The Solicitors Regulation Authority has acted to ease the concerns of small firm owners about new rules governing the separation of compliance roles.
Dissent has been mounting from members of the profession since oversight regulator the Legal Services Board confirmed that it had approved rule changes requiring that different individuals within firms take on compliance officer roles.
The SRA acknowledges that people were not clear about what the rules would mean in practice. The original rule, published last December, seemed to suggest that, for firms within scope, no senior manager could be a compliance officer.
The wording has now been updated to make clear the rule will apply only to an individual who can unilaterally make significant management decisions - not to every senior manager or owner. Significant management decisions include important issues such as how the firm is structured and run, how it is governed or manages risk, or how it holds client funds.
Effectively, this means that owners or managers with sole control of the firm will not be able to appoint themselves as compliance officer - as has happened in some firms where client money has gone missing. But leeway is available for firms where management is spread.
Aileen Armstrong, SRA executive director for strategy and policy, said: ‘The rules do not necessarily mean firms need to recruit new staff or appoint external providers; what matters is whether they can maintain appropriate separation of responsibility and effective oversight. For example, if your firm already has a decision-making structure based on shared responsibility, then in many cases further change won’t be necessary. And if changes are necessary, firms can determine what works in their circumstances.’
The SRA sees compliance officer roles as an important safeguard for protecting client money and making sure breaches do not go undetected or unreported. The rule change is designed to reduce this risk by making sure responsibility for running the business and overseeing compliance does not sit with one person.
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. The client money threshold was increased in response to consultation feedback.
Sole owner-manager firms that trigger the client money threshold only need to separate out the COFA but not the COLP, while there is an exemption for firms that meet the client money threshold for an unusual reason during a year.
Guidance will be published this autumn. The SRA said it is working with the national and regional law societies as well as other interest groups to advise on practical steps that firms can take. The rule changes will be phased in during early 2027, with smaller firms allowed longer to comply.
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