Role restrictions

The difference between “determine or direct significant management decisions” and “unilaterally determine or direct significant management decisions” is only one word. For many law firms, however, that one word may mean the difference between having to replace their compliance officer for legal practice (COLP) or compliance officer for finance and administration (COFA) and retaining their existing arrangements.

Changes to the SRA Standards and Regulations

On 31 July 2026, the Legal Services Board (LSB) approved the latest package of consumer protection reforms from the Solicitors Regulation Authority (SRA). The wider package includes changes to accountants’ reports, annual declarations and fixed financial penalties. The most controversial element, however, is a new restriction in rule 8 of the SRA Authorisation of Firm Rules on who may act as a compliance officer.

That reforms were necessary is understandable. Where one person owns or controls a firm, makes its important decisions and acts as the person responsible for monitoring and reporting regulatory failure, the supposed checks and balances can become meaningless. The reforms were developed in the wake of high-profile failures, including Axiom Ince, and form part of the SRA’s response to directions issued by the LSB.

The final approved rule, however, is much more targeted than the version originally submitted for approval. This distinction deserves close attention.

Changed wording

The SRA’s December 2025 consultation repeatedly described its target as the “unilateral decision-maker”: an individual able to determine or direct significant management decisions alone. It also said that membership of a management board would not, by itself, prevent someone from acting as a COLP or COFA.

But although the narrative in the SRA’s May 2026 application to the LSB maintained this position, the draft rule attached to the application did not. The proposed rule 8.4(b) referred to an owner or manager with authority, under the firm’s constitution, governance arrangements or usual practice, “to determine or direct significant management decisions”. The word “unilaterally” was missing. This was either intentional or a serious drafting error.

Draft rule

Read literally, the wording in the draft rule was much broader than the policy described around it. Partners, directors and compliance officers sitting on a management board might all be said to determine or direct significant management decisions, even though most can’t do so alone. Indeed, we’ve long been told that authority and seniority are key requirements for compliance officers to be able to discharge their roles effectively. The wording in the draft rule 8.4(b) seemed to prevent this.

Commentary on the published draft, including our own, therefore treated the restriction as potentially much wider than the consultation suggested. We had grave concerns that, if read literally, the rule was either extraordinarily far-reaching or, at the very least, likely to sow confusion about eligibility and create unnecessary stress, work and governance headaches for firms that were never really the target of the reform.

Approved rule

During the LSB’s assessment, the SRA asked to amend the rule by expressly inserting “unilaterally”, which is now included in the approved rule. The LSB’s decision notice doesn’t explain how the omission arose, but says the late amendment ensures the provision reflects its aim of preserving independent compliance oversight. The SRA has since acknowledged that the original wording led people to believe no senior manager could act as a compliance officer, and confirmed that this was not its intention.

The approved rule therefore asks whether the individual has authority “to unilaterally determine or direct significant management decisions” relating to the structure or running of the firm.

Ironically, the LSB’s decision notice categorises this addition as “minor” when, in fact, it’s anything but.

What “unilaterally” changes

For firms with more than one manager or owner, there are now three elements to the new restriction:

• the firm exceeds one of the financial thresholds
• the compliance officer is a manager or owner, and
• this individual has unilateral authority to make or direct significant management decisions.

All three elements must be present for the eligibility restriction to come into play.

Collective influence is not the same as unilateral authority. A COLP or COFA will not necessarily be disqualified simply because they’re a partner, director, member of the management board or an influential voice in the room. They may participate fully in management and vote on important questions, provided they cannot determine or direct the result alone.

This resolves one of the main tensions in the draft rule. A rule that excludes everyone with meaningful influence risks producing technically eligible but practically powerless role holders.

The approved wording leaves room for a senior COLP or COFA to remain close to decision-making while ensuring that no one person is both the unchecked decision-maker and the compliance monitor.

