The legal sector must become its own first line of defence

Last week, the Legal Services Board formally censured the SRA for its failure to protect client interests in the collapse of SSB Law. It does so at a point when confidence in the regulator has already been tested by a succession of events, from Axiom and the more recent failure of PM Law to the perceived flip-flopping over Mazur which, regardless of what the Court of Appeal ultimately decides, has done real damage to confidence within the wider paralegal community.

With a new CEO now in place, this should be a moment of renewal for the SRA. Every healthy and thriving sector needs an effective regulator: one that protects consumers, upholds standards and intervenes where risk is building, but also allows well-run businesses to operate, invest and grow.

The answer cannot simply be more red tape, more controls or more prescription layered on top of an already complex environment. If the response is blunt, over-corrective or untargeted, we risk creating new problems while failing to solve the existing ones.

In many respects, the SRA was ahead of the curve with the introduction of outcomes-focused regulation, something that another regulator (the FCA) has moved towards more recently. The principle behind it is sound: focus on the outcomes that matter, rather than attempting to dictate a rule for every eventuality. Some may argue that this is at the heart of the problem: that people and businesses operate more effectively in rules-based systems, leading many to prefer that their regulator simply “tells us exactly what is required”.

From that perspective, ambiguity and lack of clarity could be seen as the root cause of failure, but this is where I become concerned that we’re blurring the lines of accountability between what a regulator is there to do and what firms should already be capable of doing for themselves.

It is the regulator’s responsibility to protect client outcomes, not to run our businesses well.

That is where the legal sector needs to look in the mirror.

If we want confidence in the legal sector to recover, we need to better demonstrate our ability to run our businesses well. That means creating the ecosystems, controls and leadership disciplines that properly manage risk and outcomes. It means taking, and being seen to take, accountability not only for upholding the standards of our profession, but also for discharging our responsibilities as business leaders.

In other words, we need to show that we are capable of being our own first line of defence.

That should not be a controversial idea, the controls and responsibilities already exist in law as they do in the SRA code. Any statutory director must operate within the framework of the Companies Act 2006, with sections 171 to 177 setting out the core duties that come with the role. These are not abstract governance ideals or borrowed corporate language; they are part of the legal and leadership framework through which firms should direct themselves, challenge themselves and provide that first line of defence.

An effective board should provide real challenge and proper checks and balances. It should be able to see risk clearly, test assumptions, intervene early and satisfy itself that the business is performing in a way that is both commercially sustainable and professionally compliant.

That is not about second-guessing the regulator. It is about taking seriously the accountability that comes with running a legal business.

None of this is attempting to excuse the SRA’s failings. The LSB’s censure is serious and deservedly so. But if the sector responds as though the lesson begins and ends with regulatory failure, we will have learned only half the lesson. The broader question is whether firms have built governance, oversight and decision-making disciplines strong enough to identify and address emerging problems themselves.

Talk of stronger governance, clearer accountability, risk management or more independent challenge can sometimes prompt an eyeroll, as though these are simply corporate tropes imported to make legal businesses sound more managerial than professional. That is the wrong instinct.

Used badly, any language can become jargon, but structure, control, independence of thought and clarity of responsibility are not empty corporate gestures. They are precisely the characteristics that help businesses protect clients, support colleagues and operate with integrity.

If the SRA is to rebuild confidence, it must become a more effective regulator. However, the legal sector should not wait for regulation alone to restore trust. We should be showing that well-run firms do not rely on the regulator to be their first line of defence, because we have already built this for ourselves.