Regulator contacts UK top 50 law firms in the wake of report that five firms are in 'intensive care'

The Solicitors Regulation Authority (SRA) is to take a more active interest in the finances of leading law firms, after writing to the UK's biggest 50 law firms requesting that they engage with the regulator early if their finances deteriorate.

The SRA's executive director of regulation Samantha Barrass (pictured) sent out the letter late last year. Barrass said the regulator wanted to see if there was any truth in a Gazette report stating that five top 30 firms were in "intensive care" with banks and to remind firms that its new approach to regulation means law firms are required to notify the SRA promptly about material developments such as serious financial difficulty.

The letter outlines the way the regulator collaborated with Halliwells after the firm went into administration to ensure that "the end result was orderly and constructive for all those involved", and goes on to state that it would like to work this way with firms in the future to avoid intervention.

Barrass warned firms that financial failure can lead to intervention by the SRA if clients' interests are at risk, with the costs of this usually passing on to the firm in question and its principals.

SRA head of supervision Karen Nokes said: "As part of our move to become an outcomes-focused regulator and be proactive in our supervisory activity we wrote to the managing partners of the top 50 law firms. The SRA wants to engage with these firms and discuss with them at an early stage any financial issues which may impact upon their clients and the way in which they deliver legal services."

One senior partner at a top 50 firm commented: "This is an attempt on the part of the regulator to further involve itself in the financial workings of the top 50 law firms. This is not necessarily motivated by genuine concern, but rather to remind law firms of their regulatory obligations."

The news comes three months after the SRA announced its intention to draw up guidelines for large firms facing administration. The regulator is consulting with law firms, banks and insolvency practitioners to come up with a protocol to make sure that firms going into administration are compliant with the profession's regulations.

The discussions are being led by the SRA's head of legal, Jennifer Johnson, alongside primary external adviser Bevan Brittan. Soundings are also being taken from firms including CMS Cameron McKenna, which is advising Halliwells' administrator, BDO, and LG restructuring partner Steven Cottee, who advised Hill Dickinson on its acquisition of parts of the Halliwells' business.