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SRA sounds alarm on firm mergers
19 June 2024

The Solicitors Regulation Authority has issued a fresh warning to firms involved in mergers and acquisitions to prioritise clients’ interests. The new notice reminds managers of both buying and selling firms that they remain under regulatory requirements as they conclude such deals. 

The warning follows a series of high profile failures following mergers and acquisitions. Consolidator Metamorph bought several High Street firms in quick succession before it was shut down by the SRA. The SRA itself is under investigation over its conduct after Axiom DWFM bought the much larger Ince & Co and Plexus Legal before the regulator intervened amid concerns about a missing £60m.

In some cases, clients of the merged firm have reported losing money, while such interventions have also placed the compensation fund – paid for from contributions from solicitors and firms – under unprecedented financial strain.

The new warning notice on mergers and acquisitions sets out that firms need to communicate clearly with clients to let them know what is happening, giving the clients the ability to make informed decisions about who should act for them.

Firms are reminded to retain relevant documents for clients, while the warning notice also highlights the need to identify and prioritise urgent client matters, carry out client account reconciliations and for both the buyer and the seller to undertake proper due diligence on each other.

Paul Philip, SRA chief executive, said: ‘There are some 100 mergers and acquisitions taking place every year. In many scenarios, there can be good reasons for mergers and acquisitions, and we do not seek to stand in the way of a healthy, competitive legal market.’

However he added: ‘We have seen some firms making multiple acquisitions in a relatively short period of time which can create challenges in respect of business integration, organisational culture, and maintaining standards of service to increased client numbers. Managers of a firm should always make sure that acquisitional growth does not lead to ineffective governance structures, systems or controls which could cause detriment to clients or undermine trust in the profession.’

Source: The Law Society Gazette, 18th June 2024

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