Powers, influence and usual practice

Rule changes are rarely this simple, however. The SRA says significant management decisions include how a firm is structured and run, how it is governed or manages risk, and how it holds client funds. Rule 8.4 also looks beyond constitutional documents to governance arrangements and “usual practice”. A partnership agreement may require a majority vote, but the founder’s view may be treated as decisive. A board may formally approve expenditure, acquisitions or appointments, while one executive is habitually allowed to commit the firm before approval is sought. In those circumstances, reality is more relevant than the formal governance structure. One challenge is recognising and acknowledging long-standing but informal practices.

By contrast, influence should not be confused with unilateral authority. A persuasive managing partner, a respected founder or an experienced finance director may carry considerable weight without having the power to dictate the decision.

The SRA’s promised case studies will be important in marking the boundary, because these are marginal distinctions. Until they appear, firms should be cautious.

When does it apply?

For a firm with more than one manager or owner, rule 8.4 applies where, in the most recently completed accounting period, annual turnover was more than £600,000 or the maximum client money balance exceeded £2 million.

Crossing a threshold does not require a change of compliance officer, but it does trigger the need to apply the unilateral authority test. The SRA estimates that about 4,100 firms – around 45% of the regulated sector – fall within this financial parameter. Its data suggests that in approximately 1,660 firms the same person is an owner-manager and holds one or both compliance roles. The SRA accepts that it doesn’t have enough information about firms’ governance arrangements to know how many of these firms will have to change anything.

The proportionality of the reform therefore remains open to question, and its practical effect will vary markedly from firm to firm. The LSB recognises that additional costs could increase prices, place further stress on firms in financial difficulty and affect access to justice. The profession is being asked to absorb potentially significant disruption before there’s clear evidence that formal separation will reduce the underlying risk.

Small partnerships and owner-managed firms

The £600,000 turnover threshold is low enough to capture many firms that regard themselves as small businesses. Turnover is not profit, and a firm just above the threshold may not have a compliance department or an obvious alternative role holder.

For a traditional partnership or small limited liability partnership, the reinserted word is therefore especially important. If significant management decisions genuinely require agreement between two or more people, the existing partner COLP or COFA may remain eligible. The firm will still need to examine the overall governance arrangements, and it should also record its conclusions.

Changing governance may be a legitimate way to comply; the SRA has expressly identified this as an option. For example, a firm might reserve strategic, financial and structural decisions to two managers or to a board. However, appointing a nominal second director or partner, while leaving the founder’s practical authority untouched, is unlikely to provide the intended checks and balances.

It’s questionable whether formal separation will necessarily produce better oversight. In many small firms, the owner-manager has the most knowledge of its finances, systems and regulatory obligations. Indeed, if it’s their firm, it seems natural that they are ultimately accountable. Replacing them with a more junior or external compliance officer may create distance without creating genuine independence or better scrutiny. A dishonest owner could also manipulate or collude with a nominally separate role holder. Separation may therefore change the organisational chart without addressing the underlying risk unless the new compliance officer has sufficient knowledge, access, authority and practical independence.

Sole owner-manager firms

The approved rules contain two quite different reforms. Rule 8.4 introduces a fact-sensitive governance test for firms with more than one owner or manager. Rules 8.5 and 8.6 impose a much blunter financial threshold test on sole owner-managers. If the firm’s annual turnover is more than £600,000, the sole owner-manager can’t be its COLP or COFA. If turnover is no more than £600,000 but the firm exceeds the £2 million client money threshold, the sole owner-manager may remain as the COLP, but cannot be the COFA.

A limited exception applies where a smaller firm crosses the client money threshold because of an unusual transaction. In summary, the ‘exceedance’ must arise solely from transactions necessary to complete the work, which were neither representative of nor anticipated as part of the firm’s usual or expected business. The firm must not have exceeded the threshold in either of the previous two accounting periods, notify the SRA promptly and retain a written record of its reasoning.

This exception may be valuable to a small private client or conveyancing practice dealing with a genuinely exceptional estate or transaction. It’s not available where balances above £2 million have become a recurring feature of the business.

