Kate Burt, solicitor and founder of legal risk and compliance consultancy HiveRisk, says the SRA’s decision to pause its controversial COLP and COFA separation plans gives firms welcome breathing space – but continued engagement will be essential if the eventual solution is to be proportionate and workable.
The SRA has now confirmed it will pause the planned changes following pushback from across the profession. That is a significant and welcome development, particularly for sole practitioners and small owner-managed firms already reviewing their governance arrangements ahead of the phased introduction from January 2027.
But a pause is not a resolution. The regulatory concerns behind the proposal remain – and so do the profession’s questions about whether Rule 8.4 was the right way to address them.
A welcome breathing space
The breaking news came through while I was leading a roundtable on AI and ethics for law firms in Sheffield. With representatives from a number of SME and boutique practices in the room, the immediate relief when the news broke was telling. The potential operational impact of Rule 8.4 had become very real.
This was never simply a debate about regulatory oversight. Firms were having to consider changes to established governance structures, reconsider existing COLP and COFA appointments and, in some cases, potentially recruit additional senior people. Those decisions carry significant commercial and operational consequences.
The concerns have never been about resisting effective regulation. Strong governance, protection of client money and meaningful internal challenge are objectives the profession should support. The question has always been whether this particular mechanism was sufficiently evidenced, proportionate to the risk and workable in practice.
The profession made itself heard
Concerns about Rule 8.4 have come from across the profession. Firms, representative bodies, compliance specialists and advisers have questioned both the evidence behind the proposals and their practical consequences.
The newly formed SME & Boutique Law Firm Alliance has notably helped articulate the particular concerns facing smaller, boutique and owner-managed firms. Its open letter has now attracted 170 signatures from across the profession in a matter of weeks.
The working group is still actively pressing for further support from the profession ahead of their further engagement with The Law Society, The Solicitors Regulation Authority and the Legal Services Board over the coming weeks.
The questions behind Rule 8.4 remain
Pausing implementation does not make those questions disappear. One of the most controversial aspects of Rule 8.4 was that a firm could fall within its financial scope where annual turnover exceeded £600,000 even if it held no client money. Firms have reasonably questioned why turnover at that level should trigger a governance restriction of this nature.
Questions have also been raised about the £2 million client-money threshold and whether relatively blunt financial measures can adequately distinguish between the risks presented by very different firms.
The practical operation of the COLP and COFA roles matters too. In many smaller practices, compliance responsibility sits with an owner, managing partner or senior director precisely because that person has the experience, knowledge and authority to challenge decisions effectively.
Separating compliance responsibility from meaningful management authority does not automatically strengthen governance. Done badly, it could achieve the opposite: someone may satisfy the structural requirement on paper while lacking the experience, seniority or influence needed to challenge those making the decisions. That would not represent a stronger regulatory outcome.
The right problem – but the right solution?
The risks the SRA is seeking to address should not be dismissed. Recent regulatory failures have understandably increased scrutiny of governance, client money and the effectiveness of compliance oversight. There is a legitimate discussion to be had about checks and balances within firms, and about the circumstances in which too much decision-making or compliance responsibility is concentrated in one place.
But identifying a genuine regulatory risk does not mean every proposed response is proportionate.
The pause gives us an opportunity to move away from the binary question of whether Rule 8.4 should survive in its current form and towards a more useful one:
What safeguards will actually reduce the identified risk?
If particular management structures increase the likelihood of serious failures going undetected or unreported, the profession needs to understand the evidence. If particular categories of firms present demonstrably greater risk, regulation should be capable of reflecting those differences. And where firms already have governance arrangements that provide effective challenge and oversight, those arrangements deserve proper consideration rather than being displaced simply because they do not fit a prescribed structural model.
The next stage matters
The pause creates an opportunity for more detailed engagement; it does not bring the debate to an end.
Representatives of the SME & Boutique Law Firm Alliance are due to meet the SRA on Monday, followed later in the week by engagement with the Legal Services Board on Thursday and they have also been given 10 minutes to present their concerns at the Law Society’s AGM on 14th and 15th October.
Those discussions should focus on the evidence underpinning the proposed changes, the specific risks the regulator is seeking to mitigate and whether those objectives can be achieved in a more proportionate and workable way.
The profession has made its concerns heard. The next task is to use this breathing space constructively: to help shape a solution that strengthens governance without imposing unnecessary cost or weakening the very compliance arrangements it is intended to improve.
The SME & Boutique Law Firm Alliance’s open letter remains open for signatures at smeblaw.co.uk
