COLPs and COFAs: Have you thought about your personal liability?
When the COLP and COFA regime was introduced in 2011, questions were raised about how much personal liability such individuals would bear.
The SRA at the time was quick to reassure the profession, stating that compliance officers would not be “sacrificial lambs”. Over the intervening years, it was popular to refer to compliance officers as the conduit between the firm and the SRA.
But are things fundamentally shifting?
Guest post: Your voice matters – help improve mental health in the legal sector
Be part of Life in the Law 2025
By Niamh Warnock and Trish McLellan of LawCare
The legal sector is known for its high-pressure environment, long hours, and demanding workloads, all of which can take a toll on mental health and wellbeing. In 2021, LawCare’s first Life in the Law survey provided groundbreaking insight into these issues. More than 1,700 legal professionals shared their experiences, exposing widespread burnout, stress, and stigma. While the findings prompted important conversations and called for meaningful change, significant issues remain. With Life in the Law 2025, we now have an opportunity to reassess where we are and uncover what still needs to be addressed.
Your voice adds strength to the findings. The research isn’t just about data. It’s about people in the legal sector; their experiences, challenges, and successes. Your insights – whether as an individual navigating the challenges of legal work or as part of an organisation striving to support colleagues – are vital.
Some might ask why further surveys are necessary, especially when the issues seem well known. The answer is simple: we need up to date data to measure progress and understand whether the sector is moving in the right direction. Your voice ensures that the current realities of working in law are heard and that the changes needed to better support mental health and wellbeing are based on lived experiences. By taking part, you’re contributing to improving working practices in the law for you, your peers and future generations of legal professionals.
Read more about this important survey
ICYMI: Trade sanctions are the next big compliance challenge for law firms
Law firms have hitherto focused on financial sanctions – checking whether a client or counterparty is a designated individual or entity. But trade sanctions, which restrict entire sectors and the movement of goods, services, and technology, have been largely overlooked in legal sector compliance. That is changing.
The SRA has issued new guidance that from October 2024, the Office of Trade Sanctions Implementation (OTSI) has new enforcement powers under the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024. This means that trade sanctions breaches can result in significant civil penalties on a strict liability basis, with fines reaching up to £1 million or 50% of the estimated breach value – whichever is higher.
Read more about trade sanctions
ICYMI: Over-burdensome compliance can push solicitors to the brink
A message pings in my inbox. A call back request. I make the call and spend the next half hour talking with a solicitor who is on the verge of tears – absolutely terrified of making a mistake and the SRA coming down on them “like a tonne of bricks”.
This is not a new conversation for us – working in the world of risk and compliance, we hear such things often. But this call was different – there was a fear in the voice, a quiver in the tone, tears being fought back and most definitely a lack of sleep being had.
The SRA is tasked with ensuring that the legal profession upholds its high standards of ethics, competence, and service. However, the ever-expanding compliance burden is undoubtedly increasing strain on solicitors across the country. So much so, many now feel helpless under the weight of rules, leaving some in the profession to wonder if the regulatory system has gone too far.
News and Guidance
- SRA | Updated guidance: Meeting our standards for good qualifying work experience – The SRA has issued updated guidance to help law firms provide high-quality Qualifying Work Experience (QWE) for aspiring solicitors. This guidance outlines the standards expected from firms to ensure that QWE placements are beneficial for both the individuals and the organisations involved. Some core aspects of “good” QWE include:
- Diverse and varied work: Providing opportunities for candidates to engage in a wide range of legal tasks, moving beyond repetitive administrative duties, to develop the competencies assessed in the SQE Stage 2.
- Regular performance reflection: Encouraging trainees to reflect on their performance through regular appraisals and one-on-one meetings, helping them identify strengths and areas for development.
- Professional and ethical development: Exposing candidates to ethical issues and standard procedures, such as conflict of interest checks and anti-money laundering protocols, to build their professionalism. It’s sometimes easy to take for granted why we have these processes in place.
