The Solicitors Regulation Authority has been told it will face calls for a vote of no confidence in its leadership if it continues to press forward with proposals to separate the roles of Compliance Officer for Legal Practice (COLP) and Compliance Officer for Finance and Administration (COFA) from those with “unilateral decision mkaing” responsibilities within law firms.
In an exclusive interview for this publication Jade Gani, Circe Law CEO and one of the founders of the SME & Boutique Law Firm Alliance, reiterated concerns raised in a recent open letter to the regulator sent by the Alliance, that the proposals would disproportionately impact the 1500+ small and boutique law firms it is estimated would be impacted.
The proposals as they stand would see law firms with an annual turnover of £600,000 or more, or firms which hold more than £2 million in client account be required to separate the role of CLP and COFA from individuals with “unilateral decision making” responsibilities within law firms. Explaining the impact on firms represented by the Alliance Gani explained the turnover was low enough for it be “easy” for a small firm to achieve; and for firms dealing with private client matters and conveyancing firms in particular, the £2 million client account threshold was low. She cited Court of Protection firms, responsible for funds held by third parties, could be caught up in the proposals by virtue of their managing over £2m of assets; and personal injury firms whose turnover could be dramatically impacted by their recovery of fees at the conclusion of extensive litigation.
In the interview, available on the Today’s Conveyancer Podcast, Gani is at pains to point out the group is not against greater regulation, scrutiny and protection of client funds to avoid scenarios like PM Law and Axiom Ince. It is the route the SRA have chosen to go down that is has caused the uproar. The thresholds are arbitrary contends Gani; with little to no evidence presented by the SRA in a recent meeting with the group to explain how they have been arrived at, a route which according to the independent review of PM Law and its failures, would not have materially impacted the outcome says Gani. What happens to firms whose turnover fluctuates around the thresholds? “One year they may be below the limit and the next year they may be over the limit? Does that mean that they have to hire and fire accordingly to that year?” asks Gani.
Alongside the Alliance, the Law Society have raised similar concerns around the disproportionate impact of the proposals on smaller law firms, many of whom will be unable to fulfil the requirements in-house, or who will choose appoint more junior members of the team to the COLP and COFA roles: “Then the implication there is if they’re more junior, if you are that way inclined, then what is to stop you applying pressure to more junior members of staff?” probes Gani, adding the demand for outsourcing would lead to shortages of experienced and capable individuals, an inevitable costs increases for talent, unaffordable for many SME & boutique law firms.
“If the SRA are serious about protecting client money, the fundamental fact remains they need better oversight over client money” says Gani. “Changing the COLP and COFA roles is not going to give them that… there isn’t enough evidence to suggest that the change in these roles will materially prevent situations like PM law and Axiom Ince. She adds the Alliance have put forward several alternative proposals to the SRA they feel would have a more proportionate and effective impact including mandatory submission of five-weekly client account reconciliations, greater use of automated monitoring and anomaly detection from those submissions. mandatory dual authorisation for client account transactions, enhanced reporting of unusual financial activity, compulsory training for COLP and COFA role holders, independent compliance reviews for higher-risk firms, and the adoption of a risk matrix incorporating turnover, regulatory history, staffing levels and transaction patterns to identify vulnerable firms.
Gani concludes the feeling amongst the Alliance is the regulator is yet again placing the onus on firms: “We firmly believe that it needs to be kind of a mutual task between us and whilst some firms do need to make changes and will have to participate in any changes to protect client money, we also feel that the SRA need to take ownership of its own failings and take accountability itself. And their argument may be that it’s not feasible because they don’t have the resources. But then the question shifts to, well, what resources do you have and how are they being deployed at the moment because it’s clearly not working as it currently stands.”
“I think it’s fair for us to expect our regulator to be held to the same standards, high standards that we ourselves are held to. I think that there has been a history of being scared to challenge our regulator when they impose things that appear to be disproportionate. But I think it’s really important that we do and we do stick our head above that parapet because otherwise it’s going to continue to happen. All I can see if we go down that road is that we’re not going to have smaller and high street firms anymore. That would be a travesty. A world without smaller and high street firms is a world where we have less access to justice, consumers have less choice, we have less diversity in the law.”
The Alliance is calling on the SRA to pause its implementation of the changes while it provides evidence of the efficacy of the proposals.
In its response to the open letter the SRA said: “We all agree on the need to better protect the public by strengthening the safeguards around client money. Understandably, given the complexities involved, there is real debate about the best way to do this.
“We are grateful to those that have signed the letter outlining their concerns. We are committed to continuing the conversation on this important issue and we will take the time to carefully consider the points raised with us before we respond further.”
Listen in the interview in full on the Today’s Conveyancer Podcast.
