When we first examined the SRA’s proposed COLP and COFA reforms, one feature of the drafting caused us particular concern.
The SRA had consulted on restricting owners and managers who could make significant decisions unilaterally. However, the draft rule submitted to the Legal Services Board (LSB) did not include the word “unilaterally”.
That omission potentially transformed a targeted restriction on concentrated power into something far more extensive. It appeared capable of catching ordinary partners, directors and senior compliance officers who participated in important decisions collectively.
The position has now changed.
The LSB approved the SRA’s consumer protection reforms on 31 July 2026. During the approval process, the SRA asked for “unilaterally” to be inserted into the rule. Although the LSB described this as a minor amendment, its practical effect is anything but minor.
For many firms, that single word may determine whether their existing COLP and COFA can stay in post.
The position at a glance
The approved rules mean:
- firms with more than one manager or owner must apply a test based on financial thresholds and unilateral decision-making authority;
- a partner, director or board member is not automatically prevented from acting as COLP or COFA;
- formal governance documents will not be conclusive because the SRA can consider the firm’s “usual practice”;
- sole owner-managers are subject to separate, more prescriptive rules;
- the changes are expected to be introduced in phases from 2027; and
- firms should assess their financial position, governance and actual decision-making practices before implementation.
It is also important to clear up a potentially misleading shorthand. The reforms do not require the COLP and COFA roles themselves to be held by different people. The same eligible person may continue to hold both roles.
The required separation is between the compliance functions and an owner or manager who exercises the level of control identified in the new rules.
What has been approved?
The changes form part of the SRA’s wider programme of client money reforms. The package also includes greater regulatory visibility of accountants’ reports, new annual declarations and fixed penalties for certain procedural failures.
This article concentrates on the restrictions affecting COLPs and COFAs.
The policy concern is understandable. If one person owns or controls a firm, makes its important decisions and is also responsible for monitoring and reporting regulatory failures arising from those decisions, the intended checks and balances may be ineffective.
The difficult question is how far the restriction should go.
The SRA’s December 2025 consultation repeatedly referred to the “unilateral decision maker”: someone who could determine or direct significant management decisions alone. It also indicated that simply sitting on a management board would not make someone ineligible.
However, the draft rule submitted to the LSB in May 2026 referred to an individual with authority “to determine or direct significant management decisions”. It omitted “unilaterally”.
Read literally, that could have captured a much wider group. Partners participating in collective votes, directors exercising defined delegated powers and COLPs sitting on management boards might all have been said to determine or direct significant decisions.
This also sat uneasily with the existing expectations placed on compliance officers. A COLP or COFA needs sufficient seniority, authority, access and influence to perform the role properly. Removing anyone with meaningful management involvement risked leaving firms with role holders who were technically eligible but practically powerless.
During the LSB’s assessment, the SRA asked for the missing word to be restored. The approved rule now refers to authority to:
“unilaterally determine or direct significant management decisions relating to the structure or running of the authorised body”.
That substantially narrows the restriction for firms with more than one manager or owner.
Which firms and role holders are affected?
The answer depends on the firm’s ownership and management structure.
| Firm structure and financial position | Effect of the approved rules |
|---|---|
| More than one manager or owner, with turnover above £600,000 or a maximum client money balance exceeding £2 million | A manager or owner cannot be COLP or COFA if they can unilaterally determine or direct significant management decisions |
| Sole owner-manager firm with turnover above £600,000 | The sole owner-manager cannot be COLP or COFA |
| Sole owner-manager firm with turnover no higher than £600,000 but client money exceeding £2 million | The sole owner-manager cannot be COFA but may remain COLP |
| Firm with turnover no higher than £600,000 that exceeded the client money threshold because of an exceptional transaction | The firm may be able to rely on the rule 8.7 exception, subject to its detailed conditions |
The financial assessment is based on the firm’s most recently completed accounting period. The turnover threshold is “more than” £600,000 and the client money threshold is a maximum statement or passbook balance “exceeding” £2 million.
Crossing a threshold does not automatically mean that a multi-owner or multi-manager firm must replace its compliance officers. It activates the unilateral authority test.
The SRA estimates that around 4,100 firms fall within the financial perimeter. Its data suggest that approximately 1,660 have an owner-manager who also holds one or both compliance roles. However, the regulator does not have sufficiently detailed information about their governance to know how many will ultimately need to change their arrangements. That begs the question: how can the regulator perform an impact assessment, if it doesn’t know who will be affected and in what ways?
