Law Society: AGM debate
The Law Society has put forward a “targeted risk” model as an alternative to the Solicitors Regulation Authority’s (SRA) changes to the rules around COLPs and COFAs.
It has also agreed to discuss solicitors’ concerns about the reforms at next month’s annual general meeting.
It said the SRA “has not demonstrated that separating COLP and COFA roles from individuals with unilateral decision-making power will meaningfully reduce consumer harm, client money losses or regulatory breaches”.
The move follows a call for a debate at the AGM by the newly formed SME & Boutique Law Firm Alliance [1], in a letter to president Mark Evans last week.
The changes, approved by the Legal Services Board [2] last month, prevent a manager with power to make ‘unilateral’ decisions from being the COLP or COFA of law firms with a turnover of more than £600,000 or which hold more than £2m in client money. The latter figure was increased four-fold due following consultation.
In sole owner-manager firms which operate beneath the thresholds, the sole owner-manager can be the COLP but not the COFA.
The impact of the changes largely passed the profession by when the SRA first consulted on them last December but a backlash has grown in recent weeks.
In its response to the consultation in February, the Law Society warned that the changes could lead to “additional regulatory expenses” which would be passed onto clients, and could have “unintended and disproportionate consequences” for small to medium-sized firms.
In a statement yesterday, the society said it supported the SRA’s objective of strengthening consumer protection and accepted that concentrating authority in one person “can create governance risks”.
But it questioned whether the changes were sufficiently evidence-based, proportionate and “demonstrably effective” in reducing risk to consumers.
The society pointed out that the Legal Services Board’s decision notice recorded that the SRA relied on “limited information” when developing these proposals.
Chancery Lane said it had met with the regulator and made four “asks”.
First, that it should pause implementation “until it has a clear evidence base that has been independently tested against proposed reforms”.
Second, the SRA should scrap the threshold-based model. The threshold “appears to be based on an existing authorisation threshold rather than evidence of risk”, and risked creating “arbitrary outcomes” – firms presenting the same level of risk on either side of the £600,000 turnover mark “could be treated very differently”.
It added that members considered the £2m threshold for client money also to be too low, even with the exemption for firms that exceed it as a result of “anomalous transactions” by their usual standards.
The SRA should consider a “targeted risk model” instead, combining the data it already collected to consider individual risks posed by firms.
The types of indicators that would provide “a far more nuanced picture of risk than turnover or client money thresholds” could include regulatory filings, client money and reconciliation data, firm characteristics and regulatory history.
Third, the Law Society urged the SRA to consider recruitment and implementation timeframes.
The SRA has proposed a phased implementation from January 2027 but needed to explain how it would work to give firms time to recruit and appoint compliance officers.
“Many current COLPs and COFAs are firm owners or senior managers, meaning firms are likely to face difficulties recruiting suitably qualified replacements, particularly in smaller firms and rural areas,” it said.
The SRA should also explain what support would be available where firms could not recruit suitable candidates within the required timeframe.
Finally, the society said the SRA should form a reference group to help it “properly assess the real-world impact of the proposals and identify better solutions”.
Jade Gani, chief executive of Circe Law and one of the founders of the new Alliance, wrote on LinkedIn that she was “incredibly pleased” to see Law Society listening to member voices and advocating for the smaller firms.
“We need to hold the SRA to the same high standards they hold us to,” she added.