Gani: We want smarter, evidence-based regulation
Small and medium-sized law firms opposed to rule changes on who can hold compliance officer rules have banded together to lobby both the Solicitors Regulation Authority (SRA) and Law Society.
So far 28 law and advisory firms have signed open letters to the two bodies, drafted by the new SME & Boutique Law Firm Alliance [1].
They call for a raft of changes to the new compliance officer regime approved by the Legal Services Board [2] last month.
The rules 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 board said the ‘unilateral’ qualifier was a “minor” amendment added by the SRA to clarify the position.
The firms told the Law Society that if the matter was “not ventilated properly” at next month’s annual general meeting, they will press for a special general meeting.
“We are aware that the Law Society has previously opposed the suggested changes and would welcome your further support on this important matter.”
The society argued against the changes in its response to the SRA’s consultation on the new regime in February this year. The Sole Practitioners Group is also opposed.
The SRA now estimates that around 1,660 firms (18% of all firms) and 431 sole owner-manager firms may need to take action to comply with the new rules,
In the open letter to the SRA, the firms say: “The consequences are not theoretical. Firms face recruitment and outsourcing costs they may struggle to absorb, while hundreds could be competing simultaneously for a limited pool of experienced COLPs and COFAs.
“Existing compliance professionals may find their roles displaced. For some firms, the result may be reduced growth, higher prices, consolidation or even questions about whether remaining in practice is commercially viable.
“That has consequences not only for firms, but for access to justice, competition and diversity within the profession, particularly where minority ethnic solicitors are disproportionately represented among sole practitioners and smaller firms.”
The letter requests the SRA, among other things, to postpone the January 2027 implementation of the new rules, reconsider the £600,000 turnover threshold and replace it with an “evidence-based risk assessment”, publish the evidence behind the restrictions, and introduce an exemption or waiver mechanism.
The list of signatories is headed by Jade Gani, chief executive of boutique firm Circe Law and chair of the Association of Lifetime Lawyers, who is one of the driving forces behind the new alliance.
Calling for others to sign the letters, she said: “Remember: We are not asking for weaker regulation. We are asking for smarter, evidence-based regulation.”
Another signatory, Alisha Butler, director of Phoenix Legal, wrote: “I have no issue with checks and balances. What I take issue with is letting someone take control of a business I built… and now I’m being asked to hand over access / control to the finances as well as decision making, of that business to someone else, even to someone who is not regulated!”
She added: “We need a Law Society that will stand up for those who have and continue to do this job as a vocation and not as way to get rich.
“We need a regulatory body that will take ownership of their own failings and stop pointing the finger at those who have done no wrong.”
Writing on the SRA website [3] last week, Aileen Armstrong, its executive director for strategy and policy, said that if an individual who could unilaterally control the firm’s decision-making and actions was also the COLP or COFA, it could “negate” the checks and balances that compliance officers provided.
But she stressed that it was not the intention to that for firms within scope, no senior manager could be a compliance officer.
“The rule will only apply 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.”
She added that the SRA would work with stakeholders to “co-produce and test new implementation support materials, including guidance and case studies”, which will be published in the autumn.