The SRA's approach to financial penalties
The SRA's approach to financial penalties
Updated 25 November 2019 (Date first published: 13 August 2013)
This guidance does not form part of the SRA's Standards and Regulations. However, we may have regard to it when exercising our regulatory functions.
Who is this guidance for?
This guidance is intended to provide a practical guide for our decision makers to assist them in arriving at an appropriate financial penalty for individuals and firms we regulate.
This guidance should be read in conjunction with our Enforcement Strategy and the section of the Sanctions and Controls table that deals with financial penalties and the SRA Regulatory and Disciplinary Procedure Rules.
Purpose of this guidance
The guidance aims to promote and support appropriate, transparent, and reasoned outcomes. It helps us when exercising our statutory powers to impose financial penalties - whether by an authorised decision maker or by agreement.
The amount of financial penalty we can impose on individuals and entities will depend on the type of regulated firm, or the type of regulated firm an individual works in.
For solicitors, traditional law firms (recognised bodies or recognised sole practices) and the individuals who work in them, the maximum financial penalty we can impose is £2,000. If we consider that a financial penalty of a higher magnitude/amount is justified, we can refer the matter to the Solicitors Disciplinary Tribunal (SDT) for the SDT to consider imposing a financial penalty of an unlimited amount.
For licensed bodies (Alternative Business Structures or ABS) and the individuals (including solicitors) which work in them, we can impose a financial penalty, ourselves, of up to £50 million for an individual or up to £250 million for the entity.
The purpose of a financial penalty is to sanction a regulated firm or individual for a serious breach of our standards/requirements, but where protection of the public/public interest does not require suspension or a striking off or its equivalent. It is also to deter the firm or individual and others from similar behaviour in future.
This guidance applies once we decide that a financial penalty is the appropriate outcome for a breach of the SRA's Standards and Regulations, having taken account of all aggravating and mitigating factors.
It applies to all financial penalties imposed on individuals and firms. We can take action against the firm only, individuals, or both.
This guidance takes, as its starting point, the Sanctions Guidance on financial penalties annexed to the Enforcement Strategy. Aligned to this, Rule 3.1(b) of the SRA Regulatory and Disciplinary Procedure Rules provides that an authorised decision maker may decide to direct the payment of a financial penalty and the amount.
Rule 4.1 states that a financial penalty may be appropriate in the following circumstances, to:
- remove any financial or other benefit arising from the conduct
- maintain professional standards, or
- uphold public confidence in the solicitors' profession and in legal services provided by authorised persons.
This guidance aims to help the decision maker reach a decision (or a recommendation) on the amount of a financial penalty by assisting them to:
- determine a basic financial penalty based on the seriousness of the breach
- where a larger firm is involved, adjust the financial penalty to take account of the size of the firm so that the penalty acts as an appropriate deterrent
- remove any financial benefit.
A three-step fining process
To maximise consistency and transparency, there is an indicative three-step process for the practical determination of a financial penalty:
- Step 1 - determining a basic penalty taking into account the seriousness of the conduct
- Step 2 - adjusting the penalty to account for mitigating factors
- Step 3 - eliminating financial gain or other benefit obtained by the regulated person as a result of the conduct.
The three-step process is informed by the principles set out in the Enforcement Strategy and is concerned only with the level of the penalty. It follows that the decision maker is already satisfied that the conduct of the regulated person is appropriate to be dealt with by way of a fine. This guidance should be interpreted accordingly. Reference to serious conduct and causing a high level of harm are in the context of matters appropriate for a fine rather than more broadly.
Harm should be construed broadly and may include impact (financial or otherwise) upon clients, the public interest and public confidence in the provision of legal services.
Step 1: determining the basic penalty
Step 1(a) assessing the seriousness of the misconduct
The first step is to determine the basic financial penalty which is appropriate, taking into account the seriousness of the breach. In deciding on an appropriate financial penalty band, we will take into account all the circumstances of the case, including aggravating and mitigating factors as set out in the Enforcement Strategy.
This is done firstly by assessing the nature of the conduct as either standard or serious and its impact as low, medium or high:
|Nature of the conduct by the regulated person||Nature score|
|Harm or risk of harm||Impact score|
Step 1(b) - arriving at a broad penalty bracket for the matter
The decision maker will now have a score for both the "nature" of the conduct and also its "impact" or potential impact. The decision maker should add these scores together to arrive at an overall band for the seriousness of the matter and a broad penalty bracket using the table below.
