By Gabriel Princewill-
A growing revolt among smaller law firms over proposed changes to compliance arrangements has escalated into a direct challenge to the Solicitors Regulation Authority,(SRA) with more than 70 firms backing a campaign calling for the regulator’s board to face a no-confidence motion.
The SME & Boutique Law Firm Alliance is due to submit a formal open letter to the SRA and the Law Society, demanding that planned restrictions on owner-managers acting as compliance officers for legal practice and compliance officers for finance and administration be paused and reconsidered.
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The campaign represents the latest development in an increasingly heated dispute over the SRA’s plans to require certain firms to separate the roles of their compliance officers from those of their managers or owners. The changes are due to take effect from January and have prompted concerns among smaller practices that they will struggle to recruit suitable individuals willing and able to take on the additional responsibilities.
The alliance says its concerns are not about weakening regulation or reducing protections for clients. Instead, it argues that the SRA must demonstrate that the proposed reforms are necessary, proportionate and supported by evidence showing that they will improve protection of client money.
The group is also seeking intervention from the Law Society Council at its annual general meeting next month. It wants the council to consider whether the SRA should delay implementation of the new rules until there has been a fuller assessment of their evidence base and likely practical consequences for smaller firms.
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More significantly, the alliance wants the Law Society Council to consider expressing no confidence in the SRA board, citing what it describes as serious regulatory and governance failures highlighted by independent reviews into the collapses of Axiom Ince and, more recently, PM Law.
The two firm failures have intensified scrutiny of the SRA’s approach to regulation, particularly because of the scale of client money involved. The alliance argues that the findings should prompt wider questions about regulatory oversight, accountability and whether the regulator is addressing the underlying causes of failures rather than simply introducing new structural requirements for law firms.
The campaign group says it wants two distinct questions put before the profession at the Law Society’s AGM: whether the COLP and COFA reforms should be paused and reconsidered, and whether the profession continues to have confidence in the SRA board.
The escalation follows a meeting between representatives of the alliance and the SRA earlier this week. However, the discussions appear to have done little to resolve the fundamental disagreement between the regulator and smaller practices.
At the heart of the dispute is the SRA’s decision to require the separation of management and compliance roles for firms meeting specified financial thresholds. Under the proposed arrangements, separation will apply to firms with turnover of more than £600,000, or to firms holding more than £2 million in client money.
The SRA has argued that strengthening safeguards around client money is necessary, particularly in light of recent law firm failures. However, opponents of the reforms question whether separating compliance responsibilities from ownership and management will necessarily prevent the types of failures that prompted the regulatory response.
The Conveyancing Task Force, which represents organisations across the conveyancing profession, has now joined the calls for implementation to be paused. It has asked the SRA to publish analysis showing what role COLPs and COFAs played in the law firm failures used to justify the reforms and, crucially, what evidence demonstrates that separating those roles would have prevented the failures.
The task force has also questioned whether a single regulatory approach is appropriate for firms operating at vastly different scales.
A sole practitioner or small high street firm, campaigners argue, can have a fundamentally different ownership, management and financial structure from a large multi-office alternative business structure handling substantial volumes of client money.
The task force therefore wants the SRA to consider whether regulatory requirements should take account of factors including firm size, ownership, management arrangements, client-money exposure and regulatory history rather than relying predominantly on financial thresholds.
The argument goes to the heart of the current controversy: whether a regulatory measure designed in response to major firm failures can be effectively applied across the diverse landscape of the legal profession.
Supporters of the reforms maintain that stronger safeguards are needed to protect clients and their money. Critics, however, fear that imposing additional structural requirements could create disproportionate difficulties for smaller practices without necessarily addressing the weaknesses that allowed major failures to occur.
The SRA has previously indicated that it would wait to receive the alliance’s formal letter before responding to its concerns. The regulator has also stressed that it has already considered responses to its consultation on the issue earlier this year.
The dispute presents an early and significant test for SRA chief executive Sarah Rapson, who has been in the role for less than a year. Rapson was not in post when the regulatory issues surrounding the Axiom Ince and PM Law collapses occurred and is not herself the subject of calls for resignation.
Nevertheless, the growing opposition presents a major challenge for her leadership, particularly because listening to concerns across the profession has been an important theme of her tenure.
The SRA has sought to strike a conciliatory tone in response to the latest escalation. A spokesperson said there was broad agreement on the need to strengthen safeguards around client money, while acknowledging that there was genuine debate about the best way to achieve that objective.
The regulator also thanked those who had signed the alliance’s letter and said it remained committed to continuing discussions.The SRA said it would take time to carefully consider the points raised before responding formally.
An SRA spokesperson said in a statement to The Eye Of Media.Com: ‘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.Â
‘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 spokesperson was later asked to specify how much time they would need to consider their response. They said: The letter will contain a lot of detail that needs to be considered fully and properly. Once it’s been considered then absolutely the SRA will have a view on what happens next and we will publish that”.
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