SRA set to relax rules on non-material breaches as nearly 1,000 firms face COLP/COFA action
SRA: 21 firms under close scrutiny for nomination failures
Requiring all 10,000 law firms to report non-material breaches to the Solicitors Regulation Authority (SRA) is “unsustainable and cannot be justified”, the regulator’s board will be told today.
However, this next step in the SRA’s Red Tape Challenge will not apply to alternative business structures (ABSs) because the requirement for them is enshrined in the Legal Services Act 2007.
The proposal is that COLPs and COFAs will not have to report non-material breaches as part of the SRA’s annual information-gathering exercise. They will still have to report material breaches as soon as reasonably practicable and to record all breaches for production on request to the SRA.
A paper going to today’s board meeting – along with a draft consultation paper – said that removing the obligation to report non-material breaches “strengthens the outcomes-focused approach of the SRA by allowing it to concentrate on material breaches”. It will also give firms responsibility for identifying patterns of non-material breaches that together may amount to material breaches because of systemic underlying issues, which may then collectively need to be reported to the SRA.
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“The continued recording by all firms of non-material breaches will allow firms to identify and manage their own risks, and help us identify patterns of non-material breaches, but recognised bodies and recognised sole practitioners will be free to do so in a way that suits the individual firm, rather than in any standard format imposed by the SRA for reporting purposes.”
While acknowledging that consistent regulation across ABSs and traditional firms is “very important”, the paper said that requiring the delivery of information on all breaches from over 10,000 firms, primarily because the Act imposes that requirement on a much lower number of ABSs, “is unsustainable and cannot be justified in the context of proportionate, risk-based and cost-effective regulation.”
The board will also be asked to approve consultation on a second bureaucratic reform that would mean a solicitor applying for a practising certificate (PC) would not have to declare an insolvency event if they ceased to be a member of that business more than three years before it happened.
The rules would also be clarified that previously declared historic events of any kind need not be declared again if, after the first time, the SRA decides not to impose any conditions on the PC. “Applicants tend to continue to declare the same historic event each year,” the board will be told.
Meanwhile, the board will be told that the number of firms and individuals being assessed for action over COLP and COFA nomination failures has risen to 928. In March the number was 600.
Some 21 cases are sufficiently serious for forensic investigations to be commissioned and in which closure of the firm may be necessary, while there are 85 continuing investigations into delay in nomination, many of which are expected to be concluded by a finding and warning. Another 300 firms delayed during the process of nomination or providing information, while 545 matters related to non-disclosure issues.
For the first time the diversity profile of the affected firms has been published. This shows that 36% were sole practitioners, and a further 13% firms with one owner. There are two of the largest firms in the land (81 partners or more) in the group. Nearly two-thirds (64%) were white majority and 20% black and minority ethnic (BME) majority, with the rest either no majority group or unknown.
Tags: ABS, Alternative business structures, COFA, COLP, compliance officer for finance and administration, compliance officer for legal practice, Legal Services Act, Solicitors Regulation Authority
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