L O C K T O N C O M P A N I E S , L L P

COLPs and COFAsThe Policeman’s Lot – Happy or Not?

WEIGHTMANS LLP

Michelle Garlick, Partner

Tel: 0161 233 7426

Email: michelle.garlick@weightmans.com

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Morning all!

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To be covered

The Authorisation Rules The COLP and COFA roles, the risks and rewards(?!) Case study

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Authorisation Rules

Rule 8 General Conditions include:

Compliance with regulatory arrangements Suitable arrangements to ensure compliance COLP and COFA Annual information report

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Approval of the COLP and COFA

Process for approval – see Part 4 Authorisation Rules. Includes: Evidence that the nominee is suitable Co-operation in providing documentation/information etc Declaration by candidate that information is correct and complete Prescribed form (but not yet been released!)

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Suitability Test

All relevant information to be disclosed

CRB disclosure

Behaviour not compatible with roleholder includes: Dishonesty/violence offences Financial problems including bankruptcy Disciplinary findings Disqualification as a company director/trustee of a charity

An anecdote from an ABS application.

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Withdrawal of approval

If criteria not met

Conditions not being complied with

Approved person has breached a duty/obligation imposed upon them

Temporary emergency approval for COLPs/COFAs

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Timescales for Appointment

Existing recognised body (including SPs) and not planning to convert to be an ABS – nomination for approval by 31 March 2012 and authorised from 31 October 2012.

LDPs with non-lawyer managers will become ABSs – need to be licensed by 31 October 2012. COLP/COFA will need to be designated for approval at point of application.

Will dates be put back? – yes!

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Who CAN take on the role?

Must be: manager or employee;

sufficient seniority and responsibility; lawyer of England and Wales (for COLP). No similar requirement

for COFA

“Manager” strictly defined

Individual must consent to the designation!

Same person can be COLP and COFA if have necessary experience

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Who SHOULD take on the role?

Key personnel in the firm Seniority to liaise both with management and staff Managing/Risk Partner/Finance Manager? Will an employee have sufficient seniority and authority? Do you have access to all management systems and business information? Are there clear reporting lines? Will you need a deputy?

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The Role of the COLP and COFA

Contact point with the SRA Ensuring compliance Information requirements Self-reporting of breaches

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Ensuring compliance

Take all reasonable steps to Ensure compliance with the terms and conditions of authorisation Ensure compliance with statutory obligations Record any failure so to comply and make such records available to the

SRA on request

COLP has responsibility for ensuring compliance with all the rules except the Accounts Rules which are the responsibility of the COFA.

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Relevant Principles for COLP/COFA

(its not just the Authorisation rules!) Principle 7

comply with your legal and regulatory obligations and deal with your regulators and ombudsmen in an open, timely and co-operative manner.

Principle 8 run your business or carry out your role in the business effectively and

in accordance with proper governance and sound financial and risk management principles

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Chapter 7 (Section 2 Code of Conduct – you and your Business)

Emphasises that everyone has a role to play in the efficient running of the business

Requirements include: clear and effective governance structure and reporting lines, Effective systems to deal with compliance with rules and law (including

anti-money laundering and data protection), Identify, monitor and manage risks to compliance…and take steps to

address issues identified (O7.3) systems for monitoring financial stability staff are trained to maintain an appropriate level of competence, Systems for supervision and checking of quality of work. Outsourcing

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Safekeeping of documents and assets entrusted to the firm

Controlling budgets, expenditure and cashflow

Identifying and monitoring financial, operational and business continuity risks including complaints, credit risks and exposure, claims under legislation relating to matters such as data protection, IT failures and abuses and damage to offices

Making arrangements for the continuation of your firm in the event of absences and emergencies e.g. holiday/sick leave, with the minimum interruption to clients’ business

Chapter 7 - Indicative Behaviours

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The Compliance Plan

See notes to Rule 8 Authorisation Rules

Depends on size and nature of your firm, work carried on and areas of risk

Will the office manual suffice?

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Cover: Clearly defined governance arrangements Appropriate accounting procedures System for ensuring only appropriate people authorise payments

from client account System for dealing with and monitoring undertakings Appropriate checks on new staff or contractors System for ensuring regulatory deadlines met System for monitoring and reviewing risks ensuring that issues of conduct are given appropriate weight in

decisions the firm takes, whether on client matters or firm-based issues such as funding

File reviews Staff development Obtaining necessary approvals of key personnel

The Compliance Plan

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Preparing a Compliance Plan and risk register

Preparing a Compliance Plan and risk register: Narrative/spreadsheet form? Draw up list of risks - brainstorm How will you manage those risks?

Terminate? - turn work away Treat? – systems and policies to deal Tolerate? – accept some risks will arise but within acceptable

threshold Gap analysis of systems/procedures and policies to ensure compliance

with Handbook/Code/SARs Beware of “unthinking compliance” See SRA website “OFR AT A GLANCE” for more guidance Continued monitoring

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Specific issues for COFAs

Ensure that they have access to all accounting records

Carry out regular checks on the accounting systems

Carry out file and ledger reviews

Ensure that the reporting accountant has prompt access to all the information needed to complete the accountant’s report

Take steps to ensure that breaches of the SRA Account Rules are remedied promptly, and report any breach to the SRA as required

Monitor, review and manage risks to compliance with the SRA account rules

© Law Society 2009

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Questions:

Do you regularly identify and prioritise the business and regulatory risks your firm faces?

Do you document the way that you monitor, manage and mitigate the business and regulatory risks which your firm faces?

Have you trained your staff (not just fee earners) on relevant Code of Conduct provisions?