- Effective supervision: Clearly defining supervisory roles to ensure supervisors can assess the quality of work, provide constructive feedback, and ensure candidates have access to a broad range of tasks.
- SRA | Statement: SRA Chief Executive to retire – Paul Philip, the Chief Executive of the SRA, has announced his retirement after nearly 12 years in the role. He will continue his duties until a successor is appointed later in 2025. Under his leadership, the SRA underwent significant transformations, including regulatory reforms, the introduction of Anti-Money Laundering measures, and the development of the Solicitors Qualifying Examination (SQE). SRA Chair Anna Bradley praised his contributions, noting the organisation’s evolution into a more efficient and effective regulator during his tenure.
- For an alternative viewpoint, see John Hyde’s no-holds-barred summary of Mr Philip’s 12 year reign (Paul Philip transformed the SRA, but will he leave it weaker?).
- SRA | News: Updates on cavity wall insulation claims investigations and the Post Office scandal
- The SRA has completed its investigation into SSB Group regarding mishandled cavity wall insulation claims, resulting in disciplinary notices to several individuals. Interim conditions have been imposed on four solicitors to protect the public. The SRA is also investigating Pure Legal Limited, with conclusions expected by summer 2025.
- Meanwhile, the SRA is conducting over 20 active investigations into solicitors and law firms involved in the Post Office Horizon IT scandal. The focus is on issues such as case management, prosecution conduct, expert witness duties, and disclosure obligations. While specific timelines are not confirmed, the SRA aims to initiate prosecution actions in some cases by summer 2025.
- Law Society | Consultation response: SRA consultation on client money in legal services – The Law Society has responded to the recent consultation on client money in legal services, expressing significant concerns over proposed changes. As a reminder, the SRA’s consultation (now closed) explores potential significant reforms, including:
- Holding client money: Proposals include setting prescriptive periods for returning client funds, options for handling interest earned on client accounts, restrictions on payments on account, and most controversially, moving away from traditional client accounts to third-party managed accounts (TPMAs).
- Compensation fund: Proposed changes involve adjusting the apportionment of contributions between individuals and firms, introducing differential contribution levels based on firm profiles, and reconsidering the current cap on connected claims.
The Law Society argues that client accounts are essential for the efficient delivery of legal services and serve as a critical consumer protection mechanism. Restricting or eliminating the ability of firms to hold client money could lead to increased costs, delays, and reduced access to justice for clients.
- See also: ‘Disruptive’ SRA doesn’t understand profession, say Joint V law societies – this Gazette article is a useful summary of some of the main objections to the SRA plans to scrap client accounts. There are also (unusually) some cogent arguments in the comments section about the workability of the plans.
- However, with battle lines being drawn, the Legal Services Consumer Panel’s consultation response says that the SRA should go even further in its exploration of the TPMA and other alternatives to solicitors holding client money. The LSCP urges the SRA to enhance oversight, transparency, and risk assessment in safeguarding client money, learning from past regulatory failures.
- NCA | NCA warning over money laundering linked to people smuggling – The NCA’s warning highlights the need to be extra vigilant about unknowingly enabling people smuggling networks and associated financial crime. The warning focuses on registered hawaladers, but it is relevant to law firms insofar as they may have hawalader clients, or clients who have used these informal financial brokers.
- The hawalader system is an informal value transfer network based on trust, often used for cross-border remittances without physical money movement. It operates through a network of brokers (hawaladars) who settle debts via mutual balancing rather than formal banking channels.
- Explainer: A person wishing to send money overseas provides cash to a hawaladar in one location. The hawaladar then contacts a counterpart in the recipient’s location, instructing them to pay the equivalent amount to the intended beneficiary.
- No physical transfer of money occurs between the intermediaries; instead, they settle debts through a system of mutual balancing over time. While this can be a legitimate means of transferring funds, particularly in regions with limited access to formal banking, it is also vulnerable to misuse. The lack of formal records and regulatory oversight makes it attractive for money laundering, terrorism financing, and other illicit activities. Regulators, including the NCA, are particularly concerned that such systems can facilitate financial flows linked to people smuggling, organised crime, and sanctions evasion.
