Settlement Agreements in SRA proceedings

Regulatory settlement agreements: An overview

A regulatory settlement agreement is a formal written agreement between the Solicitors Regulation Authority (SRA) and a regulated person which settles complaints made by the SRA against the regulated person.

The agreement could settle one of several issues (on terms that a formal investigation continues into the remaining complaints) or all of the complaints. The former type of settlement agreement (which is called a regulatory issue agreement) is rare. Most agreements settle all known issues and bring an investigation to an end.

A regulatory settlement agreement will normally contain the following provisions:

• A summary of the background facts leading to the complaint
• A summary of the SRA principles and regulations which are admitted to have been breached
• Undertakings specifying any action the regulated person has agreed to take
• An agreement to accept a specified sanction (such as a fine or rebuke)
• An agreement to pay the SRA’s costs of the investigation
• A mitigation statement
• An agreement that the agreement can be published by the SRA

The negotiations for an agreement are conducted on a without prejudice basis. The SRA’s policy statement on settlement of regulatory and disciplinary cases expressly states that the negotiations will not be admissible in investigations or proceedings ‘upon the same principles that apply to without prejudice communications as a matter of law.’

The SRA is not under any obligation to enter into negotiations for a regulatory settlement agreement, and it can at times be difficult to persuade the SRA to negotiate. If the SRA considers that a solicitor has acted dishonestly, or that a solicitor’s integrity is in question for any other reason, the SRA may decide that a settlement agreement is inappropriate and that it is in the public interest to instead impose a formal disciplinary sanction.

Generally speaking, the SRA’s disciplinary powers are normally limited to findings and warnings, rebukes, fines and, in more serious cases, referrals to the SDT. A regulatory settlement agreement offers greater flexibility as the parties can agree outcomes that do not fall within the scope of the normal disciplinary sanctions. The parties could, for example, agree that a regulated entity will pay compensation to clients or will introduce management or supervision systems to prevent recurrence of a breach.

Similarly, the parties could agree to conditions that control future practising arrangements, such as an agreement that a practice will not act for lenders in conveyancing transactions or that a solicitor will not act as a manager of a practice for a specified period of time. In serious cases, there could be an agreement that the practice will be closed within an agreed period of time.

If there is an agreement to introduce a scheme of correction or take any other action, the SRA will require a solicitor to provide an undertaking in support.

The SRA’s policy statement on settlement of regulatory and disciplinary cases states that the SRA can proceed with the original complaint if a solicitor materially breaches a settlement agreement and that the breach will be treated as professional misconduct. A solicitor who fails to comply with any agreed terms could therefore face proceedings not only for the original complaint but also for breach of the regulatory settlement agreement and breach of any undertakings contained in it.

The SRA’s publication policy states that the SRA may publicise a regulatory settlement agreement (unless the agreement states otherwise). The factors the SRA will take into account in deciding whether or not to publicise will include the importance of transparency, the need to maintain public confidence in the provision of legal services and the importance of providing information about regulatory action to enable prospective clients to make informed choices about whom to instruct. In practice the SRA will almost invariably insist that a regulatory settlement agreement should contain a term that the agreement can be publicised. Once the agreement has been entered into, the SRA will publish the entire settlement agreement on its website..

Some tips on regulatory settlement agreements

1. If you want to enter into an agreement, don’t wait for the SRA to suggest there should be one, as they might not do so. Make the first approach on a without prejudice basis.
2. A regulatory settlement agreement avoids uncertainty. Although it is often possible to predict the sanction which will be imposed in disciplinary proceedings in the SDT, there is less certainty at the adjudication level. A negotiated outcome avoids the uncertainty which can result from adjudication and the fear that a sanction may be worse than anticipated. It enables the practitioner to agree a sanction which the practitioner can (albeit reluctantly) live with.
3. It may be possible to use the flexibility of an agreement to avoid the reputational damage and adverse indemnity consequences of a minor disciplinary sanction. An offer to settle without a disciplinary sanction on terms that the management or supervision structure is changed to prevent recurrence of a breach may be acceptable if the SRA considers that the changes protect clients and the public interest.
4. In practice, the SRA is willing to include a list of mitigating factors in an agreement. A practitioner can therefore make admissions of breaches of the professional rules within the context of a document which sets out powerful mitigating circumstances. That can lead to advantages. An adjudicator’s decision to rebuke or fine a solicitor will not be accompanied by a statement setting out mitigating circumstances and the publication of an adjudicator’s decision could place the practitioner in a harsher light. However, a decision as to whether to include mitigation in an agreement needs to be considered carefully. Agreements are invariably publicised in their entirety on the SRA’s website. It may be a case of ‘the less said the better the outcome.’
5. The SRA has a statutory right to publicise rebukes or fines (subject to the provisions governing publication set out in the SRA Disciplinary Procedure Rules 2011). However, there is no statutory right to publicise findings and warnings. Adverse publicity can have a damaging effect on a practitioner’s business, particularly in cases in which the practitioner’s name is the same as the firm name or the practitioner has an unusual surname. The SRA website has a high Google ranking and in both of those cases, searches by prospective clients can result in publication of the regulatory sanction on the first page of an internet search. A practitioner deciding whether to enter into an agreement needs to carefully assess the prospects of receiving a finding or warning rather than a rebuke or fine. If an adjudicator is likely to impose a finding or warning, a practitioner may be better advised to avoid a Regulatory Settlement Agreement so that there is no publication by consent in circumstances where the SRA would not have had a statutory right to publicise the breach of the professional rules.
6. The SRA (Cost of Investigations) Regulations 2011 state that the SRA can require a practitioner who is subject to a disciplinary investigation to pay costs provided that there is an SRA finding against that person. The amount of the costs are fixed on a sliding scale dependent on the time spent on the investigation.
7. The SRA is not restricted to those fixed charges under an agreement, as a basis for payment of costs under the agreement is the consent of the parties. A practitioner could seek to negotiate costs by reference to the fixed charges.
8. If a practitioner wants to try to negotiate an agreement after a referral to the SDT, the negotiations should be carried out promptly after the referral. The SRA’s costs will increase significantly if proceedings have to be drafted before a settlement is reached. Further, if proceedings are issued before a settlement is reached, the parties will have to incur the costs of an application to the SDT and there is a theoretical risk that the Tribunal will oppose the application on public interest grounds and invite the SRA to continue the prosecution.

Future action

This web page should not be relied on to make a decision on your case. Every case is different and a regulatory settlement agreement is not always a suitable outcome. If you would like reliable advice on whether to enter into an agreement, or negotiations on the content of one, or to discuss your case generally, please contact one of our lawyers