SRA Waives £120,000 Fine as Law Firm Goes into Administration

The Solicitors Regulation Authority (SRA) has waived a £120,000 fine it had intended to impose on a law firm after it entered administration, raising concerns over whether regulatory action could have been swifter.

SRA Investigation into Client Account Misuse

The regulatory body found that Kerman Legal Services continued misusing client accounts as banking facilities even after its acquisition and rebranding as Armstrong Teasdale’s London office in February 2021. The firm officially entered administration in September 2023, with administrators citing significant staff departures as the primary cause.

An investigation by the SRA began in June 2021 and concluded in July 2022. However, questions remain as to why the financial penalty was not imposed before the firm’s administration.

Details of the Misconduct

The SRA found that between April 2020 and May 2021, the firm facilitated 20 payments on two related cases to third parties, without any connection to legal transactions. These payments were primarily requested by a director and owner at Kermans, but various firm managers also authorized them over a year-long period.

Determining a fine of £120,617 as an “appropriate and proportionate” penalty, the SRA cited failures in compliance systems, potential risk of harm, and the necessity of deterrence. However, mitigating factors included a lack of evidence of lasting harm, no accusations of dishonesty, and corrective measures taken by the firm.

The fine amount was initially set at 1.6% of Kermans’ annual domestic revenue, with a 30% reduction due to cooperation and remediation efforts.

Why the Fine Was Waived

Given that Armstrong Teasdale UK has ceased trading and will not distribute funds to unsecured creditors, the SRA deemed it in the public interest to reduce the financial penalty to zero. The regulator stated that imposing a fine would merely impact other creditors rather than serving a meaningful purpose.

Penalties for Senior Partners

Two senior partners at the firm were separately fined last year:

Anthony David Kerman, who qualified in 1971, was fined £35,280 for similar misuse of client accounts. He authorized payments totaling £1.1 million for non-legal transactions, including credit card bills and jewelry purchases, as well as £12.7 million in unrelated investment and business expenses. The SRA noted that Mr. Kerman’s actions stemmed from a misunderstanding of regulatory rules rather than intentional misconduct.

Janice Martin, former partner and head of real estate, was fined £19,644 for failing to implement adequate anti-money laundering (AML) policies and firm-wide risk assessments. The SRA determined her actions to be reckless, given her seniority and experience, though mitigation factors led to a reduced penalty.

Both partners were ordered to pay £1,350 each in SRA investigation costs.

Implications and Future Outlook

This case highlights ongoing concerns over law firm regulatory compliance, the enforcement timeline of penalties, and the ability of legal authorities to act effectively before firms enter financial distress. The SRA’s decision underscores the complexities of imposing financial penalties on firms no longer in operation.