Law firms set to be caught up in proposals to separate compliance officer roles say nothing has changed to assuage their concerns about the potential burden and cost.
The Solicitors Regulation Authority last week sought to clarify its rule change which will prevent owner-managers with unilateral control from also acting as compliance officers. That appeared in the Legal Services Board’s approval of the rule change – albeit at the SRA’s request.
The SRA may have removed some ambiguity with its clarification, which states that managers and board members can take on COLP and COFA roles, but practitioners say this does little to resolve their concerns.
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Jade Gani, chief executive of boutique firm Circe Law Ltd who has helped to lead the protest at the change, said: ‘For the owner-managed and smaller firms at the heart of our campaign, the problem remains. Where an owner-manager does have unilateral authority over significant management decisions, and the firm exceeds the £600,000 turnover threshold, the restriction continues to bite.
'Explaining that a firm with genuinely shared management may fall outside the restriction does not provide relief to those firms,' she said. ‘Nor, as far as we can see, does the clarification address the wider questions we have raised around the evidential basis for the £600,000 threshold, proportionality, recruitment and outsourcing capacity, equality and diversity, access to justice, or whether the proposed structural separation actually addresses the regulatory failures which gave rise to these reforms.’
Gani said a growing coalition of affected firms and compliance professionals is coming together to express opposition to the change. The objectors are firmly supportive of effective regulation and strong consumer protection - but say that measures need to be evidence-based, proportionate and directed at the risks they are intended to address.
The Gazette has been contacted by several small firms in the lpst week who fear they will struggle to meet the SRA’s expectation that compliance officers must be separate from firm owners.
Under the new approach, separation will apply to firms with a turnover of more than £600,000, or to firms that hold more than £2 million in client money.
One sole practitioner said she was concerned that the change could place additional restrictions, costs and administrative burdens on firms that are otherwise well run and operating within reasonable levels of risk.
‘The proposed £2 million client-money threshold could still have a significant impact on small firms carrying out conveyancing and private client work,’ she added. ‘The amount of money passing through a client account can be very high in these areas, particularly given the increase in property prices, but that does not mean that the firm itself is a large or high-risk business.’
Kate Burt, solicitor and founder of legal risk and compliance consultancy HiveRisk, said the consequences could be significant and many firms are unaware of the changes due to take effect in January.
‘The issue is not simply whether firms support stronger consumer protection,” she said. ‘The issue is whether this particular mechanism is proportionate or effective to the risk and workable in practice. For some smaller firms, changing who can act as COLP or COFA is not a minor governance adjustment. It could mean recruiting another senior person or fundamentally changing how the firm is managed.’
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