An open letter urges the SRA to pause proposed restrictions while their impact is examined.
Proposed reforms to the roles of Compliance Officer for Legal Practice (COLP) and Compliance Officer for Finance and Administration (COFA) could affect around 1,660 law firms, including approximately 431 sole owner-manager firms, according to figures cited by the SME & Boutique Law Firm Alliance.
The proposed changes would restrict who can hold these key compliance roles in certain firms once specified financial thresholds are exceeded. The Alliance is calling for the proposals to be paused while their impact and practical implications are examined.
The Alliance has prepared an open letter to the Solicitors Regulation Authority (SRA), calling for implementation of the proposed restrictions to be paused while their practical impact, evidential basis and proportionality are examined.
At the centre of the concerns is a proposal that, once specified financial thresholds are exceeded, an individual who can exercise unilateral management control may no longer be able to act as their firm’s Compliance Officer for Legal Practice (COLP) and/or Compliance Officer for Finance and Administration (COFA).
The Alliance questions whether turnover alone is an appropriate measure of regulatory risk. It also raises concerns about whether enough suitably experienced COLPs and COFAs would be available if firms had to change their arrangements at the same time, and about the potential financial and operational effects on smaller practices.
The open letter also questions whether greater separation between management and compliance would necessarily provide stronger protection for client money in every firm.
In some smaller practices, the owner or senior decision-maker may also have the greatest knowledge of the firm’s finances, controls, systems and client account. The Alliance questions whether replacing that individual with an employee or external provider would always result in stronger oversight, particularly where the replacement has less day-to-day visibility of financial activity.
The Alliance has suggested that the regulatory discussion should also consider indicators of actual financial risk, including financial intelligence, reconciliation data, accountants’ reports and unusual transaction monitoring.
The ILFM said the issue has different perspectives across the profession. Some members may share the concerns raised by the Alliance, while others may see potential advantages in greater separation between management and compliance responsibilities.
The organisation said the effect of regulatory change may depend on the size, structure, systems and risk profile of individual firms. It is therefore inviting members to share practical experiences, including whether existing COFA arrangements would need to change and whether firms might need to recruit an internal, external or fractional COFA.
The Alliance is also seeking sufficient support to request a Special General Meeting of the Law Society. Under the Law Society’s current rules, the request requires support from at least 0.5% of solicitors on the register. The Alliance told ILFM that this currently equates to approximately 1,090 signatures.
ILFM has stressed that it is not asking members to support or oppose the open letter. Instead, it is sharing the arguments so members can consider the proposals and contribute their own views and practical examples.
The organisation said it will continue to monitor developments as the position evolves.