The Solicitors Regulation Authority is only adding to the confusion as it changes the rules on who can be compliance officers, its former head of legal has said. Stephen Nelson, now a legal director at City law firm Kingsley Napley, criticised the regulator’s approach to the new requirements.
Restrictions on Compliance Officers
The changes, approved by the Legal Services Board last month, prevent a manager with power to make ‘unilateral’ decisions from being the compliance officer for the legal practice (COLP) or compliance and finance officer (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 following consultation.
In sole owner-manager firms operating beneath these thresholds, the sole owner-manager can be the COLP but not the COFA. The regulation requires these senior leaders to separate their roles, but the language used in official guidance has drawn sharp criticism from legal professionals.
Nelson, who was the SRA’s head of legal until April 2025, criticised a blog about the changes written by executive director Aileen Armstrong for using the term ‘unilateral’ in four different ways. He noted that the blog refers to the ability of an individual to “unilaterally control,” “unilaterally determine,” “unilaterally direct” and “unilaterally make.”
Writing on LinkedIn, Nelson argued that each phrase carries distinct implications and will impact how the rule is implemented in practice. He suggested the lack of precision only increases uncertainty. For example, he asked if a senior leader holding veto power to stop a course of action amounts to them actually directing the underlying decision.
He questioned 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. Nelson asked if it does not follow that shared responsibility will always exist in any firm with more than one owner or manager.
The former regulator official also 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 that the reference to stakeholder feedback is welcome, but 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 regulator’s own guidance has left practitioners unsure how to interpret the new boundaries.
Firms demand clarity
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 group has published an open letter to the SRA calling for changes to be made, and another to the Law Society, urging a debate on the issue at next month’s annual general meeting.
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.” They also questioned the relationship between the proposed structural separation and actual client-money risk.
The Alliance supports effective regulation and strong protection of client money. That has never been in dispute. However, 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.
While the SRA pointed out to the Alliance that the changes were consulted on, the regulator received 62 responses in total—17 from individuals, 22 from firms and 23 from law societies and representative bodies. Jade Gani, who 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,” Gani said. “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. This broader scope meant many smaller firms were not aware the changes applied to them until the new rules were finalized.
Ms Gani, chief executive of Circe Law, said there is 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, she said it is not sufficient to say that everyone had an opportunity to respond merely because the consultation was publicly available.
The Alliance is now collating practical case studies demonstrating the effect of the proposals, which the SRA had asked for. The regulator has not yet clarified how it intends to handle firms that are unable to separate the roles due to the size of their management teams or the nature of their operations.