The SRA’s proposed cash call on the profession was never going to land well.

The regulator is proposing a 29% increase in its budget for 2026/27, taking it to £111.5m. Individual solicitors would pay more through their practising certificate, firms would contribute more through turnover-based fees, and compensation fund contributions would rise sharply following the collapse of PM Law and continuing pressure from other major firm failures.

For many solicitors and law firms, this will feel like another unavoidable cost at a time when regulatory, insurance, employment and operating costs are already under pressure.

But the most important question is not simply whether the profession is being asked to pay more. It is what the profession is being asked to pay for.

This is not business as usual

The profession being asked to fund a regulatory reset. Sarah Rapson, the SRA’s chief executive, has been admirably direct about that. She has reportedly accepted that the organisation needs a “complete reset”, including its culture, technology, enforcement and investigations. She has also acknowledged that the SRA’s approach, capabilities and resources have not kept pace with the market it regulates.

That is a significant admission. The legal market faces evolving regulatory challenges. Business models are more complex. Some firms operate at significant scale. ABS owners require significant authorisation scrutiny. High-volume consumer claims work, litigation funding, private equity-backed structures, consultancy models, remote working and technology-enabled delivery all create different supervisory challenges from the traditional partnership model.

At the same time, the regulator is dealing with more pressure. The SRA is receiving a marked increase in (AI-enabled) misconduct reports, and a sharp rise in interventions. Those interventions are expensive. Files have to be secured and stored. Claims have to be processed. Consumers have to be protected.

So there is a serious point here. A regulator that lacks the resources to supervise a more complex profession is not in anyone’s interests.

But does that mean the profession should simply be expected to write the cheque whenever the regulator asks for more?

Candour is welcome, but it is not accountability

There is something refreshing about the directness of the SRA’s new leadership. “I know it is not going to go down well” is probably an understatement, but it is at least an honest one.

The Law Society has also struck a fair tone. It recognises the need to rebuild the compensation fund and acknowledges that Sarah Rapson has inherited a problematic legacy. But it is also right to say that any increase of this scale must come with a credible and transparent plan to deliver measurable and lasting improvement.

If the profession is being asked to fund the SRA’s reset, then it deserves accountability.

Not just a business plan. Not just broad commitments to better technology, better triage and more proactive regulation. The profession needs to understand what will actually change, when it will change, and how success will be measured.

For example:

• Will the SRA be better at identifying firms in financial distress before client money is at risk?
• Will authorisation and enforcement decisions become quicker, clearer and more proportionate?
• Will failed prosecutions and adverse costs orders reduce?
• Will intelligence from reports, accountants’ reports, indemnity insurers, complaints, interventions and market data be joined up more effectively?
• Will firms experience a more consistent, risk-based and commercially realistic regulator?

Those are not unreasonable questions. They are the sort of questions the SRA would expect a regulated firm to ask of itself when things have gone wrong.

The profession is paying for both firm failure and regulatory catch-up – a double whammy

Most agree that the compensation fund is a vital consumer protection mechanism. It gives the public confidence that, where client money is lost through dishonesty or failure, there is a safety net. It is part of the collective responsibility that comes with being a regulated profession.

But there is a difficult fairness issue here. Good firms are being asked to fund the consequences of bad firms. That has always been part of the compensation fund model. But they are also being asked to fund the regulator’s own operational recovery at a time when the SRA itself appears to accept that it has not kept pace with the market.

The profession can understand paying for consumer protection. It can understand the need for a regulator to modernise. But it is entitled to ask how much of this increase is the unavoidable cost of protecting clients, and how much is the cost of the SRA catching up after years of underinvestment, strategic distraction or poor operational judgement.

That is where transparency becomes essential. The SRA should be clear about where the money is going. How much is for technology? How much is for supervision? How much is for enforcement? How much is for casework backlogs? How much is needed to replenish reserves? How much is being spent because previous decisions did not work?

And crucially, how much of the profession’s money is spent on things that are not core to the regulatory priorities?

Without that clarity, the profession will understandably see this as a blank cheque.

Client money is the deeper issue

The immediate story is the cost to the profession, but the deeper issue is – and always has been – client money.

Axiom Ince, PM Law and other major interventions have made one thing obvious: client account risk is now at the centre of the regulatory agenda.

