The Law Society has formally opposed the Solicitors Regulation Authority (SRA) seeking broad powers to require law firms to report specific events, arguing the move lacks sufficient safeguards. The society also criticized the introduction of fixed financial penalties to police the new system, stating they would function as a blunt instrument that fails to distinguish between minor administrative errors and serious compliance issues. While the Law Society supports the SRA’s aim of identifying risks earlier, it warned that expanding reporting requirements incrementally without proper consultation could place an undue burden on smaller practices.
The society’s response to the consultation noted that the proposed rule represents a “wide enabling power with limited safeguards.” This approach raises concerns regarding legal certainty and predictability for firms. The SRA is already seeking to add a third notifiable event—relating to third-party litigation funding—before submissions to this consultation establishing the notifications regime have even closed. The Law Society suggested that the regulator should first make better use of the substantial information it already collects from firms before imposing new obligations.
Fixed penalties were described as a blunt instrument that could disproportionately affect smaller firms. The SRA acknowledged that financial penalties likely have a greater relative effect on smaller firms, which may have fewer administrative resources and less capacity to absorb additional regulatory costs. Consequently, the Law Society rejected the idea of using these penalties to enforce the notification regime.
The Law Society agreed that a firm beginning to hold client money represents a material change in its risk profile and that the SRA should be made aware of those changes. However, its support for this specific requirement was conditional on a number of important safeguards. These included avoiding duplication with the current obligation to report material changes and ensuring proportionality.
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Despite this conditional support, the society did not agree that the heads of terms stage was “necessarily the most appropriate or proportionate trigger” for notification of a merger and acquisition (M&A) deal. It argued for a “more flexible, risk-based approach” to defining when notification should occur. This could include post-event notification for fast-moving transactions.
There is a risk that poorly designed notification triggers or timeframes could create unintended behavioural and market effects. Firms might delay, restructure, or alter the timing of transactions or business decisions solely to manage regulatory obligations. The society agreed that firms should notify the SRA of changes in a “more timely and explicit” way, provided there is clarity and flexibility in exceptional circumstances, and alignment with existing reporting processes. The response emphasized that different and more flexible arrangements are needed for fast-moving transactions to ensure the burden on firms remains proportionate.
The SRA is already seeking to add a third notifiable event—relating to third-party litigation funding. The Law Society suggested that the regulator should first make better use of the substantial information it already collects from firms before imposing new obligations. The society is not opposed to notification requirements in principle, but the SRA should conduct evidence-backed consultations before imposing future notification requirements.