What does “unilaterally” mean in practice?
Collective influence is not the same as unilateral authority.
A COLP or COFA will not necessarily become ineligible simply because they:
- are a partner or director;
- sit on the management board;
- vote on important matters;
- have delegated responsibilities; or
- are an influential voice within the firm.
The central question is whether that person has authority to determine or direct significant management decisions alone.
Consider a three-partner firm in which strategic and structural decisions require a majority vote. A partner who is also COLP may participate fully in those discussions without being able to dictate the outcome. On that basis, the restriction may not apply.
The analysis cannot stop with the partnership agreement, LLP agreement or articles of association. Rule 8.4 expressly refers to the firm’s constitution, governance arrangements and usual practice.
A firm may have impeccable collective decision-making provisions on paper but operate very differently. The founder’s view might habitually be treated as final. A managing partner might commit the firm to expenditure or appointments before the board is consulted. Other managers may formally possess voting rights but rarely challenge the dominant individual.
In those circumstances, what happens in practice may be more significant than the wording of the documents.
The reverse is also true. A persuasive founder or experienced managing partner may have considerable influence without possessing unilateral authority. Seniority, personality and influence should not automatically be treated as conclusive.
The SRA has promised guidance and case studies to help firms identify where the boundary lies. These will be important because the distinction will sometimes be marginal.
Small partnerships and owner-managed firms
The £600,000 turnover threshold will capture many firms that would still regard themselves as small businesses. Turnover is not profit, and a practice only slightly above the threshold may have no dedicated compliance department and no obvious replacement role holder.
The restoration of “unilaterally” is particularly helpful for these firms. Where important decisions genuinely require the agreement of two or more managers, an existing partner COLP or COFA may remain eligible.
Firms should nevertheless examine:
- reserved matters and voting arrangements;
- delegated authority;
- banking mandates;
- recruitment and dismissal powers;
- authority to commit significant expenditure;
- the operation of management committees; and
- the difference between recorded governance and everyday practice.
Changing the firm’s governance may be a legitimate response. The SRA has identified this as one possible means of compliance. A firm might, for example, reserve strategic, structural and substantial financial decisions to two managers or a functioning board.
The change must be genuine. Appointing a nominal second director while leaving the founder’s practical authority untouched is unlikely to create the intended check and balance.
There is also a broader question about whether formal separation will necessarily improve oversight. In many small firms, the owner-manager has the deepest knowledge of the finances, systems, clients and regulatory obligations. Replacing them with a junior or external compliance officer may create organisational distance without producing better scrutiny.
A dishonest owner could also manipulate or collude with a nominally independent role holder. Changing the organisational chart will not address the underlying risk unless the new compliance officer has sufficient knowledge, access, authority and practical independence.
Sole owner-manager firms
The rules are significantly more prescriptive for sole owner-managers.
If annual turnover was more than £600,000, the sole owner-manager cannot remain either COLP or COFA. The unilateral authority wording does not provide any flexibility.
Where turnover was no higher than £600,000 but the maximum client money balance exceeded £2 million, the sole owner-manager may remain COLP but cannot remain COFA.
A limited exception applies where the client money threshold was crossed because of an unusual transaction. Broadly, the exceedance must have arisen solely from transactions necessary to complete the work that were neither representative of nor anticipated as part of the firm’s usual or expected business.
The firm must also:
- have turnover no higher than £600,000;
- not have exceeded the client money threshold in either of the two preceding accounting periods;
- notify the SRA promptly; and
- retain a written record of its reasoning.
This may help a private client, Court of Protection or conveyancing practice that encounters a genuinely exceptional balance. It will not assist where holding more than £2 million has become a recurring feature of the business.
The SRA estimates that around 431 sole owner-manager firms may need to act. Their options may include recruiting or contracting with an eligible person, changing the management structure or reconsidering whether to continue holding client money.
These are not merely administrative changes. For some practices, the cost and difficulty of finding a suitable compliance officer may threaten the viability of the business.
Recruitment is also likely to be challenging. Firms already experience difficulty finding suitably qualified people willing to accept the responsibility attached to COLP and COFA appointments. Additional demand will place further pressure on a limited (non-existent?) pool.
What about larger firms?
Larger firms are more likely to have established boards, dedicated risk teams and several credible candidates for the compliance roles. Their difficulty may be identifying where unilateral authority sits within a more complicated governance structure.
