The Legal Services Board (LSB) has approved plans to separate the roles of compliance officers from senior managers and owners, in an addendum to Rule 8 of the Solicitors Regulation Authority (SRA) Authorisation of Firms Rules.
In December last year the SRA published proposals to separate the roles of compliance officer for legal practice (COLP) and compliance officer for finance and administration (COFA) from “individuals that can unilaterally determine or direct significant management decisions” within law firms, after a series of scandals saw the accountability of such roles brought into question.
At the time the SRA said the change would reduce the risk that conflict or weak internal challenges will allow problems to go undetected and unreported.
Following confirmation of the SRA’s plans in June, the LSB has now ratified the rule change, which will see higher risk firms with a turnover of more than £600,000, or holding more than £2 million of client money, separate the roles so that no single individual can both run a firm and oversee its compliance, including with client money rules.
Newly drafted Rule 8.4 states:
Where an authorised body has more than one manager or owner, an individual cannot be designated as its COLP or COFA if:
(a) in its most recently completed accounting period, it:
i, had an annual turnover of more than £600,000;
ii, or held or received client money with a maximum statement or passbook balance exceeding £2,000,000 (or the equivalent in foreign currency); and
(b) the individual is a manager or owner of the authorised body who has authority whether under the authorised body’s constitution, governance arrangements or usual practice, to determine or direct significant management decisions relating to the structure or running of the authorised body.
For smaller firms, rules 8.5 and 8.6 detail how sole owner-manager firms operating beneath both thresholds may still hold the COLP role personally, but not the COFA role. Rule 8.7 makes provision for incidental threshold breaches, so long as the SRA is notified promptly and a written record of the basis on which it reached the conclusions is maintained.
Firms that hold client money will also be required to submit an annual accountants report and other declarations, with fixed penalties for failure to submit reports and declarations. A proposal to for accountants to submit reports directly to the regulator has been dropped with firms instead required to make annual submissions from April 2027.
The changes will be phased in from January 2027.