Sarah Rapson has even suggested the issue of whether firms can hold client money will need to be revisited, which is a major signal. Many of us had hoped that the SRA had seen sense and quietly abandoned this initiative. It seems not.

Holding client money has been treated as a fundamental part of legal practice, particularly in conveyancing, probate and other transactional work. It is also, admittedly, one of the profession’s biggest regulatory vulnerabilities. When things go wrong, the losses can be severe, the intervention costs significant, and the compensation fund exposed.

It is perhaps therefore unsurprising that the SRA is looking again at whether the current model is sustainable.

But abolishing or restricting client account is not a simple fix. It would create practical consequences for conveyancing chains, probate administration, lender requirements, undertakings, completion mechanics, third-party managed accounts and access to legal services. It may reduce one type of risk while creating others. 

The better immediate question for firms is this: if client money is now one of the SRA’s highest priorities, can you evidence that your own controls are strong enough?

That means looking again at client account governance, reconciliations, residual balances, suspense ledgers, payment controls, matter risk assessments, source of funds, supervision arrangements, breach reporting and COFA oversight.

It also means boards and owners should stop treating client account compliance as a technical accounts department issue. It is a core governance risk.

The SRA wants to become more proactive. Firms should do the same

One of the clearest themes from the SRA’s proposals is a move away from reactive regulation. They are recruiting a director of supervision.

That is sensible in principle. A regulator that is drowning in reports and casework will struggle to focus on the risks that can cause the most serious harm. Better triage, better intelligence and earlier engagement should lead to better outcomes.

But this also tells firms something important about the next phase of regulation.

If the SRA becomes more proactive, firms should expect more targeted supervision. More data-led enquiries. More thematic work. More scrutiny of firms whose business models, finances, ownership structures, work types or client account exposure present higher risk.

That does not mean every firm should panic. It does mean that visit from the SRA will become more likely, and that firms should make sure their own house is in order.

For COLPs, COFAs, MLROs and managing partners, the practical questions are familiar:

• Can you evidence active supervision?
• Are risk management meetings actually happening?
• Are file reviews targeted at the right risks?
• Are breaches being recorded, analysed and escalated?
• Do you know where client money risk sits in the firm?
• Are your AML and sanctions controls operating in practice, not just written in policies?
• Can you show that senior management understands the firm’s regulatory risk profile?

These are the sort of questions that determine whether a firm looks controlled and well run when the regulator comes knocking.

Rebuilding trust will take more than money

Perhaps the most interesting part of Sarah Rapson’s comments is not the budget, but the relationship point.

She has previously referred to a gap in understanding between the regulator and the profession, and suggested the relationship was weaker than she had experienced in financial services.

Anyone who has spent any time with lawyers will tell you that she is spot on. There is a real trust deficit. 

Many firms feel that regulation has become more expensive, more complex and more heavy-handed. That it is too easy to find yourself under scrutiny for unwittingly breaching a rule, with no harm done. Some feel that the SRA has been too slow to spot serious risks, while being too quick to pursue technical breaches against otherwise responsible firms. Others question whether the regulator properly understands the commercial realities of running a law firm.

The SRA cannot repair that relationship with a larger budget alone. It will need to show that it is focused on the right risks. It will need to communicate and recruit better. It will need to engage with the profession earlier and more openly. It will need to show that its supervision is genuinely risk-based, not just more burdensome. 

For firms, there is also a message here. The era of reactive compliance is coming to an end. Waiting for the SRA to ask questions is not a sensible strategy. Firms should be able to show that they are actively identifying, managing and recording their own risks.

That is particularly true for firms holding client money (whilst they still can).

A reset needs evidence

The SRA may well need more money. A modern regulator needs proper systems, good data, skilled people and the ability to intervene before consumers are harmed. Underpowered regulation is not good for the public, and it is not good for the profession either.

But if the profession is being asked to fund the reset, it deserves accountability in return.

That means clear priorities. Published milestones. Meaningful performance measures. Stronger supervision of genuinely high-risk firms. Earlier detection of client money problems. And a regulator that can explain not just what it is spending, but what difference that spending will make.

Solicitors are used to being told to evidence their decisions. On this occasion, the SRA should expect the same standard to apply to itself.