Fines imposed upon individuals will generally be assessed as a fixed monetary sum. If a fine is to be imposed upon a firm with annual domestic turnover of £2 million or more ("a firm of greater means") then the decision maker is guided to determine the penalty as a percentage of annual domestic turnover.
Annual domestic turnover
The suggested approach for firms with an annual domestic turnover of £2 million or more is intended to assist the decision maker in determining a penalty which will;
- as far as practicable be of an amount that is likely to deter the repetition of the misconduct by the person directed to pay the penalty and to deter the misconduct by others and
- be proportionate to the means of the person directed to pay the penalty.
The term "annual domestic turnover" is intended to refer to the most recent figure which the SRA holds prior to the matter being submitted to the authorised decision maker as to the turnover in England and Wales of the body. This figure will generally be a good indicator as to the financial means of the firm in question. However, this will not always be the case and the decision maker may consider other data and other means of determining the basic penalty in step 1 if there is a risk that the approach outlined in this guidance will not achieve the objectives set out in our rules and Enforcement Strategy. For example, assets, global turnover, average turnover over a number of years, yearly expenditure and the turnover of any parent undertaking may indicate that a firm is of quite different means to that which is indicated by reference only to the firm's most recent annual domestic turnover. Ultimately the decision maker may deviate from the three step approach if to do so would better achieve our objectives referred to above.
|Conduct band||Penalty bracket|
|A. The nature and impact scores add up to 3||£500 or £1,000 in all cases'|
|B. The nature and impact scores add up to 5||£1,001 to £5,000 or if the regulated person is a firm of greater means, up to 0.5% of annual domestic turnover|
|C. The nature and impact scores add up to 7||£5,001 to £25,000 or if the regulated person is a firm of greater means, up to 1.3% of annual domestic turnover|
|D. The nature and impact scores add up to 9||£25,000 to £50,000 or if the regulated person is a firm of greater means, up to 2.5% of annual domestic turnover|
Example case study
ABC & Co have set procedures for managing, supervising and monitoring staff and financial transactions but the firm discovers that in some areas of the firm, the procedures are not being followed (contrary to regulatory requirements). Upon investigating further, the firm discovers that a new member of staff in the Probate department has overcharged a number of clients' large sums of money and that this would have been discovered much sooner had appropriate procedures been consistently applied. The firm contacts the SRA, explains that the partner who had previously been in charge of Probate had left the firm some months earlier and volunteer that it had taken too long to re-establish the required controls in that area. The firm immediately repay the monies to clients upon discovering the problem.
In the hypothetical scenario of ABC & Co a decision maker might reasonably conclude that the character of the conduct by the firm falls short of being serious (a "nature score" of 1) but that the errors nonetheless had a high impact (an "impact score" of 6). By adding the nature score of 1 to the impact score of 6 the decision maker will arrive at an assessment of the overall seriousness of the matter: misconduct band C. The decision maker is therefore guided that an appropriate penalty bracket for the basic fine is between £5,001 and £25,000. If annual turnover of ABC & Co is in excess of £2 million then the decision maker should also consider whether a fine determined as a percentage of the firm's UK turnover is more appropriate in cases where otherwise the fines in this bracket may not have the desired deterrent effect.
Step 1 (c) - arriving at a specific figure for the basic penalty
Once the misconduct grade has been ascertained and the decision maker has arrived at a broad penalty bracket (such as £5,000 - £25,000), the decision maker should determine a specific basic penalty within that bracket. In order to maximise consistency and fairness, decision makers are encouraged to select a specific basic penalty in accordance with the simple figures below.
|Penalty band||Penalty bracket||Basic Penalty (£)||Basic penalty as a % of annual domestic turnover if appropriate||Basic penalty scale|
|A||500 or 1000||500||-||A1|
|B||1000 to 5000||2000||-||B1|
|C||5000 to 25000||7500||0.60%||C1|
|D||25000 to 50000||30000||1.50%||D1|
In determining whether conduct is appropriate for a fine towards the lower, mid or upper part of a penalty bracket, decision makers should be guided by the aggravating and mitigating factors set out in the Enforcement Strategy. In particular, the decision maker should consider:
- the culpability of the regulated person - deliberate or grossly reckless conduct will, for example, be liable to fines at the higher end of a penalty bracket
- the impact of the conduct and any harm caused - similarly the greater the impact or harm caused (to clients or to others) the more likely it is that a fine at the higher end of a penalty bracket would be appropriate.
