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Law firms have had difficulties in nominating COLPs

Conflicts of interest and personal responsibility for reporting firm compliance breaches key concerns

1 August 2012

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By Manju Manglani, Editor (@ManjuManglani)

UK law firms have experienced challenges in nominating new compliance officers because of lack of clarity about what compliance means under the new outcomes-focused regulation (OFR) and the requirement for compliance officers to report firm breaches.

The deadline for law firms to send their nominations for compliance officers for legal practice (COLPs) and compliance officers for finance and administration (COFAs) to the Solicitors Regulation Authority (SRA) was yesterday.

COLPs and COFAs are responsible for ensuring their firms have systems and controls in place to enable them to comply with OFR.

The SRA says it has started considering law firms’ nominations for compliance officers. The regulator has until 31 December 2012 to process the applications. Approved COLPs and COFAs will then be required to take up their roles from 1 January 2013.

The SRA has stressed that while COLPs and COFAs are the formal focus points for compliance, they will not be seen as “sacrificial lambs”: responsibility for compliance rests with the firm and its managers.

However, compliance officers must ensure compliance and are responsible for recording and reporting failures in compliance. This comes with a new set of problems.

“A major issue for those taking on these roles is the reporting of compliance failures by their own firm to the SRA. The obligation to report apparent conduct breaches to our regulator is not new. However the personal obligation on the COLP is and may inhibit both those within the firm from approaching a COLP for guidance and the COLP’s response,” said Robert Bourns, senior partner at top-100 firm TLT.

“Many firms have questions about the OFR regime. Unsurprisingly, the bedding down of a new regulatory yardstick, uncertainty as to whether those who regulate can fully understand the nuances of practice and surveys suggesting that the majority of practitioners may be non-compliant together create doubt as to where best to find answers.” (See Is it career suicide to take on the COLP/COFA role?)

Added Chris Perrin, executive partner and general counsel at magic circle firm Clifford Chance: “Where firms have established a general counsel role (and they are increasingly common in large English firms, as they are in the US), the general counsel is the obvious person to be the COLP.

“But some firms have expressed the view that where the general counsel’s role is advisory and separate from the firm’s management, it is inappropriate for him/her to have personal responsibility for issues which can only ultimately be enforced through the firm’s management.

“Moreover, one way in which experience shows conflict management can go wrong is where a rainmaking partner seeks to take on a very significant new job and puts considerable pressure on the responsible person to agree that there is not a problem in the context of conflicts or confidential information. Whoever has the job of dealing with this sort of situation, and therefore responsibility for conflict decisions, has to have the internal authority to do so.

“At Clifford Chance, the general counsel role is very much part of the firm’s management function so this concern does not arise. However, some firms may feel that ultimate responsibility for conflict compliance does not sit easily with a partner who has a more advisory role and they may wish to reconfigure the role to satisfy the COLP requirements rather than have two separate roles.

“Whether the COLP in England is, however, the right person to have global responsibility for conflicts in an international firm is another issue; for a US-based firm, probably not.

“No firm (or, personally, COLP) is going to want to be in a position of having to record numerous breaches of conflict rules (even where they might have been resolved through discussions with clients). So it is more than ever in a firm’s interests to make sure it has established a process which is very reliable and which also has the support and respect of its partners.” (See Avoiding conflicts:  How to manage conflicts of interest)

Top-100 firm Lewis Silkin decided to manage the inherent risks by appointing a full-time compliance professional as the firm’s COLP.

“The gist of our thinking was that while a managing partner or CEO should spend a certain amount of time on risk and compliance in order to signal its importance to the wider firm, that commitment should not swamp other strategic elements of the role,” said managing partner Ian Jeffery.

“Moreover, some separation of powers is appropriate, as occasionally a managing partner should be challenging colleagues to work in ways which, while better from a commercial perspective, may lead to complex or subtle regulatory considerations on which an independent and specialist view would be helpful for a better overall result.

“We believe that a specialist lawyer dedicated to the role and with full access to our information systems will deliver a much greater contribution in the role to both internal and external stakeholders than a partner taking on the responsibilities as part of his or her wider caseload.” (See Our search for a COLP candidate led to some difficult questions)

The SRA launched the short online nomination form on 31 May, two months later than originally scheduled. The SRA said the delay was caused by practising certificate renewals starting later than intended.

Around ninety-three per cent of the 11,000 regulated firms and sole practitioners in England and Wales have completed or are in the final stages of completing the COLP and COFA nomination process.

During August, the SRA will be engaging with those few firms that have not yet nominated a COLP or COFA to resolve any difficulties they have had in meeting the deadline.

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