The SRA is right to pause a rule if it cannot show that it is properly targeted and proportionate. But a pause should be used to improve a safeguard, not to abandon the principle behind it.
That principle matters. Where one person can exercise significant control over a law firm and sign off its compliance, independent challenge is weakened. A compliance officer is there to challenge. It is difficult to challenge yourself.
For consumers, this is not an abstract governance question. Axiom Ince and PM Law both exposed the serious consequences that can follow when governance, internal challenge and regulatory oversight fail. The answer is not regulation at any cost. It is regulation that is evidence-based, proportionate and capable of protecting consumers in practice.
That is the test the SRA now needs to meet.
What was the rule trying to do?
On 1 October, the SRA paused new rules governing who can act as a firm’s Compliance Officer for Legal Practice (COLP) or Compliance Officer for Finance and Administration (COFA).
The rules were designed to prevent someone who can unilaterally make significant management decisions from also holding those compliance roles in firms above certain thresholds. They would apply to firms with turnover above £600,000 or holding more than £2 million in client money.
The rule is not limited to client money. It is intended to address a wider range of harms, including poor service, although the most serious concern is plainly the loss of client money.
The concern is straightforward: concentrating management power and responsibility for compliance in the same person reduces independent challenge.
The proposals formed part of the SRA’s response to lessons arising from recent firm failures. The Legal Services Board approved the rules in July and they were due to be introduced from January 2027. Stepping back after approval by the oversight regulator is therefore significant.
We supported the principle – while staying pragmatic on the detail
The Consumer Panel has consistently supported the principle of separating unchecked management power from compliance oversight. But our position on how that should be achieved has always been pragmatic.
We supported the overall proposal in February. When the SRA later increased the client-money threshold from £500,000 to £2 million, we did not object. That change significantly reduced the number of smaller firms caught by the rule while still covering the overwhelming majority of client money held.
At the same time, we questioned the £600,000 turnover threshold. Turnover is not necessarily a good proxy for consumer risk, and we asked the SRA to explain more clearly how the thresholds had been set. We also raised concerns about the impact on sole practitioners and asked for the thresholds to be reviewed after implementation.
So there is a reasonable case for taking another look. If the SRA cannot demonstrate why a £600,000-turnover firm presents sufficient risk to justify the same intervention as a firm holding substantial client money, it should revisit the rule. If smaller firms would face significant cost for little additional consumer benefit, that matters too.
A regulator should be willing to listen when evidence exposes weaknesses in its proposals.
But listening must not become retreat
The danger is that legitimate concerns about the design of the rule become an argument for abandoning its purpose.
Much of the recent opposition has understandably come from the firms that would bear the cost of complying. Those voices should be heard. But the consumers who bear the cost when governance fails must be heard too.
The question is not whether firms like the rule. Nor should the Consumer Panel simply argue for the toughest possible regulation. The question is whether there is a material consumer risk, and what proportionate safeguard is needed to address it.
There is plainly a risk where one individual can exercise significant control over a business while also being responsible for assuring its regulatory compliance. Separation of roles will never be a complete answer: determined wrongdoers can circumvent governance structures, and the SRA itself must improve how it uses intelligence, investigates financial risks and escalates concerns.
But an imperfect safeguard can still be worthwhile. That is why the answer should be to improve the rule rather than lose the principle.
There is also a wider process issue. These proposals went through consultation, were amended, scrutinised and then approved by the LSB. If material weaknesses remained, ideally they should have been resolved before approval.
That does not mean the SRA should press ahead with a flawed measure simply for the sake of consistency. But it does mean that a pause now needs a clear purpose and a clear end point.
What should happen next?
The SRA should use the pause to:
Set a timetable. Firms and consumers should know when the further work will be completed and when any revised rules will return to the LSB.
Publish the evidence. Explain more clearly the relationship between governance arrangements and consumer harm, and the evidence behind the thresholds.
Target the rule better. Reconsider the turnover limb, retain a meaningful client-money test and preserve genuine independent challenge where consumer risk is greatest.
Bring consumers into the debate. The next stage cannot be shaped predominantly by the organisations that will be regulated.
Work closely with the LSB. If revised arrangements materially alter the rules already approved, fresh approval will be needed.
The SRA also dropped its proposal for accountants to send reports directly to it because of practical concerns around liability and accountability. It has signalled that it will return to this idea. When it does, the same test should apply: is the safeguard workable, proportionate and likely to improve consumer protection?
A short pause to improve a rule can be sensible. An indefinite pause that allows the underlying consumer protection issue to drift would not be.
Listening is a strength in a regulator. Changing course without a plan is not. The SRA now has a chance to show which this is.
By Adhir Ramdarshan, Panel Member