- For lawyers and compliance professionals, recognising transactions that involve informal value transfer systems is critical. Solicitors should be vigilant about clients using hawala to move funds and ensure that appropriate due diligence measures are in place to verify the legitimacy of transactions.
Compliance corner – real life Q&As
Q: Do we need to address AI usage in our terms of business?
A: With AI becoming more common in the profession – helping with document review, legal research, and even client comms – some law firms are starting to update their terms and conditions to reflect its use.
While it might not be a strict requirement, it could be a good idea to do so for several reasons:
Transparency: Clients need to know how their data is being handled. If AI is part of your process, being upfront about it helps build trust that you have robust controls in place. There will also be considerations about how you price any AI-driven services.
Privacy and security: AI tools often process sensitive information. If your Privacy Notice is contained within (or sent with) your terms of business, you should clarify how this data is used and protected, ensuring compliance with data protection laws.
Liability and accuracy: AI can be an extremely useful tool, but it’s not perfect (yet). Firms would be expected to have a qualified human in the loop to check any AI-generated output for accuracy. It’s safest to think about AI like having a team of electronic paralegals. However, some firms are likely to move towards more automated and self-serve models. In those legal products, including a disclaimer about the system’s limitations will be essential to manage expectations and reduce liability risks. (It’s also important to consider your insurance obligations here.)
So if your firm does use AI, updating your terms and conditions to its use could protect both your firm and your clients.
Just remember – this should also be reflected in your AI policy. You can read more about what to include here. The bigger concern for most firms at the moment is this: How do we know who in our team is using AI and for what purpose?
This is not legal advice. If you have a question you would like us to answer in this section, feel free to send it to info@jonathonbray.com
Free CPD
Next session: Save the date (26 March 2025 @ 12:00pm)
Mark your calendar for our next free CPD session on 26 March 2025 at 12:00pm. More details to follow, but expect practical insights and expert guidance as always!
SRA and SDT disciplinary decisions
- Abels – AML fine of £14,416, or around 2% of turnover.
- Nexus Solicitors Limited – AML fine of £31,217, around 1.5% of turnover.
- Stringer Smith and Levett – AML fine of £4,596 for sole practice.
- Armstrong Teasdale (UK) Ltd – £120,000 fine for using the client account as a banking facility. The fine will not be paid because the firm is in administration.
- Katie Baxter – conveyancing executive removed from the profession for misappropriation of client money.
- Amanda Bell – head cashier barred for stealing from law firm employer (on at least 124 occasions).
- Dorata Newman – non-lawyer owner of an ABS barred for improper client to office transfers and failing to keep proper accounting records.
- Charlotte Treves – non-lawyer fee earner removed from the profession for misleading clients and third parties about correspondence, and time recording irregularities. This case is a useful training reminder to staff…
Training your team: Anti-money laundering
The SRA expects that all ‘relevant employees’ practicing within the scope of the Money Laundering Regulations (MLRs) must receive robust anti-money laundering (AML) training. Now is the time to ensure your firm is compliant. Failure to meet these obligations can result in significant fines and regulatory action.
Our comprehensive AML training is designed to equip your team with the knowledge and practical skills needed to identify, prevent, and report suspicious activities, safeguarding your firm from risk. Ensure your firm stays ahead of regulatory requirements and avoids potential pitfalls by enrolling your team today.
Formats available: Online | In person | On-demand
Don’t miss out—request a free quote today!
Safeguard Your Practice: Independent Anti-Money Laundering Audit
What we do – contact us for further information about our services
- Outsourced COLP and COFA support
- Compliance audits
- New firm and ABS applications
- Independent AML audits (Regulation 21)
- Training (online, remote, on demand)
- AML and GDPR workshops
- PII cost reduction
- Remote file reviews
- TPMAs
- Escrow accounts
- AML and sanctions searches
