COLP & COFA: Compliance in Practice

Many Compliance officers for legal practice (COLPs) and compliance officers for finance and administration (COFAs), having agreed to take on these roles, will now be trying to understand the exact nature of their obligations and to integrate their roles as effectively as possible within their firms. The role requirements, and the obligations which go with them, are set out only in high level terms in the Solicitors Regulation Authority (SRA) SRA Authorisation Rules 2011 and there is little official SRA guidance to help the role holders prepare. They carry significant personal responsibility and they have no real precedent in the legal profession. COLPs and COFAs must be approved by the SRA as suitable by 31 October 2012 and after that they must be fully effective in their roles. This report aims to de-mystify the roles and to offer practical support to help COLPs and COFAs identify and meet the SRA's requirements and use their position to bring benefits to their firms. It also looks at who might be suitable for these roles and the experience and knowledge they are likely to need. The COLP and COFA roles are set against the backdrop of unprecedented change in the legal services market and the way these services are regulated. The SRA now regulates not just traditional law firms but also alternative business structures (ABSs) with non-lawyer managers and owners. To prepare for this change and to meet the consumer focused objectives of the Legal Services Act 2007 (LSA), the SRA has made radical changes to the way it regulates and what it expects of firms. First and foremost the SRA has introduced the concept of 'outcomes focused regulation' (OFR). From the firm's perspective, this means looking more clearly at the Outcomes that are achieved for each client and at an effective management regime which supports the provision of client services. From the SRA's perspective, this has meant becoming more of a risk based regulator where the emphasis is on identifying how well firms are managed and, as a result, the level of risk they pose to their clients, the public and the profession. The SRA views the COLP and COFA roles as pivotal to introducing OFR in firms, driving up standards and reducing risks to compliance. The role holders are also their firm's primary link with the SRA in an era in which much more openness is expected between regulator and regulated. In many firms, the COLP and COFA may need to bring about a major culture change to make managers and staff more alert to their regulatory obligations and to possible risks to compliance. Other key issues, such as how the new roles fit into the firm's management structure, will need careful thought. This report takes a comprehensive look at all aspects of these roles. It starts with the legal and statutory provisions which define them, who can undertake the roles and what the Rules require of them. It then drills down in more detail into the fundamental requirement to take all "reasonable steps" to ensure compliance and what this means in practical terms. It analyses what might comprise a compliance plan and how risks to compliance could be identified and dealt with. Because firms are now going to have to identify, record and report all non-compliance, the report looks at ways this might be done and, importantly, at what might constitute "material non-compliance" which needs to be reported to the SRA immediately. It also looks in some detail at the way the SRA has positioned itself as a proportionate, risk based regulator and, accordingly, what firms can expect as to the way they will be regulated. This will include looking at the SRA's approach to risk and how it proposes to deal with firms it identifies as representing an unacceptable risk. Knowing how to achieve a low risk rating and avoid falling into the SRA's new supervision regime for firms will one of the main tasks of the COLP and COFA. Because the COLP and COFA will have different areas of responsibility for regulatory compliance, the report breaks down these roles into the separate areas and looks at the detail of what is required for each in terms of systems and procedures. In relation to the COFA role, the Accounts Rules are examined in some detail. For the COLP role, the Code of Conduct is the main focus of attention and, in particular, how the Outcomes should be viewed in terms of compliance. Finally, the report looks at the personal position of the COLP and COFA. It examines the extent of their responsibility as against that of the other partners or directors, how their role fits within the firm and at possible sources of help. Key features of the report include: The attributes of a COLP and COFA; The responsibilities of the COLP and COFA; How these roles might fit into the management structure; What a compliance plan should contain; What taking all "reasonable steps" to ensure compliance means; Reporting non-compliance and what "material" non-compliance might include; The relationship between the SRA and the COLP and COFA; and The SRA's new approach to risk and its supervision regime. Case studies and commentaries are also included covering: The similarities to the MLRO role; The nuts and bolts of compliance; and The reporting accountant's perspective.

