So, who can become a coFa?

The SRA Authorisation Rules 2011 8.5 Compliance Officers

states that this role does not need to be filled by a lawyer but

that the person must be an employee or a manager of the firm

with suitable seniority to implement compliance and who has

consented to undertake the role. The role should ideally be

separate from the other compliance role of COLP but can be

held by the same person if necessary (sole practitioners and

small firms).

Firms need to appoint their COFA by 31st March 2012, who will

then need to be approved by the SRA as an “authorised role

holder” that is “fit and proper” to fulfil and hold this position

before the 31st October 2012 deadline. The SRA will carry out

a “suitability test” on the COFA applicant. The test is the same

for solicitors and non-legally qualified applicants for roles.

SRa Suitability Test

The Suitability Test looks at the following aspects of the

individual:

• criminal offences - Unless there are exceptional

circumstances, the SRA will refuse your application if you

have a been convicted by a court of a criminal offence or the

SRA may refuse if you have received a police warning or

caution

• Disclosure - Rule 14 of the Authorisation Rules allows the

SRA to seek other information relating to your application and

this would normally include:

• cRB disclosure.

• Behaviour - dishonesty, violent or discriminative behaviour.

• assessment offences - deliberate assessment offence which

amounts to plagiarism or cheating to gain an advantage for

yourself or others.

• Financial evidence - evidence that you cannot manage your

finances properly and carefully, deliberately avoided paying

debts or dishonesty in managing your finances. If you have

been declared bankrupt, entered into any individual voluntary

arrangements (IVA) or have had a County Court Judgement

issued against you, you will need to show evidence of

subsequent sound financial management and that creditors

were paid otherwise it will raise a presumption that you cannot

manage your finances properly and carefully. Generally you

have the opportunity to provide evidence that you were

affected by exceptional circumstances beyond your control

which you could not have reasonably foreseen.

• Regulation history - subject of a serious disciplinary,

breached requirements refused registration by any regulatory

body.

• Evidence - references from at least two independent

professional people, credit check information and any relevant

evidence for any disclosure made above such as actions you

have taken to satisfy any judgements.

Who can

versus

Who shouldBy Richard Hill, ILFM vice chair

LEGAL ABACUS March/April • 17

LA MARCH-APRILCFO. QXD:layout1 12/03/2012 09:37 Page 17

COFA

18 • March/April LEGAL ABACUS

• Rehabilitation - demonstrate that you have undergone

successful rehabilitation, where relevant. The individual

circumstances put forward will be weighed against the public

interest and to maintain the reputation of the profession.

However, the SRA will consider each application on its own

merits.

• additional considerations - the SRA may also refuse an

application if you have been removed and/or disqualified as a

company director, breached the Companies Act 2006 or the

honesty and integrity of a person you are related to, affiliated

with, or act together with where the SRA have reason to

believe that the person may have an influence over the way

in which you will exercise your authorised role as COFA.

There is no mention of qualifications or expertise required to

fulfil the role so it is upto the firms to ensure the suitable person

is appointed.

There is no need to undergo the suitability test every year but

there is a requirement to notify the SRA in the event of change

of COFA.

The application form to register as a COFA will be available on

the SRA website shortly but will not be available via MySRA. It

will available in the ‘Outcome-Focused Regulation’ section.

who ShoULD

As the role is broadly based on ensuring compliance with the

SRA Accounts Rules an understanding and in-depth knowledge

of these rules is essential and at first glance this will

understandably be the primary reason when appointing a

COFA. However, there are other aspects and skills to consider

when deciding who should be the COFA if the role is be fulfilled

effectively and appropriately. Please remember that whilst

duties can be delegated the overall responsibility lies with the

COFA.

A knowledge of SRA Account Rules is all well and good but the

COFA will be in charge of "procedural compliance" (systems

and procedures) and "behaviour compliance" (education and

changing behaviour) so does the COFA candidate have the

necessary experience and support to implement, influence and

monitor a compliance plan?