The SRA estimates that about 431 sole owner-manager firms may need to act. This could mean recruiting a suitable person, changing the management structure or reconsidering whether the firm should continue to hold client money. These are substantial operational decisions, some of which are likely to be existential for the business.

Even where a firm decides that it can make such changes, the practical reality of implementation remains questionable. Firms have often found it difficult to recruit experienced COLPS and COFAs externally: increased pressure on a niche candidate pool isn’t going to help.

Larger and more complex firms

Larger firms are more likely to have a choice of suitably experienced candidates, dedicated risk teams and established boards. But they may also have more complicated delegations of authority.

A managing partner, chief executive or executive chair who is also an owner or manager and can decide significant questions and take decisions alone is likely to require scrutiny. By contrast, an ordinary board member who has one vote among several is not automatically excluded. A head of risk or general counsel who is an employee rather than an owner or manager may also fall outside the restriction in rule 8.4, although the ordinary eligibility and suitability requirements continue to apply.

For larger firms, the danger is likely to be moving compliance too far from the real decision-making table. The new rule doesn’t require the COLP and COFA to be detached observers. A sound arrangement should allow them to see proposals early, attend the relevant meetings, obtain information without obstruction and escalate concerns directly.

Group structures and alternative business structures will need to map authority across corporate as well as operational arrangements. Formal powers may sit with a parent, investor committee or director, while day-to-day influence lies elsewhere. The reference to the firm’s constitution, governance arrangements and usual practice is wide enough to require an honest assessment of both.

Implementation

The SRA has confirmed that the rules will be phased in from early 2027, with smaller firms given longer to comply. Detailed dates and transitional arrangements are still awaited, but it is expected that firms replacing a compliance officer from January 2027 must satisfy the new eligibility requirements. Mandatory change will begin in April 2027 with firms exceeding both financial thresholds. Smaller firms unable to rely on an exemption are expected to follow in the second year.

The SRA says it will work with the Law Society and other stakeholders to co-produce and test guidance and case studies on the rule’s purpose, its application to different governance and ownership structures and the practical steps firms can take. These are due in autumn 2026, before implementation begins. The LSB had noted that the absence of draft guidance reduced clarity and certainty.

Capacity is also an issue: anybody who’s been through SRA authorisation processes in the past few years knows that unexplained delays are routine. A concentrated wave of changes could generate applications for new compliance officers and managers at the same time.

What to do now

Here’s our top five list of immediate tasks:

• Establish whether the firm will cross either of the financial thresholds.
• Map formal authority. Relevant documents include articles, partnership or limited liability partnership (LLP) agreements, shareholders’ agreements, board and committee terms of reference, reserved matters, delegated authority schedules and banking mandates.
• Compare the documents with actual practice. Who can commit expenditure, change banking arrangements, recruit senior people, alter business strategy, approve acquisitions or override an operational control? Which decisions require another person’s agreement and which can one person make alone? This might require a brutally honest conversation among the management team.
• Assess the present COLP and COFA against the exact rule. Avoid replacing the word “unilaterally” with looser concepts such as influence, importance or seniority. Collective wording on paper won’t settle the matter if the firm operates differently in reality.
• Compare the available options. For firms that need to change, these may include reallocating genuine decision-making authority, appointing a different internal role holder, using a suitably embedded external provider where the eligibility requirements can be met or changing the way client money is held. Each option has implications for governance, cost, recruitment and regulatory approval.

Every firm should take these steps to ensure they’re complying with the new rules. An external reviewer may be best placed to assess governance and eligibility issues.

Conclusion

One simple word has made rule 8.4 considerably more workable for multi-owner and multi-manager firms. It focuses the restriction on genuine concentration of authority while allowing compliance officers to retain the seniority and access they need. It does not, however, remove the challenge for sole owner-managers or for firms in which a founder’s ‘unwritten’ power remains unchecked.