Table of Contents:
Part One: Taking on the new compliance officer roles Chapter 1: The requirement to have a COLP and COFA... The background to the roles... Who may undertake these roles?... What do the roles entail?... Chapter 2: Appointing your COLP and COFA... Who is likely to be suitable?... The COLP and COFA must be "designated" as such and "consent"... Getting the COLP and COFA approved... Do the COLP and COFA need job descriptions?... Objective setting... Chapter 3: Working with your regulator... Regulatory objectives - and a changed approach to regulation... How the SRA will identify risk... Information collection to assess risk... How the information will be used... What will the SRA expect of firms and their COLPs and COFAs?... What can the SRA do to the COLP and COFA when things do go wrong?... Chapter 4: Risk and how this might be managed... Taking all "reasonable steps" to ensure compliance... Identifying, monitoring and managing risks to compliance - What might the SRA expect?... Developing risk management tools - Suggestions for a risk register... How do you demonstrate that you have "effective systems and controls in place"?... The role of the department heads/managers in compliance... The role of quality assurance schemes in supporting compliance... COLP and COFA - The nuts and bolts of ensuring compliance... Part Two: The COLP's guide Chapter 5: An introduction to the COLP's responsibilities... The extent of the COLP's responsibilities contrasted with the role of the firm's managers... Help! Where do we start with systems and controls?... Chapter 6: The SRA Code of Conduct 2011 - Issues for the COLP... Introduction... Suggestions for systems and controls... Chapter 7: Achieving Outcomes - How should this be monitored? ... Is your control appropriate?... Are the systems being used?... Training - Horses for courses... The importance of file reviews to monitor compliance... Other tools to monitor compliance... Chapter 8: Identifying, recording and reporting non-compliance... Background... How will the COLP know what they need to know?... Record-keeping... Identifying material breaches - Where to start... The role of the management team in dealing with non-compliance... Common breaches... Part Three: The COFA's guide Chapter 9: An introduction to the COFA's responsibilities... Base position - What skill sets are needed?... Chapter 10: The importance of an in-depth knowledge of the SRA Accounts Rules 2011... Introduction... What's in the SRA Accounts Rules 2011?... What's new?... Chapter 11: Implementing suitable systems and procedures... General notes in Appendix 3... Receipt of client money... Payments from client account... The overall control of client accounts... Chapter 12: Outcomes focused flexibility in the SRA Accounts Rules 2011... What should be in the firm's interest policy?... File and ledger reviews... Chapter 13: Identifying, recording and reporting non-compliance with the Accounts Rules... Common breaches of the SRA Accounts Rules... Areas of concern... Recording non-compliance and assessing material breaches... What is a material breach?... What would you do? Worked examples... Chapter 14: The COFA's wider relationships and responsibilities... Working with others... The role of the reporting accountant and your accountant's report... The reporting accountant's perspective on the role of the COFA... The bigger picture - The financial health of the firm and individuals within it... Final thoughts on the role of the COFA... Part Four: Personal perspectives Chapter 15: Personal considerations for the COLP and COFA... A path finding role... The relationship of the COLP and COFA with the partners/management team... Can lessons be learned from the money laundering reporting officer role?... Learning from the MLRO experience ... Who carries the can when things go wrong?... Insurance and indemnity... What sanctions can the SRA exercise against COLPs and COFAs?... Index...

About the Author :
Bronwen Still is a solicitor (now non-practising) who worked in high-street practice doing mainly crime, matrimonial and conveyancing work before joining the Law Society in 1980. She worked in many capacities for the Law Society (and subsequently the SRA), initially handling complaints, dealing with interventions and prosecuting cases before the Solicitors Disciplinary Tribunal. In 1989 she was appointed head of the newly-formed Professional Ethics guidance team and was responsible for developing the work of that team - which provides confidential advice to the profession on all matters of professional conduct. In 1999 Bronwen was appointed head of the Professional Ethics policy team and, as such, led the team which drafted the Solicitors' Code of Conduct 2007. She is the author of several published articles on the Code of Conduct. Bronwen played a significant role in the early drafting of the new SRA Handbook and was one of the authors of the consultation and draft Rules which were published in May 2010, setting out the SRA's new outcomes focused regulatory approach. She also undertook many workshops on the new regulatory approach as part of the SRA's series of roadshows in 2010. Bronwen has also worked internationally - in Moscow, Lebanon, Jordan, Egypt and, most recently, advising the Vietnamese Government and legal profession on the drafting of their first national ethical code. In September 2010 she set up Seven Hills Legal Training and Services Limited and is now working as an independent consultant advising firms on regulatory matters and lecturing on compliance issues. Tracey Calvert is a lawyer who has worked in the law since 1985.She initially worked in a niche shipping law practice in the City of London, specialising in non-contentious work, and was then employed by a local authority in Worcestershire before joining the Law Society in 1997. Tracey was recruited as an ethics adviser in the Professional Ethics guidance team and became a senior ethics adviser in 2003. Her responsibilities in this role included the training and quality assurance of this highly popular and successful team, which provided confidential guidance to members of the profession on all aspects of conduct. Tracey has also accepted secondments to the Law Society/SRA professional indemnity team and as a manager of the casework and operational policy team, dealing with admission, character and suitability issues. In 2009, she took up her final role within the SRA, joining the policy team. She was one member of a very small team which drafted the SRA Handbook and her particular responsibilities were in respect of the new SRA Code of Conduct and the Rules in the 'Specialist Services' section of the Handbook. Tracey's particular interests are conduct, equality and diversity development, financial services and anti-money laundering policy. During her time at the SRA, she has drafted many Rules, guidance and articles, and engaged in many stakeholder activities, both generally and in respect of the SRA Handbook.Tracey is the director of Oakalls Consultancy Limited which provides regulatory compliance services to individuals and entities regulated by the SRA. She lectures on professional conduct, financial services and anti-money laundering policies, and also provides compliance training and writes on compliance topics.