulators should not only rely on reactive reports from individual chambers or complaints but should establish more proactive channels of communication. This might involve regular check-ins, where chambers can be reminded of their responsibilities, share updates on their financial health, and ask questions about compliance.
Chambers should also feel empowered to communicate concerns or issues early with the regulator, knowing that they will receive a clear, timely response. Establishing a feedback loop where chambers feel heard, and where regulators can clarify expectations, would help prevent miscommunication and reduce the likelihood of similar situations.
The Bar could similarly benefit from having a clear, standardised approach to evaluating the risks of business decisions like mergers and acquisitions within the profession, particularly where new ownership or high-profile acquisitions may impact the integrity of chambers.
By learning from these mistakes, the Bar can ensure that the profession is better equipped to address emerging risks before they escalate.
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