Conflicts for COLPs and COFAs Peter Scott Consulting

Today’s session 1.Balancing the duties of COLPs and COFAs to their firms and to the SRA 2.Governance arrangements to try to reconcile these

Do your COLP and COFA know what is expected of them? “We will expect ……. the COLP to be completely on top of risk and compliance in your firm” Do they have an in-depth working knowledge of the SRA Handbook? How much time do they devote to the roles? Have they now put in place effective systems and controls to ensure compliance? How will they monitor your firm’s compliance? How will they demonstrate your firm’s compliance?

Potential conflicts? ‘Approved role – holders will act as “guardians” for managing risk within their individual businesses’ SRA Update – 12 December 2012 “guardians” for whom? Effective performance of COLP and COFA roles Vs Internal relationships

The ‘independent’ role of a COLP As well as evidence about the candidate, the Suitability Test takes into account evidence about the honesty and integrity of a person that the candidate is related to, affiliated with, or acts together with where the SRA has reason to believe that that person may have an influence over the way in which the candidate will exercise their role Guidance notes to Rule 15 Authorisation Rules A COLP must be and be seen to be independent and be able to act independently Understandable in an ABS – but in a traditional law firm?

‘Independent’ of Management? A COLP must be and must be seen to be independent and be able to act independently ‘I would caution against making your Senior or Managing Partner your COLP’ Samantha Barras – Executive director SRA, December 2011 But for small firms?

‘Independence’ of role -From Management (if not part of the management team); - and if part of the management team? - From partners, members or other owners of the firm

If not part of Management Will need to be provided with access to full information likely to impact on compliance and other risks Will need to be fully informed of all management decisions BEFORE implementation Will need adequate resource to fulfil the roles Otherwise will not be able to perform the roles effectively Minutes of all meetings – to demonstrate effective compliance

Areas of potential conflict? Between COLP / COFA roles and owners / employees failure to comply with procedures unwillingness to be managed

PETER SCOTT CONSULTING “That’s a great idea …for the rest of you!”

Failures to follow procedures frequently identified by file reviews File opening procedures Engagement letters Failure to carry out / evidence AML procedures Failure to carry out / evidence conflict searches Lack of costs information / scoping of work Lack of supervision records Accounts Rules breaches

Areas of potential conflict? Between COLP / COFA roles and Management Management should drive and live compliance, but …. Failure to provide adequate resource Management’s objectives Vs OFR - Examples? Reporting of breaches

Obligations to report breaches – in the case of a recognised body As soon as reasonably practicable, report to the SRA any material failure so to comply (a failure may be material either taken on its own or as part of a pattern of failures so to comply). Will COLPs / COFAs feel able to report a material failure to comply in the face of opposition from Management? Material?

Obligations to report breaches – in the case of a licensed body (e.g. an ABS) As soon as reasonably practicable, report to the SRA any failure so to comply, provided that: (A) in the case of non-material failures, these shall be taken to have been reported as soon as reasonably practicable if they are reported to the SRA together with such other information as the SRA may require in accordance with Rule 8.7(a); and (B) a failure may be material either taken on its own or as part of a pattern of failures so to comply.

Obligations to report where.... Failure of management to enforce compliance? (Management should lead by example and ‘live’ compliance’) Implementation of a Management decision will result in a breach?

Role of COLP / COFA should be pro - active Must ensure compliance is ‘lived’ on a daily basis - systemise monitoring - random file reviews - positive confirmation of compliance - supervision - needs to be driven by management - no blame culture / voluntary reporting - whistle-blowing policy

Review governance arrangements Embed roles of COLP and COFA Partners / members / owners to undertake to comply with all regulations Partners / members / owners to lend themselves to all necessary procedures to ensure compliance To fully support COLP and COFA as necessary

Governance continued COLP / COFA to have full access to all information Indemnities to be provided to COLP and COFA in relation to penalties, costs and expenses COLP and COFA to be entitled to take independent advice at firm’s expense and which the firm and owners agree to accept and implement Sanctions

Governance continued Provision for the resolution of disputes between COLP / COFA and Management / Owners Incorporation of a whistle – blowing policy Provisions to deal with resignation of a COLP / COFA Appointment of a ‘deputy COLP’

Any questions?