Law firm compliance changes: What the new COLP and COFA rules mean for appointments

The Legal Services Board (LSB) has approved the Solicitors Regulation Authority’s (SRA) proposed changes to the rules governing Compliance Officers for Legal Practice (COLPs) and Compliance Officers for Finance and Administration (COFAs).  The changes, which are due to be phased in from January 2027, form part of the SRA’s wider response to concerns around governance, financial stability and risk management within regulated firms and are intended to strengthen the independence of compliance functions from those responsible for running law firms.

What are the restrictions?

Under the new rules, firms with more than one owner or manager and which exceed either an annual turnover threshold of £600,000 or a client money threshold of £2 million will need to consider carefully whether their existing COLP and COFA appointments remain compliant. In such firms, an individual who has authority to unilaterally determine or direct significant management decisions relating to the structure or operation of the practice will generally be unable to hold a compliance officer appointment.

The changes reflect the regulator’s view that compliance officers should be capable of providing effective oversight and challenge and should not be placed in a position where they are effectively overseeing their own decisions. The SRA has stated that the reforms are designed to reduce the risk of governance failures and improve the identification and escalation of potential issues at an earlier stage.

What do law firms need to consider?

Many firms will immediately recognise that this raises important questions about their current governance arrangements. Historically, it has been common for managing partners, senior equity partners, directors or other members of firm leadership to act as COLP or COFA. However, the new regime requires firms to look beyond job titles and consider where decision-making authority genuinely sits within the organisation.

Importantly, ownership status alone is not expected to be determinative. A partner, member or shareholder is not automatically prevented from acting as a compliance officer merely because of that status. The key issue will be whether that individual has the authority to determine or direct significant management decisions, whether through formal governance arrangements, delegated authorities or established practice.

What do law firms need to do now?

As a result, firms should begin reviewing their governance structures now. This should include consideration of partnership deeds, limited liability partnership (LLP) agreements, board and management committee terms of reference, delegated authority schedules and the practical reality of how decisions are made within the business. In some firms, the review may conclude that existing arrangements remain appropriate. In others, changes to compliance officer appointments, reporting structures or governance frameworks may be required.

Even where a firm concludes that its current COLP or COFA can continue in post, there may be value in formally documenting the rationale for that conclusion. Demonstrating that the firm has undertaken a thoughtful review of the new requirements, considered the relevant governance arrangements, and assessed the individual’s authority may assist in evidencing compliance should questions arise in the future.

Firms should also use this opportunity to consider succession planning for key compliance roles, ensuring that appropriate individuals are identified, trained and supported to assume COLP or COFA responsibilities in the future should circumstances change.

The LSB’s approval also means that firms should begin planning for implementation. The SRA has indicated that the changes will be introduced on a phased basis from January 2027, giving affected firms time to review their arrangements and make any necessary adjustments. Further guidance, including anticipated case studies, is expected before implementation and may help firms better understand how the new requirements will apply in practice. In the meantime, firms may wish to ensure they have gathered the relevant information and considered potential options so that they are well placed to respond promptly and confidently once the final position becomes clearer.

For many firms, the challenge will not simply be determining whether a particular individual can continue as COLP or COFA, but ensuring that governance documentation, decision-making structures and compliance procedures appropriately reflect the firm’s operating model. The distinction between collective decision-making and unilateral authority is likely to be particularly important and may require careful analysis.

Taking advice now can help ensure that any necessary actions are identified well before implementation, allowing firms to approach the new regime with confidence and clarity.

If you would like to discuss how the new rules may affect your firm, we would be pleased to help. We can assist with reviewing governance arrangements, assessing existing COLP and COFA appointments, analysing decision-making structures, documenting compliance assessments and advising on any changes that may be required.