A managing partner, chief executive or executive chair who is also an owner or manager and can decide significant matters alone will need careful assessment.
By contrast, a board member with one vote among several is not automatically excluded. An employee who is neither an owner nor a manager may also fall outside rule 8.4, although the existing eligibility and suitability requirements will continue to apply.
The aim should not be to move compliance away from the real decision-making table. COLPs and COFAs need early sight of proposals, reliable access to information, attendance at relevant meetings and a direct route for escalating concerns.
Group structures and alternative business structures may require a wider mapping exercise. Formal decision-making powers may sit with a parent company, investor committee or particular director, while practical control is exercised elsewhere.
Is the reform proportionate?
The proportionality of the new regime remains open to question.
The SRA does not know precisely how many firms will need to change their arrangements because it lacks detailed information about their governance. The LSB has recognised that additional costs could increase prices, place further stress on firms in financial difficulty and severely affect access to justice on the high street.
The profession is therefore being asked to absorb potentially significant disruption before there is clear evidence that formal separation will reduce the underlying risk.
There is an obvious public interest in preventing the loss or misuse of client money. Recent law firm collapses have damaged clients, the profession and confidence in regulation. But it should not simply be assumed that preventing an owner from holding a compliance title will stop fraud, collusion or deliberate concealment.
Effective payment controls, timely financial information, meaningful independent review and a regulator capable of identifying and acting on warning signs may ultimately prove just as important.
When will the changes take effect?
The current expectation is that the Authorisation Rules changes will begin in January 2027. Firms appointing replacement compliance officers from that point are expected to satisfy the new eligibility requirements.
The SRA is considering a phased implementation over two years. During the first year, beginning in April 2027, mandatory changes are expected to focus on firms exceeding both the £600,000 turnover threshold and the £2 million client money threshold.
Smaller firms that cannot rely on an exception are expected to follow during the second year. The exception arrangements are therefore expected to take practical effect from January 2028.
These dates remain subject to further detail. The LSB has asked the SRA to clarify the implementation dates and transitional arrangements and communicate them to the profession in good time.
The SRA has also promised guidance and case studies covering:
- who will and will not be regarded as a unilateral decision maker;
- governance structures that satisfy the new rules;
- changes firms might make to their arrangements; and
- anomalous client money balances.
Firms should not assume that the absence of final guidance means there is nothing to do yet.
What should firms do now?
Every firm should begin with a threshold assessment. Firms falling outside both thresholds will not need to conduct the full rule 8.4 governance exercise, although they should monitor whether growth or client money patterns are likely to bring them within scope.
Firms within the financial perimeter should then:
- Map formal authority
Review the articles, partnership or LLP agreement, shareholders’ agreement, committee terms of reference, reserved matters, delegated authority schedules and banking mandates.
- Compare the documents with reality
Identify who can commit expenditure, change banking arrangements, recruit or dismiss senior people, approve acquisitions, alter strategy or override an operational control. Establish which decisions require agreement and which can be made or directed by one person.
This may require a brutally honest discussion among the management team.
- Assess the current COLP and COFA
Apply the wording of the approved rule. Do not substitute broader concepts such as influence, importance or seniority for the actual test of unilateral authority.
- Record the conclusion
Document the information considered, the people involved in the assessment and why the firm concluded that its current role holders remain eligible (or do not).
- Consider the available options
Where a change may be required, options could include genuinely reallocating management authority, appointing a different internal role holder, recruiting an appropriate external candidate or changing how the firm holds client money.
Any new compliance officer must be more than technically eligible. They need sufficient experience, access, resources and authority to perform the role properly.
How JBL Compliance can help
JBL Compliance can help firms assess the practical effect of the approved rules before implementation.
Our work can include:
- reviewing ownership and management structures;
- assessing current COLP and COFA eligibility;
- reviewing constitutional and governance documents;
- mapping how significant decisions are made in practice;
- documenting the firm’s conclusions;
- advising on practical governance changes; and
- supporting applications for replacement compliance officers where required.
One word has made rule 8.4 considerably more workable for multi-owner and multi-manager firms. It allows senior compliance officers to remain involved in collective management while targeting individuals who can decide significant matters alone.
It does not remove the challenge for sole owner-managers or firms in which a founder’s formal or unwritten power remains unchecked.
The sensible response is neither panic nor complacency. Firms should use the next couple of months to establish where power really sits, whether the COLP and COFA can challenge it and whether the governance described on paper reflects the way the business actually operates.
