Small firms that met regulators yesterday to discuss their concerns over new compliance officer rules say they were not satisfied with what they heard.

Representatives of the SME & Boutique Law Firm Alliance held talks with the Solicitors Regulation Authority about the plans to stop managers from acting as compliance officers.

A key disagreement is over the SRA’s approach that separation will apply to firms with a turnover of more than £600,000, or those holding more than £2 million in client money. The regulator says that preventing someone with unilateral power in firms from taking COLP and COFA roles will help to reduce the risk of client money going missing as has happened with Axiom Ince and PM Law.

In a statement this afternoon, the alliance – which consists of almost 50 firms – said members left the meeting ‘disappointed and with more questions than answers’.

‘We did not receive satisfactory answers to fundamental questions concerning the evidential basis for the £600,000 turnover threshold, the relationship between the proposed structural separation and actual client-money risk, or the evidence demonstrating that these measures would have prevented or materially reduced the risk of failures such as PM Law.’

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The group said it was dismayed by aspects of how the discussion was conducted, with representatives needing to be able to ask difficult questions ‘without legitimate concerns being curtailed or characterised as a misunderstanding of the rules’.

The alliance said it supports effective regulation an strong protection of client money. ‘But significant regulatory intervention affecting hundreds of firms must be supported by clear evidence that it is necessary, proportionate and capable of addressing the harm it is intended to prevent,’ it added.

‘Today’s meeting did not provide us with that assurance and has caused concern about the level of transparency on the matter.’

The group will proceed with the formal submission of an open letter of opposition to the SRA, Law Society and other relevant bodies this Friday.

The Legal Services Board has already approved the rule change and the SRA has said it will start a phased transition from January. 

It is understood that the SRA will not respond to the letter in detail until it is received,  although it is committed to continuing to engage and committed in the meeting to respond to concerns raised in the letter.

The SRA has previously said that whilst it explored a number of thresholds, a client money balance of £2m was deemed the most appropriate because firms above this threshold account for 99% of client money held. The SRA estimates that by setting the turnover threshold at £600,000, around 4,100 firms (45% of firms in the sector) will be in scope of the compliance role eligibility criteria, although only a small proportion are likely to have to change their COLP and COFA arrangements.