The City of London Law Society (CLLS) has warned against the “overregulation” of legal services after the Legal Services Board (LSB) today took unprecedented enforcement action against the Solicitors Regulation Authority (SRA), ordering it to improve its processes in response to the collapse of Axiom Ince.

The legally binding directions, issued under the Legal Services Act, require the SRA to improve how it identifies consumer risk and become more proactive in responding to such risks. This includes risks related to the corporate structuring of law firm mergers and acquisitions.

The LSB also requires stronger regulation and safeguards for client money, along with tighter controls on ownership, compliance and management where those functions are held by a single individual.

While the Law Society described the measures as “proportionate”, the CLLS raised fears about their impact on the profession’s competitiveness.

Iain Miller, a partner at Kingsley Napley and chair of the professional rules and regulation committee, said the action risked “the overregulation of the legal services market by imposing additional and disproportionate burdens on the SRA that will undermine the overall competitiveness of the legal services market, which is such a key engine of the UK economy”.

He added: “It is regrettable that the LSB did not consult more widely before imposing its directions.”

The LSB’s move follows the publication of an independent report by Northern Ireland law firm Carson McDowell last October, which highlighted regulatory failures leading up to the collapse of Axiom Ince in 2023, shortly after acquiring Ince and Plexus Law out of administration, resulting in the loss of £60m in client funds and sparking an investigation by the Serious Fraud Office.

The SRA has been ordered to comply within 12 months and submit progress reports every three months. The LSB acknowledged the SRA had already developed a “robust plan” and was engaging constructively on the issues.

Catherine Brown, the LSB’s interim chair, said: “The severity of what happened at Axiom Ince – with £60m in client money missing and 1,400 people losing their jobs – demanded decisive action. The directions we’ve issued are designed to protect the public and better ensure client funds are properly safeguarded.”

She noted that the SRA had begun making necessary changes to “rebuild public trust and confidence” and said the LSB would continue to monitor compliance.

In its response, the SRA pointed to an ongoing consultation on client money and commitments set out in its 2025/26 Business Plan to increase investment and resources.

Paul Philip, the SRA’s outgoing chief executive, acknowledged that the suspected fraud and other failings at Axiom Ince had “damaged essential public trust and confidence”, making it “essential that we learn from the Axiom Ince case”.

He added that the SRA had already begun taking action, including consulting on safeguarding client money, addressing risks related to ownership and management structures, and improving data and market intelligence. He confirmed the SRA would work closely with the LSB to implement the directions.

Law Society of England and Wales president Richard Atkinson welcomed the LSB’s action. He said the directions were “clear, measurable and proportionate” and reflected the failings identified in the Carson McDowell report, which the Law Society noted it was not responsible for commissioning.

“The decision by the LSB strikes the right balance between ensuring strong consumer protection while avoiding unnecessary regulatory burdens,” Atkinson said. “The clear timelines and oversight framework will help ensure good progress is made towards restoring consumer trust and confidence in the regulator.”

Commenting on LinkedIn, Keystone Law partner and regulatory expert Frank Maher said: “The Carson McDowell report identified numerous governance failings and failings by individuals, some of epic proportions.”