Procedure compliance

The compliance procedures must be built into the daily

operations of the firm. An understanding of the accounts and

practice management software will be key to achieving this.

The COFA should have administrative access to control and

oversee the relevant procedures. A good example of this would

be using audit trails, client account withdrawal restrictions and

alerts for overdrawn client ledgers.

Software packages have standard reports and functions to

highlight breaches but the COFA should still review these to

ensure they are adequate and identify any limitations within the

software and its reporting functionality. The COFA will then

need to know how to implement practical internal steps to

minimise the risk of a breach. As an example Rule 14 of the

SRA Accounts Rules states that all surplus client account funds

must be returned to the client without delay. There should be

the necessary balance reports in place to identify any surplus

funds but there will be a need for internal procedures to be

proactive rather than reactive. This will mean the fee earner

must instruct the return of funds as soon as they are deemed

surplus and there needs to be clear and easy channels for the

fee earner to do this. Good archiving procedures will assist with

this. At the same time any retention of funds (and the reason

for the retention) needs to be informed to the client. The

recording of this information on the ledgers/files will avoid any

repeative queries and duplication of work.

Being able to interpret reports, recognise warning signs (e.g.

unpreseneted cheques) and spot trends will be vital for the

COFA to take the appropriate action.

The COFA will need to have a firm grasp of the firms clients

and areas of practice so they are able highlight potential

breach risks and pitfalls for complying with the SRA Accounts

Rules relative to the work being carried out e.g. conveyancing

firms will be holding deposit monies so will need to have in

place an interest policy (new requirement under rules) and that

the method of calculation is fair and reasonable. Experience of

writing policies will also be an advantage and much needed

attribute to highlight the firms compliance.

It can also be suggested any potential investor, merger or

stakeholder in the firm will require compliance and risk

management report from both the COFA and COLP.

Behaviour compliance

The COFA must possess good communication and

interpersonal skills. They will need to encourage a positive

attitude and approach to compliance. They will need to be clear

and precise is conveying what is exactly required and who is

responsible for what. The COFA must demonstrate to staff and

fee earners how the SRA Accounts Rules effects their day to

day transactions and clients.

Ideally they should be partially involved in partner or board

meetings. They should also create clear lines of communication

direct to them (and senior management) for the finance team.

They will have to deal with resistance from lawyers who have

historically had difficulties accepting the authority of senior

non-lawyer staff. They will need to sell the commercial benefits

of compliance to gain top level buy-in to implement a top down

approach to compliance. Partners will need to realise that the

COFA is not a scapegoat and the weight rests on the shoulders

of the firm and partners as well.

The COFA must possess good decision making skills and

understand the running of the firm. There maybe a need to

bridge a gap in the finance function (training or employment) or

change of policy. Any decision will need to be cost effective and

practical. The COFA should ensure there are appropriate

systems for supporting the development and training for staff.

The COFA should be confident and assertive. They should be

satisfied to take on the responsibility and burden that comes

with the role.

The COFA will need a good working relationship with the COLP

with many areas such as file audit checks on new staff and

meeting regulatory deadlines e.g PII renewal, being relevant to

both positions. The COFA should maintain direct contact with

the firm’s accountants in making certain they have all the

LA MARCH-APRILCFO. QXD:layout1 12/03/2012 09:37 Page 18

LEGAL ABACUS March/April • 19

information needed to carry out their accounts rules audit and

accountants report.

Financial Difficulties

It has been specified that the COFA needs to be of suitable

seniority and that makes sense with the onerous duties.

However, this is also emphasised by the responsibility on the

COFA to report to the SRA when the practice is in serious

financial difficulties. This will mean the COFA will require

access to the firm’s finances and management information. A

sound financial background will be needed to understand

accounting policies and interpret management accounts.

