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May 2012 - Suitability surely sorted - COLP/COFA/HOLP/HOFA

Suitability surely sorted...

Background

At the Compliance Officer for Legal Practice (COLP) and Compliance Officer for Finance and Administration (COFA) conference on 19 April 2012, Executive Director Samantha Barrass confirmed that further information would be available on 31 May 2012 and that firms will need to have made their nominations by 31 July 2012.

Although originally planned to be in place before 31 March 2012 for the 11,000 or so law firms in England and Wales, the SRA has had to push it back whilst the online renewal of practising certificates is completed.

In fact we now know that following the SRA Board meeting on 16 May 2012, the SRA have decided to push back the date for the scheme to go live to 1 January 2013. This is apparently to give the SRA more time to consider nominations.

The critical dates for businesses to diarise are Thursday 31 May when the SRA will contact every firm's authorised signatory by email with a link to the nomination form. Nominations can be made from this date to 31 July 2012.

Approval of nominations is expected by the SRA to be given between 1 August and 31 December 2012, with COLPs and COFAs required to fulfil their duties by 1 January 2013. So if your nominations are approved on  31 December 2012, time is of the essence.

The SRA make clear that the COLP and COFA should not be the "sacrificial lamb so that others within the firm, particularly the senior managers, can absolve themselves of their responsibilities".

COLP and COFA will need the approval of the SRA to be fit and proper persons, a process which includes the SRA Suitability Test. Or if you are a licensed business for the roles of your Head of Legal Practice (HOLP) and Head of Finance and Administration (HOFA). As part of that, the SRA will look not only at criminal offences, but also behaviour not compatible with that of an authorised role holder, assessment offences, financial behaviour and regulatory history.

The SRA Suitability Test looks at the honesty, integrity and professionalism to ensure the person does not pose a risk to the public and the profession.

Motor offences that do not result in a criminal conviction do not need to be disclosed by you to the SRA. However, if the SRA have evidence that you cannot manage your own finances "properly and carefully" you will be refused. 

You also risk refusal if the SRA have evidence reflecting on the honesty and integrity of a person you are related to where that person may influence your exercise of the role. Presumably this is more than a dominant spouse.

Whistle Blowers

Amongst other activities, the COLP must as soon as reasonably practicable, report to the SRA any failure to comply with the SRA obligations. This seems to be possible to do within the annual information report (or more frequently as specified by the SRA to you). As such, you are the whistle blower on your own business and will be bringing the breach to the attention of your regulator for them to deal with it.

Compliance Plan - How does yours look?

Some examples of areas it must cover include a system for ensuring that undertakings are given only when intended and that compliance with them is monitored and enforced. Undertakings are a key and yet discrete area of your professional indemnity cover in as  much as you have a professional obligation to discharge them, regardless of whether you have the funds to do so.

Your plan must also set out your system for monitoring, reviewing and managing your risks. You may see all of this as nothing more than a tangible quality manual, or a version of a service level agreement that you offer to all your clients. If so, then you probably have this documented elsewhere that you can lift and drop in to your compliance plan.

Assuming you were all prepared and ready for 31 March, the delay by the SRA to close off nominations will be a cause of frustration. You will however have identified your two individuals (sole practitioners accepted) in your firm and have checked with them that they agree to take on the roles of responsibility. You will have already set out for them what you as a firm will do to establish and support the roles.

Those rare firms run by benevolent dictators may find it hard to nominate colleagues to COLP and COFA roles with the associated responsibilities these include. It is assumed that the person will have the management time to properly perform the role away from the demands on many of billable minutes each day. If they risk being usurped by the dictator, however benevolent they may be, they are likely to:
  • be short-lived in their post before walking and
  • the firm will attract more interest from the regulator than you had planned when you nominate replacements.
COLP and COFA are just part of the fresh active approach to risk management (rather than reacting to problems that you discover). In your regular management and partner meetings you will have built in space for regular default agenda items enabling reports to be received from your COLP and COFA officers.

All this is driven by the real wish to enhance client care and experience in your business in the liberalised legal services market that some parts of the profession have wanted for many years. It is here to stay. COLP and COFA will in many law firms simply formalise what already happens with the likes of Compliance Managers and Finance Directors/Chief Executives, but for some it will be a new open way of having the relationship with the regulator as well as giving you confidence in your business.

Indeed Samantha Barrass on 19 April 2012 quoted from the Clementi Review of 2004 that, "complaints arise as much from poor business services as from poor legal advice. If certain lawyers continue to reject the notion that they are in business, such complaints will continue until they are indeed out of business". This quote outlines the thinking behind the introduction of COLPs and COFAs. It is perhaps remarkable that 8 years have passed by since that review occurred.

Insurance

With the additional responsibility the COLP and COFA assume in the respective roles, some have questioned whether additional insurance should be taken out to protect them against any potential personal exposure.

This question needs to be considered and there are various schools of thought depending on each insurer's interpretation of where the Minimum Terms and Conditions cover ends and where the COLP/COFA's personal liability as an officer of the firm begins.

At present there is no clear answer but the situation is being constantly monitored by our Professional Indemnity team so please feel free to call them for an overview of the latest position.

Next Steps

As with many changes happening to the profession currently, we will watch this space as to further news. It may be that in time there will be scenarios that emerge from the regulator as to the performance of the COLP and COFAs. Time will tell.

For further information on Professional Indemnity Insurance for Lawyers and the Wesleyan Active Risk Management Service:

Phone: 0800 107 8171

This article is a general guide and is not a substitute for professional advice. No responsibility can be taken for any loss incurred by anyone acting or failing to act on the basis of this article.

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