By Sam Tobin

LONDON, Oct 29 (Reuters) - A British legal regulator on Tuesday was strongly criticised for its handling of the collapse of law firm Axiom Ince, which has seen millions of pounds go missing, hundreds of people lose their jobs and triggered an ongoing criminal investigation.

The Solicitors Regulation Authority (SRA), which regulates solicitors in England and Wales, "did not act adequately, effectively and efficiently" before the collapse of Axiom in October 2023, the Legal Services Board found.

The Legal Services Board, which regulates the SRA, said on Tuesday that it was taking enforcement action against the SRA, which could entail monitoring or performance targets being set.

Its chair Alan Kershaw said in a statement that the SRA's "actions and omissions have in our view adversely impacted on confidence and trust in the regulation of legal services".

SRA chief executive Paul Philip said in a statement: "There is a lot in the report that we don't agree with and we don't understand the basis for enforcement action."

Axiom – which has no connection to U.S. legal services provider Axiom Law – had gone on an acquisition spree, including buying troubled listed firm Ince Group in 2023 after Ince became insolvent and collapsed into administration.

But Axiom itself began to unravel after its former managing director Pragnesh Modhwadia was suspended for suspected dishonesty in August 2023, followed by allegations that around 60 million pounds ($77.9 million) of client money was missing.

Axiom is suing Modhwadia at London's High Court and obtained a 64.5 million-pound freezing order over his assets last year.

Britain's Serious Fraud Office is investigating alleged fraud before the demise of the firm, which the agency says cost around 1,400 staff their jobs.

Modhwadia, who is accused by Axiom of using client money to fund Axiom's acquisitions and also purchase property, has not been charged with any criminal offence.

Modhwadia could not immediately be reached for comment. His lawyer has previously said Modhwadia is cooperating with investigations.

The Legal Services Board on Tuesday commended the "excellent work by the SRA in uncovering and investigating the alleged fraud".

But it was also highly critical of the SRA's failure to detect the alleged misappropriation of money in October 2022, when it investigated Axiom for an unrelated matter.

The SRA later found money may have been misappropriated from as early as 2019, meaning its 2022 probe was "a missed opportunity to identify the alleged wrongdoing", the Legal Services Board found.

The report also said the SRA failed to carry out a proper risk assessment when Axiom acquired Ince, a much larger firm, and that the SRA's policy to not assess firm acquisitions "does not properly take account of the risks to clients of their files and money being transferred between firms".

The Legal Services Board's report said the SRA had since changed its policy, so investigators must now seek confirmation from law firms' banks about balances in client accounts.

The SRA's Philip said: "With hindsight, the report has highlighted things that we could – rather than just should – have done.

"But in our view, it is unrealistic to expect regulation to prevent all harms."