COLP and COFA separation approved as LSB clears the SRA’s client money rules

The Legal Services Board approved the SRA’s new COLP and COFA rules on 31 July 2026, and for firms above the thresholds the effect is that nobody who can determine or direct significant management decisions about how the business is run will be able to hold either compliance role. The same decision cleared rules requiring every firm that holds client money to file an annual accountants’ report, whether or not that report is qualified.

What did the LSB actually approve?

The application, submitted on 29 May 2026 under the heading of consumer protection, covered changes to the SRA Accounts Rules alongside changes to the rules governing who may be approved as a compliance officer, and the oversight regulator granted it in full on 31 July, comfortably inside the extended decision period that had been due to run to 26 August. Approval was never a formality. The Legal Services Act 2007 gives the LSB an initial 28 day window to consider an application from an approved regulator, extendable to 90 days by notice, and a refusal would have sent a package that had already absorbed two consultations and most of a year back to the SRA to think again.

What firms now face arrives in two separate places, one in the governance structure and one in the annual compliance calendar, and the two halves have different audiences inside a practice. The first is a question for whoever decides who sits where. The second lands on the finance team and the reporting accountant.

Which firms fall inside the thresholds?

Where a firm has more than one manager or owner, the restriction bites if annual turnover exceeds £600,000 or if the firm has held more than £2m in client money, and in any firm crossing either line an individual with authority over significant management decisions can no longer be the COLP or the COFA. That £2m figure is the concession the regulator made after consultation, having originally proposed a £500,000 client money threshold in December 2025, and lifting it cut the number of smaller firms in scope from 1,302 to 576 while still capturing around 99% of all client money held across the profession. Sole owner-manager firms operating beneath the thresholds keep a partial exemption, under which the owner can remain COLP but cannot be the COFA.

One shift in language between the consultation and the final position deserves attention from anyone assessing their own eligibility. The December proposal caught managers able to determine significant decisions “unilaterally”, whereas the SRA’s June statement describes the test as covering individuals who can make significant decisions about how the firm is run, with no qualifier about acting alone. Read the second formulation strictly and it reaches most equity partners and most board members in a firm of any size, which is precisely the reading that made the reform contentious.

Accountants’ reports return for every firm holding client money

Since 2014, firms have only had to send the SRA a report where the reporting accountant qualified it, and that relaxation now ends, as we reported when the regulator published its consultation outcome in June. Every firm holding client money will file an annual report regardless of whether it is qualified, alongside a mandatory declaration confirming the accounting period, the identity of the instructed reporting accountant and, where relevant, the basis on which the firm claims an exemption. Existing exemptions survive intact. Fixed financial penalties will apply to late submission and to non-submission, which converts a filing deadline into an enforcement trigger and hands the regulator an annual dataset across the whole client money population that it has not held for more than a decade.

The SRA’s own sampling supplied the argument for the change. Of 596 firms it surveyed, 25 non-exempt firms had obtained no accountant’s report at all for their last reporting period and a further 31 had filed late, a compliance picture the regulator described as significant non-compliance when it opened the consultation. Firms that want to work through the mechanics before the rules land can start from our accountants’ report checklist.

Why did the Law Society and sole practitioners object?

The Law Society argued throughout the consultation that separating the compliance roles is complex and impractical in smaller practices, on the reasoning that an owner-manager retains effective control of the business whoever formally holds the COFA title, so the reform imports cost without importing the independent challenge it was designed to create. It also warned that the burden falls disproportionately on small and medium firms, on legal aid and community practices, and on Black, Asian and minority ethnic solicitors, who are overrepresented in the small firm sector. The Sole Practitioners Group called the plans “unworkable and discriminatory”.

Law Society president Mark Evans welcomed the higher client money threshold while noting that it may still sit too low for some smaller firms, and he criticised the £600,000 turnover figure as one the SRA had arrived at without the risk-based analysis and modelling he considers essential. The objections did not move the LSB, which has spent the past year pressing the SRA on exactly the supervisory weaknesses that Axiom Ince, SSB Law and PM Law exposed, the last of those involving a suspected fraud that the regulator has put at around £39.5m of client funds.

When do the new rules start?

Early 2027 is the SRA’s own expectation, expressed in June as coming into force by early next year, and the regulator has published neither a commencement date nor the transitional arrangements that will tell existing role holders whether they are grandfathered or must be replaced. That silence is the practical problem for any firm sitting just above either threshold, because swapping a COLP or COFA is not an internal reshuffle: the nominated individual needs SRA approval before taking up the role, and a firm that works out in December that its managing partner is ineligible will be hunting for a candidate at the same moment as several hundred others. Two further pieces of the same programme are still moving: the notification requirements consultation that closed on 17 August, and the longer-term review of whether firms should hold client money at all. Both will shape what compliance officers are actually asked to do by the time the profession pays the practising certificate fee that funds this work.