The SRA’s Unilaterally Loophole

Paul Crowther

Welcome back to Compliance Pods for Legal Professionals, and just a reminder that the content of this podcast is for general information purposes only and does not constitute legal advice. So Buckle up. Because Here. We. Go...... So, Andre I was talking to a managing partner yesterday, um, worrying about this COLP and COFA separation thing.

Andre Grayson 2

Right, yeah, because everyone saw the December consultation and thought, well, does that mean no senior manager can be a compliance officer anymore? Well, Aileen Armstrong published that SRA blog clarification on September fourth, 2026, and cleared up what is actually going on.

Paul Crowther

And the whole thing turns on one specific word, doesn't it?

Andre Grayson 2

It really does. The word unilaterally.

Paul Crowther

Unilaterally. Right. So, so if you are running a firm, it is not about whether you are a senior manager or an owner. It is whether you "alone" can make the big calls, like how the business is run or how client funds are managed.

Andre Grayson 2

Exactly. So under the new rule, the separation requirement only kicks in if an individual has the power under the firm constitution or usual practice to unilaterally make those significant management decisions. And remember, this is for firms hitting the risk thresholds, like having a turnover over six hundred thousand pounds, or holding more than two million pounds in client money.

Paul Crowther

Which, which brings us to the ultimate high street workaround, doesn't it? Because at Legal Compliance Support Ltd, we are already seeing partners asking us about this. They look at those thresholds and go, hang on, if I just amend our partnership deed so that two of us have to sign off on major decisions, I am no longer acting unilaterally.

Andre Grayson 2

Which creates a complete regulatory paradox, doesn't it? On paper, you add a requirement for joint sign off on board decisions, and poof, you satisfy the SRA rule. But in reality, within a small firm, does that "actually" change who holds the real power or shifts the risk culture day to day?

Paul Crowther

Um, well, in my experience, probably not! It becomes a pure paperwork exercise. Partners draft an amendment to their governance structure, send it over, and carry on exactly as they were before.

Andre Grayson 2

And that is the core tension here. The regulator wants checks and balances so one person cannot run the business and cover up compliance breaches at the same time. But by adding that word unilaterally, they have basically handed firms a roadmap to bypass the full split just by tweaking their governance notes.

Paul Crowther

Yeah, it is, it is.

Andre Grayson 2

Though, to be fair the SRA did listen on some practical points for smaller firms. Take conveyancing, for instance. A small firm might normally hold well under two million pounds in client funds, but then suddenly they handle a couple of massive commercial properties or high value estates in one month, and boom, they spike over the two million mark.

Paul Crowther

Right, and if that happened, under a strict rule, they would suddenly be forced to restructure their whole compliance team mid year. But they brought in that rule exemption, right?

Andre Grayson 2

Yes. If a firm triggers that two million pound client money threshold only in a single year because of an unusual, exceptional transaction, they can rely on the rule exemption.

Paul Crowther

Which makes practical sense, I suppose. But, er, looking at the timeline, the SRA says they are co producing implementation guidance and case studies with The Law Society and local law societies this autumn 2026, with the actual rules phased in starting early 2027.

Andre Grayson 2

It gives time, sure, but here is what really worries me as a compliance expert. If a firm decides to deal with this by reassigning the COFA role to a practice manager or a mid level employee who is not an owner, are we really creating genuine oversight? Or are we just shifting regulatory liability onto a salaried staff member who does not actually have the authority to stand up to the equity partners?

Paul Crowther

Oh, hit the nail on the head there. I mean, think back to big systemic failures like Axiom Ince. The problem was not that nobody knew what the rules were; it was that no one in a compliance role had the clout or independence to stop what was happening at the top. If a COFA spots something fishy with client accounts, but their boss holds their pay cheque, that is an impossible position.

Andre Grayson 2

Precisely. A formal title does not give you real clout unless the firm culture supports it. And when SRA audits start rolling out post 2027, are inspectors going to look at these joint decision making deeds and say, yes, fine, this works, or are they going to push harder?

Paul Crowther

Well, that is the million pound question, isn't it? If the SRA decides that paper governance changes are not enough during an audit, a lot of firms are going to face a tough choice.

Andre Grayson 2

Yeah, it really could drive another wave of high street consolidation. Small practices simply might not want the operational headache.

Paul Crowther

No, absolutely not. Well, autumn guidance will be the real test. Good chatting as always, Andre, let us see what the SRA delivers in a few months!

Andre Grayson 2

Talk soon, Paul.

Paul Crowther

So, from all at Legal Compliance Support:, stay compliant, Stay safe and we’ll catch you next time!