Armstrong: Taking stock
The Solicitors Regulation Authority (SRA) has bowed to pressure from the profession and announced a “pause” in its implementation of the new compliance officer rules.
It indicated that it would look to make “necessary changes” following consultation undertaken during this period.
We reported earlier today that the SME & Boutique Law Firm Alliance – set up to campaign on the issue – would have the chance to call for a vote of no confidence in the SRA board at next month’s Law Society annual general meeting, primarily stemming from the new rules.
The changes, which have already been approved by the Legal Services Board, 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 and the alliance was formed.
In a statement released this afternoon, Aileen Armstrong, the SRA’s executive director for policy and strategy, said: “We appreciate and understand the concerns that have been raised about this rule change, particularly by smaller firms.
“We know that the profession supports our ambition to prevent consumer harm. Our aim, in line with the direction set by the Legal Services Board, is to tackle the harms that could arise where there are no checks and balances on individuals taking decisions in firms.
“Strong firm governance is an important protection in preventing consumer harm. However, we are aware of the risk of unintended consequences, particularly for smaller firms.
“We are pausing to take stock. Over the coming weeks, we will actively consult with stakeholders on potential options we are developing with a view to making necessary changes to our approach and achieving the objective in a proportionate way.”
Though it has not put a timeline on this, if any changes require approval by the Legal Services Board, it is highly unlikely that the SRA would be able to start rolling out the new regime in January 2027 as planned.
Law Society president, Mark Evans said the decision “demonstrate the SRA’s willingness to listen and act when they have got it wrong. We are encouraged by this fresh level of maturity at the SRA under its new leadership.
“To ensure these measures benefit the profession, the SRA must make significant changes that reflect the concerns raised by members and by the Law Society in February.”
Jade Gani, one of the founders of the new alliance, said she welcomed the SRA’s decision.
“This is an important first step and we welcome the opportunity for meaningful engagement on a proportionate way forward.
“However, the proposed vote of no confidence concerns wider issues of regulatory governance and accountability than just the COLP/COFA proposals alone. We therefore have no plans to withdraw that call at this stage.”
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.
Earlier this month, the society detailed a “targeted risk” model as an alternative.
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