It can also be assumed the COFA will be responsible or assist

with providing the firm’s banks with the relevant quarterly

management information for cash flow and working capital.

conflicts

The COFA should show solid judgement when measuring if a

breach is ‘material’ or not as not to make unnecessary reports

to the SRA.

The requirement for the COFA to whistle blow on any material

breaches of SRA Accounts Rules will trigger potential conflicts

that apply with any self-reporting regime. Would a COFA want

to highlight a failing of his performance and jeopardise his

position? Will the partners pressurise the COFA not to inform

the SRA? Will any reports to the SRA trigger an inspection

by the SRA? Will a report tarnish the future

prospects of fulfilling the COFA role?

We would suggest to up hold the integrity

of the profession and to deal with these

impractical and difficult situations, the

COFA role could be given to a

qualified professional who is

governed by a code of ethics and

conduct e.g ILFM, CIMA, AAT.

They will be governed by

principles of independence and

integrity that will guide their

behaviour and help them deal with

these problematic situations.

Size does matter

The SRA have stated systems and

controls should be proportionate to the

size of the firm. Small firms do not have to

invest heavily in complex systems when

simple procedures are still compliant. Again the

main hurdle for COFAs in smaller firms will be the

culture and attitude of the partners with many small firms

cynical view of regulation. There will be will meet resistance

from partners who believe compliance is secondary to fee

earning but the COFA will need to communicate the importance

and rewards in terms of improved risk management and client

care. It can be used as a tool to negotiate and force difficult

partners to become compliant. There is also a danger of

unsuitable partners being appointed as COFA to avoid any non-

lawyer or support staff having access to their private financial

information and obstructing the purpose of the role. The other

likelihood is that COFA will be an accounts manager, senior

cashier or practice manager who is given the support required

so they can discharge their duties.

There are a few difficulties presenting themselves for the larger

firms. The SRA's view seems to be the COFA should be

someone who is undertaking these compliance requirements

on a daily basis but the reality is that person may not be part of

the top level management. The obvious choice would be the

Financial Director having overall responsibility with a deputy

COFA and compliance team delegated the duties.

Larger firms have complex management structures and

multiple office locations with big finance teams. The task of

adhering to these rules for one person in a larger firms will

initially require good project management skills and in some

cases a dedicated compliance team.

outsourcing

With many firms seeking the holy grail of "efficiency" many

back office functions are now outsourced. If this is the case for

the cashiering the COFA will still be ultimately responsible and

the onus cannot be transferred to the outsourcing provider.

The COFA will need to make the provider aware of the

regulatory obligations (in particular the recording of breaches)

and make certain that outsourcing the cashiering will not

adversely affect compliance in particular the SRA's ability to

monitor. You should have contractual arrangements (including

confidentiality clauses) in place, consider audit checks and

review the provider's processes. There should be regular

communication between the COFA and the provider including

status reports, daily checks and bank reconciliation sign

off procedures.

Multi-Disciplinary Practices (MDP)

COFA’s that work in the new MDP

structure will need to be up to speed

with the new concept of “out-of-

scope” money which applies to

funds received in a MDP that

relate to non-SRA regulated work

(Rules 17 & 18 SAR 2011).

Although the funds are outside

the regulation it may be likely the

firm will receive mixed payments

(client money and out-of-scope

money) and these will need to be

dealt with properly.

There will be the duty to ring-fence

client money for SRA regulated

activities and have the accounting

systems in place to operationally achieve

this.

conclusion

The safeguarding of client assets and money is paramount to

achieving the outcomes of the new regulatory framework and

maintaining trust in legal service providers.

The COFA (HoFA) role was the brainchild of Sir David Clementi

and its inclusion in the Legal Services Act 2007 shows the

significance of this role.

Make sure your COFA is the right person to perform this role

and lead the firm into the new age of outcome focused

regulation.

LA MARCH-APRILCFO. QXD:layout1 12/03/2012 09:37 Page 19