SRA: Real debate
A group of conveyancers has thrown its weight behind calls for the Solicitors Regulation Authority (SRA) to set out the evidence justifying its changes to the COLP/COFA rules.
The Conveyancing Task Force is sending its own letter to the SRA, Law Society and Legal Services Board, along similar lines to that being sent today by the newly formed SME & Boutique Law Firm Alliance.
The Alliance’s open letters to the SRA and Law Society have attracted more than 100 signatures from solicitors and others, and the SRA has issued an emollient response.
An SRA spokesman said: “We all agree on the need to better protect the public by strengthening the safeguards around client money. Understandably, given the complexities involved, there is real debate about the best way to do this.
“We are grateful to those that have signed the letter outlining their concerns. We are committed to continuing the conversation on this important issue and we will take the time to carefully consider the points raised with us before we respond further.”
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.
The Conveyancing Task Force is a group of conveyancers formed last year by the Property Lawyers Alliance to respond to the government’s home-buying reforms.
It said in its letter that, while supporting effective regulation to protect client money, the SRA has not answered three “fundamental” questions.
First, it asked about the effectiveness of the existing COLP/COFA framework. In the major collapses of recent years, “were problems identified and reported by the COLP/COFA, or did they come to light through accountants, whistleblowers, clients, banks, closures, or SRA investigations?”
The task force said there needed to be evidence showing that separation of roles would have prevented these failures.
Second, it questioned whether the SRA has assessed if the requirements should reflect different business models and risk profiles, rather than “predominantly financial thresholds”.
Finally, the changes assume that the existing COLP/COFA model should remain, with only the eligibility of particular role-holders changing.
The task force said the forthcoming wider review of client money protections “should first ask whether reliance on named role-holders remains the most effective safeguard”.
It proposed “a more proportionate, risk-based alternative: independent financial scrutiny, timely regulatory information, and actual indicators of risk, with oversight tailored to the nature and complexity of each firm”.
Task force spokesman Stephen Larcombe said: “We are not advocating weaker regulation. We are asking whether the forthcoming review should consider the effectiveness of the regulatory model itself before firms are required to restructure within it.
“The profession deserves a standalone consultation on such a potentially damaging change.”
Jade Gani, one of the founders of the SME & Boutique Law Firm Alliance, made a similar point on the consultation, noting that in just four days it had gathered the signatures of more than four times the number of firms (22) that responded to the SRA consultation issued last December that included the changes.
“I think that comparison raises a very serious question about whether the profession was given a meaningful opportunity to understand and engage with the significance of these proposals before they were finalised,” she said.
“If a handful of LinkedIn posts can generate this level of engagement in less than four working days, what might the response have looked like if the proposed restrictions on owner-managers acting as COLP and COFA had been clearly and directly put before the firms likely to be affected?”
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