Do you liaise with complaints partner to identify trends and learn from mistakes?

If no to any/all the above, you will need to!

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The information requirements

Information collection key to SRA’s development of an evidence based risk assessment of firms

Annual report in prescribed form (yet to be seen!)

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What information will be required?

SRA wants to assess firms’: Financial stability Regulatory compliance Service standards and client care

Similar to info required by insurers on renewal

Annual reports will be in addition to ad hoc reports of non-compliance

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Reporting Obligations

What do I have to report? “as soon as reasonably practicable, report to the SRA any failure to

comply provided that: In the case of non-material failures, these shall be taken to have

been reported as soon as reasonably practicable if they are reported to the SRA in the annual information report

A failure may be material either taken on its own or as part of a pattern of failures to comply”.

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What is “material”

See notes to rule 8 Detriment or risk to clients? Extent of any loss of confidence in the firm? Scale of the issue? Overall impact on the firm, its clients and third parties?

Record failures to comply to monitor overall compliance, assess effectiveness of systems and to be able to comply with duty to report breaches which are material because they form a pattern.

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HELP! I’M A COMPLIANCE OFFICER – GET ME OUT OF HERE! A Case study

You discover a fee earner is intercepting post to hide a problem on one of his files. You discover the problem before any real damage is done/no loss suffered.

Do you report to SRA or not?

What else will you do?

What if claim had in fact been struck out and client had not been told?

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HELP! I’M A COMPLIANCE OFFICER – GET ME OUT OF HERE! Case study 2

Your firm deals with a high volume of domestic conveyancing

transactions. Your COLP has been in post for six months and

has been standardising procedures. She immediately

developed a policy on acting for seller and buyer which has

been agreed. One partner has persistently failed to implement

it in his team or to conduct agreed file reviews. A complaint

has now been received from a buyer client that the firm also

acted for the seller/developer and that completion was

pushed through despite the buyer’s concerns about work not

being completed to the required specifications.

What should the COLP do? Is this a material breach and reportable?

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OFR Approach

Conduct a full investigation into why the firm acted for seller and buyer in this situation.

Is this an isolated incident? Is it material? Is it reportable immediately or as part of the annual compliance report? What about the partner? How would you deal with him/her? What about the client?

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Case Study on Reporting - COFA

You are the COFA

Employee, not a manager

You discover unable to pay firm’s invoices because exceeded its overdraft.

Further investigation reveals overdraft facility has been extended on a number of occasions but bank is refusing to extend it further.

You speak to Managing Partner because of concern that firm is in financial difficulties – told it’s a temporary cash-flow problem and there is no need to report it to the SRA.

What do you do?

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OFR approach to problem (see SRA’s“At a Glance”):

COFA has specific reporting responsibilities Issues to consider:

How prolonged is the issue? How severe is the problem? Are client’s interests at risk? Is there a risk to client money? Can you say you are being open with the SRA if you keep this

information to yourself? Is the firm trying to prevent you from reporting, or is this a difference of

opinion that can be resolved?

Question - Is it the COFA’s responsibility?!

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Be transparent with SRA –report and explain how rectified No firm is perfect! Experiences so far of self reporting?

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How do I report?!

See SRA website – Enforcement section http://www.sra.org.uk/solicitors/enforcement/solicitor-report/other-solicitor-results.page Report form Email Phone

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Chapter 10 - You and Your Regulator

Requires;

Co-operation with regulators and Legal Ombudsman.

Compliance with all reporting and notification requirements in the handbook, reporting to the SRA of “serious financial difficulty”, serious failure to comply with the Principles, outcomes, rules

Prompt reporting of serious misconduct by any person/firm/employee of firm

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Indicative Behaviours

IB (10.10) – Having a whistle blowing policy

Actively monitoring your achievement of the outcomes in order to improve standards and identify non-achievement

Active monitoring of financial stability and notifying SRA if becomes unviable

Notifying of serious issues as result of monitoring and producing a plan for remedying issues identified

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A Few Questions on Reporting

How will you monitor and record breaches? Have you set up a system /templates for doing so?

Do you have a whistleblowing policy? What training have you given/will you give to fee earners re whistleblowing?

How will disputes about whether a breach is reportable or not be resolved?

Will SRA check those firms who report nothing?

How will the reports be perceived by insurers? Will they want to see your list of breaches/annual information report?

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Risks?

Internal communications and relationships Personal v. firm responsibility?

Firm will not be absolved of responsibility – duty of firm to ensure suitable arrangements in place to ensure that COLP/COFA are able to discharge their duties in accordance with the rules

Case of David McGrath (FSA compliance officer)

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Disagreements?: Risk management issues/recommendations Reporting obligations

Document any disagreements between the firm and COLP/COFA?

Will you document your role and authority?

Will you want an indemnity/insurance cover?

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Cost of Compliance?

Increased management time

Lost fee earning time for COLP/COFA

Additional compliance staff/risk managers?

IT – new systems/procedures

Staff training on new Handbook/CPD

Increased compliance burden mergers/acquisitions/interventions?

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Rewards?!

Improved risk management

Improved client care

Avoidance of claims/complaints/investigations and disciplinary proceedings

Reputation of firm and individual

Opportunity to raise profile (and salary?!) and importance of your role?

Opportunity to force difficult partners to become compliant! may need Managing Partner (if not the COLP/COFA) to get involved

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The Policeman’s Lot

Happy or Not?!

Any Questions?

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Thank you (and Good Luck!)

Michelle Garlick

Partner

Weightmans LLP

Michelle.garlick@weightmans.com

0161 233 7426

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