- Proportionality to the means of the paying party - if a regulated person is of low means then a lower than usual basic penalty may be appropriate. This should be balanced, however, with the desire for a penalty to act as a credible deterrent against misconduct by others and should not be interpreted as meaning that the regulated person must have the means readily available to pay a penalty. Failure by a regulated person to provide information as to financial means where the process for doing so under the SRA Regulatory and Disciplinary Procedure Rules is followed may also be taken into account more generally, and
- Achieving credible deterrence - penalties should be of such an amount that they are capable of deterring future misconduct by the person directed to pay and by others who may be engaged in similar conduct.
In the case of ABC & Co, a decision maker on the full facts may conclude that a basic penalty of £15000.00, for example is appropriate.
Step 2 - Adjusting the penalty to account for mitigating factors
Having determined a basic penalty (which includes consideration of aggravating factors), the decision maker is encouraged to assess all of the circumstances to decide whether it is appropriate to reduce this sum to take account of mitigating factors. The decision maker will not generally discount a basic penalty by a sum or more than 40% or to an extent which, on the facts of the case, would otherwise be contrary to the Rule 4.1 of the SRA Regulatory and Disciplinary Procedure Rules. For example, a heavily discounted penalty may not be a proportionate outcome in the public interest where significant harm and distress has been caused to clients or where the proper administration of justice has been put at risk.
Some examples of mitigating factors and guidelines for discounts if such factors are present are set out below:
Discounting the basic penalty for an early admission
The decision maker may discount the basic penalty for early admission as follows:
- Up to 25% where the misconduct is fully and frankly reported by the regulated person to the SRA before any investigation has been disclosed and the misconduct is expressly admitted by that regulated person at the time of reporting or immediately afterwards
- Up to 20% where the misconduct is expressly admitted by the regulated person within 6 weeks of the issue coming (formally or informally) to their attention
- Up to 15% where the misconduct is expressly admitted by the regulated person before the matter is referred to the decision maker.
These discounts are not cumulative and the recommended maximum discount of the basic penalty for early admission alone is 25%.
Discounting the basic penalty for remedying harm caused
The decision maker may discount the basic penalty by the amounts specified below where the harm is corrected by the regulated person or, a scheme satisfactory to the SRA is implemented to do so, within the period specified below:
- Within 6 weeks of the harm coming to the attention of the regulated person (formally or informally) or sooner - up to 25%;
- Before the matter is referred to adjudication - up to 20%
These discounts are not cumulative and the recommended maximum discount of the basic penalty for remedying harm caused alone is 25%.
In the hypothetical scenario of ABC & Co, the decision maker might conclude on the facts that the basic penalty of £15000 arrived at by following step 1 should be reduced by 40% (the maximum discount recommended in this guidance) to account for the fact that the firm self-reported the problem and admitted the misconduct to the SRA and promptly remedied the harm caused to clients. After Step 2 the basic penalty would be adjusted to £9.000.
Step 3: removing benefit arising from the misconduct
The final step is to consider whether the penalty arrived at in steps 1 and 2 will adequately eliminate financial gain or other benefit obtained as a direct or indirect consequence of the misconduct. If not, the decision maker should consider increasing the penalty to such a level which also achieves this. This approach is consistent with our Enforcement Strategy and our core regulatory objectives.
The decision maker is not required to calculate an exact sum in respect of the financial gain or benefit obtained if one is not available or easily assessed from the available information. In the absence of an exact sum the decision maker may adjust the penalty broadly as felt appropriate taking into account:
- The requirement set out in rule 4.1 of the Regulatory and Disciplinary Procedure Rules and Enforcement Strategy that a financial penalty should so far as practicable eliminate any financial gain or other benefit obtained as a direct or indirect consequence of the misconduct; and
- The information available at the time the decision is made, including the completeness and reliability of the information. The greater the difficulty in quantifying the gain or benefit from the information available the greater the caution which should be exercised in adjusting the penalty.
This step is intentionally placed at the end of the process to ensure that the principle of removing the benefit arising from misconduct is not diluted by any discounts which may be applied for mitigating factors, such as prompt admission.
In the hypothetical scenario of ABC & Co, the firm have already repaid the monies (which they might otherwise have benefited from) to clients. As such, the three-step fining process would be complete and a penalty of £9,000 would be imposed.
To link to this page, use www.sra.org.uk/financialpenalties