SRA “adding to confusion” around COLP/COFA changes

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Nelson: SRA should have sought feedback earlier

The Solicitors Regulation Authority (SRA) is only adding to the confusion as it changes the rules on who can be compliance officers, its former head of legal has said.

The comments from Stephen Nelson, now a legal director at City law firm Kingsley Napley, come as the newly formed SME & Boutique Law Firm Alliance said it left a meeting with the SRA about the issue “disappointed and with more questions than answers”.

The changes, approved by the Legal Services Board 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.

Mr Nelson, who was the SRA’s head of legal until April 2025, criticised a blog about the changes written by Aileen Armstrong, the SRA’s executive director for strategy and policy, for using the term ‘unilateral’ in four different ways.

It refers to the ability of an individual to “unilaterally control”, “unilaterally determine”, “unilaterally direct” and “unilaterally make”.

Writing on LinkedIn, Mr Nelson said: “Each carries distinct implications and will impact how the rule is implemented in practice. Far from providing clarity, this lack of precision only increases uncertainty.

“For example: If a senior leader holds veto power, meaning they can stop a course of action, does that amount to them actually directing the underlying decision?

“What level of shared responsibility is sufficient, given the reference to it in the article? Law firm owners and managers are jointly and severally liable for compliance with SRA requirements and cannot delegate that responsibility away.

“Does it not follow that shared responsibility will always exist in any firm with more than one owner or manager and if so, how far does that carve-out extend?”

Mr Nelson asked whether a COLP who was asked to determine the firm’s approach to client onboarding, and therefore how the firm managed that risk, was then disqualified from acting as the COLP.

He added: “The reference [in the blog] to stakeholder feedback is welcome. However, the SRA should have sought this input before finalising the rules.

“This may have helped avoid, or at the very least minimise, concern for firms where implementation may involve considerably more than a minor adjustment to governance structures.”

The Alliance has published an open letter to the SRA calling for changes to be made, and one to the Law Society, urging a debate on the issue at next month’s annual general meeting. They will be submitted tomorrow and at the time of writing had 64 signatures each.

Representatives from the group held a meeting with the SRA on Wednesday and said in a statement that they did not receive “satisfactory answers to fundamental questions concerning the evidential basis for the £600,000 turnover threshold, the relationship between the proposed structural separation and actual client-money risk, or the evidence demonstrating that these measures would have prevented or materially reduced the risk of failures such as PM Law”.

Unhappy with being told they misunderstood the rules, they went on: “The Alliance supports effective regulation and strong protection of client money. That has never been in dispute.

“But significant regulatory intervention affecting hundreds of firms must be supported by clear evidence that it is necessary, proportionate and capable of addressing the harm it is intended to prevent.

“The meeting did not provide us with that assurance and has caused concern about the level of transparency on the matter.”

The SRA pointed out to the Alliance that the changes were consulted on. It received 62 responses in total – 17 from individuals, 22 from firms and 23 from law societies and representative bodies.

Jade Gani, who has helped set up the Alliance, told Legal Futures that the lack of awareness of the changes was becoming increasingly evident.

“This is not a case of firms having seen the consultation but failing to appreciate its significance,” she told Legal Futures.

“They did not know that the SRA was proposing a change which could ultimately prevent their existing owner-manager from continuing to act as COLP and/or COFA.

“The COLP/COFA restrictions were consulted upon as part of the SRA’s wider work concerning client money, rather than through a standalone consultation specifically focused on what is, in reality, a potentially fundamental change to the governance arrangements of around 1,660 firms.”

Ms Gani, chief executive of Circe Law, said there was “an important distinction between making a consultation publicly available and meaningfully bringing a significant regulatory proposal to the attention of the firms it will directly affect”.

As a result, “we do not think it is sufficient to say that everyone had an opportunity to respond merely because the consultation was publicly available”.

She added that the SRA asked for “practical case studies” demonstrating the effect of the proposals, which the Alliance was now collating.