LSB orders SRA to overhaul processes after Axiom Ince collapse; city lawyers warn of heavy-handedness
The City of London Law Society (CLLS) has raised alarm bells over what it calls “overregulation” in the UK’s legal sector after the Legal Services Board (LSB) took unprecedented enforcement action against the Solicitors Regulation Authority (SRA). The move follows the high-profile collapse of law firm Axiom Ince, which lost £60 million in client funds and triggered a serious fraud investigation.
In a sharp response to the LSB’s action, Iain Miller, a partner at Kingsley Napley and chair of the CLLS’s professional rules and regulation committee, warned the legal market’s competitiveness is at risk. “The overregulation of the legal services market by imposing additional and disproportionate burdens on the SRA will undermine the overall competitiveness of the legal services market, which is such a key engine of the UK economy,” Miller said.
He also criticised the LSB’s lack of wider consultation before imposing the new rules.
The LSB has issued binding directions under the Legal Services Act, compelling the SRA to tighten its oversight of consumer risks, particularly those linked to mergers, acquisitions, and the centralisation of key roles within firms. The enforcement also demands stronger client money protections, tighter controls over ownership and governance, and more proactive risk identification.
Embed from Getty ImagesThe LSB’s intervention stems from the damning findings of an independent report by Northern Irish firm Carson McDowell, published in October 2024. The report laid bare multiple regulatory failings in the lead-up to Axiom Ince’s collapse in 2023, just months after it bought Ince and Plexus Law out of administration. The scandal not only led to the loss of millions in client money but also left around 1,400 employees out of work and shook confidence in the legal sector.
Despite the City backlash, other legal voices have backed the LSB’s action. Law Society president Richard Atkinson said the measures were “clear, measurable and proportionate,” striking a balance between consumer protection and regulatory burden. “The directions reflect the serious failings uncovered in the Carson McDowell report. The timeline and oversight set out by the LSB will be vital in rebuilding trust,” he said.
The SRA now has 12 months to implement the changes, with mandatory progress reports due every quarter. LSB interim chair Catherine Brown said the fallout from Axiom Ince demanded urgent and decisive action. “With £60 million in client money missing and 1,400 jobs lost, the situation required a firm response. These directions are aimed at preventing such a failure from ever happening again,” she said.
Brown acknowledged that the SRA had already begun reforms and said the LSB would maintain close oversight. “We recognise the SRA is engaging constructively and has a robust plan underway. But ongoing scrutiny is essential to restoring public trust,” she added.
Outgoing SRA chief executive Paul Philip admitted that the collapse had “damaged essential public trust and confidence.” He confirmed that the regulator is consulting on tighter rules for client money handling and taking steps to improve governance and market intelligence. “It is essential that we learn from the Axiom Ince case,” Philip said.
Regulatory expert Frank Maher, a partner at Keystone Law, echoed the need for accountability. Writing on LinkedIn, he described the Axiom Ince failings as “of epic proportions” and warned that individual and structural lapses must be addressed to avoid similar disasters.
The debate has exposed a growing fault line between those demanding stronger consumer protections and advocates for the legal sector’s global competitiveness. While the fallout from Axiom Ince continues, the industry now faces the dual challenge of reforming from within while guarding against the threat of regulatory overreach.
